ALSO READGraphite electrodes shares rally; Graphite India zooms 62% in three weeks Graphite India, HEG zooms over 100% in three months on growth prospects HEG hits new high on stellar Q2 performance; stock zooms 1127% in 2017 15 stocks that hit new highs in today's subdued market Mid, small-caps outrun Sensex in H1FY18
The upgrade reflects the consolidation in the graphite electrode industry with the merger of Showa Denko K.K. and SGL Carbon SE to create the world’s largest graphite electrode manufacturing company with a capacity of 225ktpa. Moreover, private equity group Brookfield Asset Management Inc acquired Graf-tech International Limited (160ktpa) in August 2015.
These transactions have led to 53% of the global ultra-high powered graphite electrode capacity being concentrated in the hands of three players. The overall capacity of the graphite electrode manufacturers declined to 718ktpa in 2017 (2014: 808ktpa), thus reducing the demand-supply gap. Also, capacity closures during 2010-2016 for almost all the players excluding Indian manufacturers aided towards restoring the demand-supply balance.
The agency expects HEG to have only short-term borrowings on its book by FYE18 with an average interest cost of 5.5%-6% as the company enjoys an interest subvention of 3% on the export packing credit till FY21.
The change in the industry structure, increased demand of graphite electrodes due to the closure of the induction/mini blast furnaces in China and recommencement of electric arc furnaces have resulted in a significant increase in prices of graphite electrode.
The benefit of the increased prices would largely be realised in 3QFY18 and 4QFY18 as capacities in those quarters would be contracted at higher prices. Ind-Ra expects this demand-supply situation to continue for at least one year and HEG to have a strong average realisation in both FY18 and FY19, resulting in strong cash flow from operations. CLICK HERE TO READ FULL REPORT.
At 12:21 AM; HEG was trading 4.5% higher at Rs 1,952 on the BSE, as compared to 0.41% decline in the S&P BSE Sensex.