Graphite electrode shares in focus; Graphite India, HEG gain up to 7%

Shares of graphite electrode companies HEG ( up 7 per cent at Rs 1,422) and Graphite India (up 6 per cent at Rs 518.95) moved higher by up to 7 per cent on the BSE in Wednesday’s intra-day trade in an otherwise volatile market as electrode prices have improved quarter-on-quarter (QoQ) in December & are expected to strengthen further.

In comparison, the S&P BSE Sensex was up 0.29 per cent at 58,313 points at 01:04 pm, after hitting an intra-day low of 57,780. In the past two trading days, these stocks have risen between 8 per cent and 10 per cent as against a 3.3 per cent rise in the benchmark index. However, HEG ( down 51 per cent) and Graphite India (down 41 per cent) have corrected over 40 per cent from their respective 52-week highs.

China abolished rebate of 13 per cent VAT on certain steel exports to reduce steel production and exports. The lower exports from China will lead to higher steel production in the electric arc furnaces (EAF) steel producing nations. The growth in EAF steel production globally is expected to drive demand for electrodes in the near term, Graphite India said in an investor presentation.

Withdrawal of custom duty in India on scrap imports should benefit EAF steel manufacturers. However, needle coke price and other input costs are witnessing a rising trend, the two companies said.

In Q3FY22, Graphite India registered net sales of Rs 880 crore, up by 76 per cent year-on-year (YoY) and 27 per cent QoQ basis. The sales growth was driven by both higher volumes and realizations.

The company delivered earnings before interest tax and depreciation and amortization (ebitda) of Rs 203 crore with ebitda margins of 23 per cent against 14 per cent in Q3FY21. The company’s net profit jumped nearly six-fold at Rs 132 crore as against Rs 23 crore in a year ago quarter.

On QoQ basis, net profit remained flat, while ebitda margins contracted 400 bps from 27 per cent in Q3FY21. The capacity utilization increased to 90 per cent as compared to 65 per cent in Q3FY21 and 81 per cent in the previous quarter (Q2FY22).

The recovery of graphite electrode demand globally has led to improvement in realizations and we remain cautiously optimistic on demand momentum trend, the company said. Graphite India will continue to focus on meeting the growing demand of electrodes, enhancing its operational efficiencies amidst the rising cost pressure and deliver profitable growth, it said.

While Graphite India manufactures a full range of graphite electrodes, it stays focused on the higher margin, large diameter, ultra-high power (UHP) electrodes. The announcement of increased government spending on Indian infrastructure and the revival of key sectors such as construction, mining, capital goods and automobiles could have a positive impact on steel production and electrodes demand, ICICI Securities said. It expects the stock to head higher towards Rs 618 levels.