Graphite India, HEG hit upper circuit of 5%

Shares of graphite electrodes manufacturers Graphite India (Rs 840) and HEG (Rs 3,311) are locked in the upper circuit of 5% on the BSE after a foreign brokerage firm initiated an outperform rating on both these stocks.

Macquarie initiated coverage on Graphite India with an outperform call, target at Rs 1,260 per share, while the brokerage firm initiated with an outperform call on HEG with target at Rs 4,810 per share, a media report suggested.

HEG touched an all-time high of Rs 3,695 on May 17, 2018, while Graphite India hit a record high of Rs 908 on January 1, 2018 during intra-day trade.

Thus far in the calendar year 2018, HEG (up 42%) and Graphite India (up 18%) have outperformed the S&P BSE Sensex, which 3% so far. In past one year HEG has zoomed 922%, while Graphite India surged 419% against 14% rise in the benchmark index.

HEG had reported a consolidated net profit of Rs 10.99 billion during the financial year 2017-18 (FY18) against a net loss of Rs 441 million in FY17. Graphite India posted nearly 15-fold jump in its consolidated net profit at Rs 10.32 billion in FY18 as compared to Rs 700 million previous fiscal.

“The underlying growth was driven by a combination of higher volumes, price realizations and capacity utilizations which increased from 74% to 85% y-o-y. Despite the strong performance in FY2018, our revenue and margin growth was held back by the timing of the fulfillment of certain low price orders both in India and Germany. However, as these orders are mostly completed the benefit of the higher prices will be reflected in our current year financial performance,” said M M Bangur, Chairman, Graphite India while announcing Q4FY18 results.

Looking into the year ahead, our capacity is fully booked for the first half of the year, mostly at current market price levels. This will result in significant margin expansion and enhanced profitability. Importantly, our German operations have returned to profitability in this new pricing environment and is poised to contribute significantly to the company's overall performance, he added.

HEG believes that this current upsurge in the global graphite electrode demand which commenced in 2017 is expected to sustain its momentum over the foreseeable future as the demand-supply gap in the graphite electrode space is only expected to widen over the coming years.

This augurs well for the business division. Even as the team remains focused on strengthening its efficiency standards, the management is contemplating an increase in the operational capacity to capitalise on the structural changes in the industry space, HEG said in FY18 annual report.

Graphite electrodes are primarily used in Electric Arc Furnaces (EAF) and Ladle furnaces in steel making.