HEG falls 20% in four trading sessions ahead of December quarter earnings

HEG was down 8% to Rs 2,025 ahead of December quarter result later in the day

Shares of HEG were down 8 per cent to Rs 2,025 apiece on BSE in the intra-day trade on Tuesday, ahead of October-December quarter (Q3FY19) result today.

The stock of graphite electrode (GE) maker had declined 20 per cent in the past four trading days, as compared to a 1.5 per cent fall in the S&P BSE Sensex. It touched a 52-week low of Rs 1,975 on January 29, in intra-day trade.

Since November 1, 2018, post-September quarter (Q2FY19) results, the market price of HEG has tanked 53 per cent from the level of Rs 4,264, on concerns of fall in profit margins. In comparison, the benchmark index rallied 6 per cent during the same period.

Analysts expect HEG’s EBITDA (earnings before interest, taxation, depreciation and ammortisation) margins to moderate to around 67 per cent in FY19 (from 75.6 per cent in H1FY19) and further to 52 per cent in FY20E.

Meanwhile, HEG’s peer group company Graphite India had reported subdued results for Q3FY19, wherein topline, EBITDA and net profit came in below analysts estimate.

“Graphite India’s performance during the quarter was impacted by higher-than-expected operating costs (especially needle coke) and lower-than-expected volumes. EBITDA margin was at 58.4 per cent (Q3FY18: 53.0 per cent, Q2FY19: 69.9 per cent, our estimate: 61.9 per cent). Sequentially, raw material cost (as percentage of sales) increased to 32.2 per cent from 22.2 per cent in Q2FY19 leading to moderation in EBITDA margin from Q2FY19 level,” analysts at ICICI Securities said in result update.

The needle coke is the main raw material for GE production and is very critical for the growth of GE industry.

“The key dynamics behind these results being a combination of the stabilization of electrode prices globally, lower volumes and increase in needle coke cost. Graphite electrode prices have since softened due to a combination of factors like weak global steel prices, increased Chinese imports into India and selected trade restrictions placed by the US. Needle coke price increase has continued to impact margins. However, overall cash flow generation remains strong,” Graphite India said while announcing Q3 results.

At 11:25 am, HEG was trading 7.5 per cent lower at Rs 2,045 on BSE, against a 0.08 per cent decline in the S&P BSE Sensex.

Graphite India hits a fresh 52-week low of Rs 395, down 9 per cent, falling 23 per cent in the past four trading days, post Q3FY19 results.