Graphite India, HEG shares surge up to 9% in weak market; here's why

Singularity AMC, an equity firm backed by ace investor Madhusudan Kela and led by Yash Kela, has proposed to invest up to Rs 500 crore in Bhilwara Energy, an associate company of HEG

Shares of graphite electrodes (GE) companies -- HEG, and Graphite India -- surged up to 9 per cent on the BSE in Tuesday's intraday trade aided by heavy volumes. By comparison, at 11:49 AM, the BSE Sensex and the BSE Smallcap indices were down 0.23 per cent and 1 per cent, respectively.

 

HEG share price today rallied 9 per cent to Rs 414.90 on the BSE in the intraday trade after Singularity AMC, an equity firm backed by ace investor Madhusudan Kela and led by Yash Kela, along with its partners, signed definitive agreements to invest up to Rs 500 crore in Bhilwara Energy Limited (BEL).

 

BEL is an associate company of HEG, and the company holds 49.01 per cent of the paid-up share capital of BEL on a fully diluted basis. Bhilwara Energy Ltd is a key player in India's renewable energy landscape, driving innovation across clean energy, energy storage, and battery pack solutions for electric vehicles.

 

From a macro perspective, India's energy transition is gaining momentum with ambitious renewable energy targets, supportive government policies around advanced battery materials, critical minerals, and circularity. With growing private sector investments, India is emerging as a global leader in the transition to low-carbon energy.

 

The investment will support BEL in creating an integrated energy transition platform, HEG Greentech1, focused on power assets, battery-grade anode materials, food-grade bottle-to-bottle recycling, graphene, and advanced battery systems manufacturing for energy storage and electric vehicles. BEL will use the capital to drive organic growth, establish new Greenfield projects, and pursue strategic acquisitions and partnerships, the company said in a press release.  ALSO READ: Bharat Electronics share rises 2% on additional orders worth Rs 843 crore

 

Meanwhile, on May 22, 2024, the board of directors of HEG had approved the draft composite scheme of arrangement. As per the scheme, HEG's graphite electrode (GE) business and the captive power plants will be demerged into a new entity. The original nominal share capital of HEG will be cancelled and new shares will be issued by the new entity to the shareholders of HEG in a 1:1 ratio as a mirror shareholding.

 

Further, BEL, which was held 51 per cent by the promoters and promoter-held company and 49 per cent by HEG, will be merged with HEG to form HEG Greentech.

 

That said, GE demand has been impacted by lower steel demand because of the weak global economic outlook, elevated inflation pressures, and high input costs. India Ratings and Research (Ind-Ra) expects an improvement in the company's operational performance, with stabilisation of prices and additional capacity to meet demand over FY25-FY26.

 

The rating agency expects demand to recover in FY25-FY26, driven by growth in electric arc furnaces (EAF) over the traditional blast furnace/basic oxygen furnace, following the developed world's focus on substantial decarbonisation measures.

 

China's steel production through EAF is likely to increase to 15 per cent by 2025 and 20 per cent by 2030 for decarbonisation. Also, the US and Europe's focus on decarbonisation would accelerate the GE demand. Hence, the global steel industry's efforts to decarbonise will drive a continuous shift to EAF steelmaking which supports the long-term GE demand growth.

 

On its part, HEG said at the December 2024 quarter (Q3FY25) investor presentation, that GE demand remained weak, with prices expected to remain under pressure for another one to two quarters.  ALSO READ: Hinduja Group stocks tumble today as downgrades hit IndusInd Bank

 

"The decarbonisation push in the steel industry is expected to boost demand for graphite electrodes, as the adoption of EAF steelmaking expands globally. This transition is projected to create an additional demand of approximately 200,000 tonne by 2030 (excluding China). Despite the short-term pressure, decarbonisation is now an irreversible trend, and we remain optimistic about the long-term growth potential for graphite electrode demand," HEG had said.

 

Meanwhile, Graphite India share price was up 7 per cent to Rs  428.40 on the BSE in the intraday trade on the back of two-fold jump in average trading volumes. The company's graphite and carbon segment continues to be the main source of revenue and profit, accounting for 90 per cent of the total operating revenues.

 

The long-term demand prospects for GE remain favourable, given the expected increase in the share of EAF in the global steel production over the medium-to-long term.

 

As global decarbonisation efforts make headway, the demand for GE will increase going forward. Rising steel consumption, particularly in infrastructure, automotive and construction will further support long-term growth potential for graphite electrode manufacturers, the management said.

 

While GE is used as a consumable in steel production through the EAF route, the primary raw materials used are crude oil derivatives. Therefore, Graphite India, along with other GE manufacturers, is exposed to the cyclicality in steel and crude prices.

 

With more thrust on reducing the carbon footprint globally, the steel manufactured via the less polluting EAF route is expected to increase in the medium-to-long term, favourably supporting the demand for GE. Thus, the medium-to-long-term demand outlook for GE remains favourable, according to rating agency ICRA.