SKP Research - Graphite India

SKP Research has maintained buy rating on Graphite India with target price of Rs 67. At current market price, the stock trades at 5.48 x FY09E EPS of Rs 9.66 and looks attractive.

SKP Research report on Graphite India:

1. Net sales were up by 22.26% to Rs. 240.77 crores in Q4FY07 over Q4FY06, which is explained by strong demand and higher realisation.

2. The Operating Margins (OPM) of the company stood at 14.94% for Q4FY07 in comparision to 19.92% in the same period last year. The fall in OPMs was largely due to rise in raw material and power costs relative to sales. The raw material to sales ratio has increased by 427 basis points in Q4FY07 compared to Q4FY06, which is primarily due to increasing needle coke prices. This effect is going to stabilize from the current quarter due to higher growth in realizationsfrom graphite electrodes compared to needle coke prices. Total power costs to sales ratio has increased by 209 bps in Q4FY07 compared to Q4FY06 due to additionalcharges made by DVC for the whole year during the current quarter.

3. Profit after tax decreased by 12.73% to Rs 240.6 million due to lower operating profit, higher interest and depreciation cost relative to sales growth. Higher taxes also reduced the profit after tax of the company.

4. Graphite India had increased its graphite manufacturing capacity from 36,500 mtpa in FY05 to 55,000 mtpa in FY06. This has been further increased to 60,000 mtpa in the current financial year. This will help the company to meet the growing demand in years to come.

5. The company has declared a final dividend of Re 1 per share on the face value of Rs 2 per share.

Outlook & Recommendation

Visualising the demand for graphites in the steel industry, Graphite India Ltd (GIL) had increased its manufacturing capacity through both
organic and inorganic routes. GIL being the largest graphite manufacturer in India will be able to realize the benefits of rising demand and increasing prices. At current market price, the stock trades at 5.48 x FY09E EPS of Rs 9.66 and looks attractive.We maintain our BUY recommendation on the stock stock with a price target of Rs 67.