Graphite India

Graphite India

Graphite India, Punj Lloyd, ACC

Graphite India, Punj Lloyd, ACC

Graphite India-Thermax-Maruti Suzuki-NTPC-Glenmark Pharma

Graphite India-Thermax-Maruti Suzuki-NTPC-Glenmark Pharma

Graphite India

Graphite India

Subros, Motherson Sumi, Godawari Power, Graphite India

Subros, Motherson Sumi, Godawari Power, Graphite India

Graphite Industries, DLF, HDFC, ICICI Bank

Graphite Industries, DLF, HDFC, ICICI Bank

Graphite India

Graphite India

Graphite India

Graphite India

Graphite India: Buy

Investors with a one-to-two year perspective can consider taking an exposure to the stock of Graphite India.

At current market price, the stock trades at about seven times its likely FY08 per share earnings on a fully diluted basis. Increasing demand for graphite electrodes coupled with a hardening of electrode prices, spell good times for Graphite India, a leading electrode manufacturer in the country. This apart, the increasing preference for steel manufactured through EAF (electric arc furnace) route the world over, in turn is likely to propel the demand for graphite electrodes.

Industry estimates, which peg the contribution of steel produced through the EAF route at about 38 per cent by 2010 compared to the 33 per cent now, point to strong demand prospects for graphite electrodes. Revenues are also likely to get a boost from exports, which contributed to about 68 per cent of the total revenues for FY07. Graphite India has facilities to generate captive power, which given the energy intensive operations, leads to cost savings. Savings from reduced freight cost and the zero impact of anti-dumping duty due to Graphite's presence in Germany is a positive.

For the quarter ended March 2007, Graphite witnessed a 22 per cent increase in revenues, helped by firm prices and improved capacity utilisation of its Durgapur plant. However, on the operational front, margins declined by about 500 basis points during the quarter. While rise in raw material and staff cost could be reasons for the shrinking of margins this quarter, exceptional charges from accounting for higher fuel costs also reduced margins. Going forward, higher realisations on graphite electrodes, are expected to more than offset the hike in input (needle coke) prices. Therefore, the pressure on margins is likely to ease in future. Any reversal in production trends in steel, unexpected changes in exchange rate pose risks to our recommendation.

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.