HEG and Graphite India

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      HEG, Goa Carbon and Graphite India – Top 3 Gainers of FY 2017-18

Used for Electric Arc Furnaces
Graphite Electrodes (Image Courtesy: Indiamart)

FY 2017-18 has been the year of complete roller-coaster ride for Market Participants. We saw Nifty rising from 9200 level to 11200 and then falling sharply to 9950 again in the same financial year. In this volatile market whoever entered at right time and booked profits at peak, earned good returns. While those who didn’t took their profits home are sitting on huge losses. Some of the stocks have reached the level of year 2013 – mostly public sector companies like Public Sector Banks. Investors will have to wait for two years now to get profitable exit from these stocks. Market will definitely become nervous before Loksabha Elections in India. We might see Nifty levels of 9500 to 9300 before these elections. F & O data suggests that Upside is capped for Nifty at 10500. Therefore, it becomes very important to be highly selective about your bets in this choppy market. Before starting new financial year, I decided to have a good look at the Top Gainers and Top Losers of the Financial Year 2017-2018. 

The top three Gainers are related to Electric Arc Furnaces wiz Graphite Electrodes exporters HEG and Graphite India and Catalyst Coke Manufacturer Goa Carbon. So let’s discuss about Graphite related 2 stocks in this post.

First let us see how they performed in FY 2017-18?

  1. Performance of HEG, Goa Carbon and Graphite India in 1 yr.
Company nameCurrent Market Price (CMP)Year's Low PriceYear's High Price
HEG3185212.203515
Goa Carbon962.251121215
Graphite India726.10102.50906

2. What is the reason of these extra-ordinary returns?

Graphite stocks have become Multibagger stocks this year – thanks to transformation happening in Iron & Steel industry. The metal industry is becoming environment-friendly in last few months thanks to global pressure. Traditional Induction Furnaces used in steel and ferro-alloys manufacturing industries are now getting replaced by environment friendly Electric Arc Furnaces. Graphite Electrodes are used in these electric arc furnaces. This has increased demand of Graphite Electrodes in Markets like India and China. China, alone has shut down Induction capacity worth 175 metric tonnes in this year. Secondly, Graphite Manufacturers who weren’t practicing Environment-friendly manufacturing methods/practices were also cracked down by China. This is one more reason why China has become net importer of Graphite electrodes. China has recovered from slowdown of commodity markets of 2015 and started increasing the production of Steel and  other Ferro-alloys again. This has increased the exports revenue of Indian Graphite Manufacturers which are using their 75 % of total capacity to reach the demands.

3. Let’s see fundamentals of HEG, Goa Carbon and Graphite India in the financial year 2017-18 to understand the picture better.

 Company NameDec'17 (Cr)Sep'17 (Cr)June'17 (Cr)
Total Income from OperationHEG842.71409.54205.36
Net P/L for the period342.11113.66-8.43
Company NameDec'17 (Cr)Sep'17 (Cr)June'17 (Cr)
Total Income from OperationsGraphite India933.06461.90351.02
Net P/L for the period340.5389.9329.45

From the table above, you can clearly see how the Income from Operations of the Electrodes manufacturing has increased in these companies and how it is affecting their quarterly results positively. It is expected that in the coming year company like HEG will utilize it’s 85% of capacity which will also increase it’s Profits further. So clearly, every dip in the Share Price is being utilized by Investors to accumulate these stocks.

4. Can the demand in Graphite sustain?

This is the most important question one must ask before investing in these companies. The production of Graphite Electrodes will depend on their demand in Steel and Ferro-alloys industry. The slowdown in commodity market followed by cycle change in the metal sector has brought great consolidation in this market. It is expected that due to shortage of steel scrap and steel, demand for blast furnaces and electric arc furnaces will keep increasing in the FY 2018-19 too. Graphite Electrodes demand in China is around 666kT while potential demand outside china could be around 770 kT. Global Supply of Graphite was merely 789 kT in the FY 2017-18. From this demand-supply imbalance you can clearly say that Graphite companies will perform really well in the new Financial year 2018-19 too. Investors should definitely keep ‘Graphite Electrodes’ related companies on their radar. Fundamentally these companies look really good.

 

[Disclaimer: Kindly note that Goa Carbon’s performance depends on Coke Trends. Hence, I have preferred to analyse only HEG and Graphite India in this post. Please consult your Financial Advisor before taking any investment decisions. Stocksbaazigar is not responsible for any of your losses/risks. This is an educational post and not a recommendation or advise. I have discussed only fundamental aspects here. Investments should be done only after doing both Fundamental and Technical analysis of stocks.]


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