Foreign brokerage firm Jefferies has actually reduced its target costs on Graphite India Ltd and HEG Ltd– manufacturers of graphite electrodes, which are utilized by suppliers of steel– by approximately 9 percent, however preserved its ‘Buy’ referrals on both supplies.
On Graphite India, which has actually a set up electrode capability of 98,000 mt, Jefferies claimed it suches as Graphite India’s a solid annual report, noted by very little financial debt and substantial money equilibrium and financial investments. The share of EAF course of steel manufacturing might climb, profiting the electrodes market over the tool term, it claimed.
HEG, Jefferies claimed, likewise is an essential graphite electrode gamer in India, with present mounted electrode capability of 100,000 mt. HEG just recently increased its capability by 20,000 mt, which was appointed in November 2023. Jefferies suches as HEG’s durable annual report, noted by very little financial debt and substantial money equilibrium and financial investments consisting of treasury dimension.
For HEG, Jefferies’ target cost stood at Rs 2,560. It values the supply at EV/Ebitda numerous of 7 times, at a mild discount rate to supply’s historic 10-year ordinary numerous. For Graphite India, Jefferies recommended a target of Rs 660. It appointed the supply an EV/Ebitda numerous of 11 times, extensively in accordance with the supply’s historic 10-year ordinary numerous.
In its base instance, Jefferies thought graphite electrode ordinary asking price to be at $5,700 per mt in FY25, $5,900 per mt in FY26 and $5,900 per mt in FY27. It thought the ordinary needle coke cost over FY25-27 at $1,800-1,900 per mt. Over FY24-27, it anticipates Graphite India’s sales to expand at 14 percent and EPS at 6 percent CAGR. “FY19 was a peak up-cycle for GE companies globally. Ebitda margin expected from -4.9% in FY24 to 19% by FY27e,” it claimed.
In its base instance for HEG, Jefferies thought graphite electrode ordinary asking price of $4,900 per mt in FY25, $5,500 per mt in FY26 and $5,500 per mt in FY27. It thought the ordinary needle coke cost over FY25-27 at $2,000 per mt. “We expect op-margin to bottom out at 14.4 per cent in FY25 and expand to 34.6 per cent over FY25-27,” it claimed.
Demand downturn in EAF manufacturing, reduced GE exercises, spiralling needle coke costs, damaging GE realisation, leading to reducing spreads, and disturbance throughout essential markets are viewed as essential threats for both supplies.
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