CMP – 3185.
TARGET – 3800/4200/5000+
TF – 6 to 24 months
👉HEG is Global Graphite Electrode Manufacturer. The Main business of HEG is Graphite Electrode manufacturing which accounts for 80% if it’s total Revenue.
It has one of the largest integrated graphite plant in the world spread across 170 acres.It produces Graphite Electrodes & high grade Graphite Specialities ( Ultra High Power & High Power Graphite Electrode).
👉It has plant near Bhopal in Mandideep, Madhyapradesh with capacity of 80,000 MT Of electrodes Annually which is Largest Single site facility in the world.It also has three power generation plants which can produce 76.5 MW which set off all requirements of Graphite plant.
Company has Capacity to scale this 80,000 Capacity to 1,00,000 MTPA(Proposed plan) with very little investment by 2020.
👉HEG has been leader in Graphite business from past 30 years & is 5th Largest producer in the world.
CHINA SITUATION :
Last year in January 2017 , chineese government identified few of the largest polluting industries such as few chemicals & Steel manufacturing industries.
Old & traditional induction Blast furnaces including mini blast furnaces were identified more polluting to the environment.
Government decided to shut down such inefficient and environment harming industries to shut down.
As a result of such decision Approx 100 Million tons of Steel capacity was closed.
Many new Chinese capacities coming up are not forced to use EFA Technology(Electric Arc Furnace) which are less polluting and requires Graphite Electrodes for manufacturing them.
Among the industries identified as most polluting Graphie electrode manufacturing is also one of the most polluting .
Nearly 300,000 mtpa has been closed which is almost 30-35% of chinese capacity.
No Substitute For Graphite Electrodes
The share of Electric Arc Furnace (EAF) steel production is set to rise further in the global steel production spree. The EAF route is being increasingly implemented, mainly to avoid atmospheric pollution entailed in the Blast Furnace method. Approximately 1.8-2 kg of a graphite electrode is used to produce one tonne of steel, and there is no substitute for Graphite Electrode.
Demand in ROW(Rest of the World)
China used to export approx 100 million tons of steel globally which stands now less then 50% due to steel shortage in china itself.
China has been exporting around 25 mmt of Billets pa to various countries at dumping prices, leading to reduced production in these countries.
Now this situation will get reversed domestic demand in those countries will increase and pave the way for rest of the world to increase steel capacity and increase demand for EAF as new plants are expected to come up in ROW.
With EAF capacities expected to come online in the near term, the demand for graphite electrodes is expected to increase over the coming years. And with about 2,00,000 MT
of graphite electrode capacity across the globe permanently shut over the last three years, the prospects for the existing players is expected to be promising.
9M FY18 VS 9M FY17 (All in Rs) :
Revenues : 1457.6Cr VS 585.5Cr
PAT : 447.33Cr VS -40.83Cr
EPS : 111.95 VS -11.40
PROJECTIONS (All in Rs):
Q4 FY18(ESTIMATES) VS Q4 FY17
Revenues : 820Cr VS 247.68Cr
PAT : 290-320 Cr VS -3.86Cr
EPS : 75-80 VS-0.97
FY19 Estimates (All in Rs):
Revenues : 3300 Cr
PAT : 1300 Cr
EPS : 323
Recently Big American Fund House Vanguard has purchased HEG shares at 3152.52 for 4.73 Lakh shares taking total value to Rs.149.07 Cr.
Availability of Raw Material (Needle Coke) as there is shortage in market due to its increasingly application in Lithium-ion Battery.
Price of needle coke has also shot from $450 to $3500
Price is not an issue as hike in raw material prices is passed on to customers.
Main problem lies with availability of Raw material which could keep the capacity Utilization away from 100%.
Also one should note that these Industry could turn out to be cyclical in nature.