HEG Advanced Materials Ltd. share price target

We maintain a positive view on HEG, supported by the global transition toward EAF-based steelmaking and capacity expansion led growth prospects ahead. We reiterate a BUY rating with a revised target price of 635, valuing it on SoTP basis, i.e. 10x EV/EBITDA to core graphite...

Over the last few months, there has been a healthy uptick in global steel prices as well as global steel production levels. Graphite electrode players are likely to be one of the key beneficiaries of the current upcycle in steel. During the first four months of CY21, global crude steel production witnessed healthy growth, auguring well for graphite electrode majors. During January-April 2021, global steel production was at 663 million tonnes (MT), up 13.7% YoY. In addition to higher global steel output, steel prices witnessed healthy strength. Both above-mentioned factors, higher global...

HEG reported a subdued set of Q1FY21 numbers on account of a muted operational performance wherein it reported a loss at the EBITDA level. For standalone operations, topline came in at | 233.3 crore (down 71% YoY) & reported EBITDA loss came in at | 11.3 crore (vs. EBITDA profit of | 347.8 crore in Q1FY20). For the quarter, it reported a negative EBITDA margin of 4.8% compared to positive margin of 42.6% in Q1FY20. During the quarter, as the lockdown was in force for a significant period, the company's operations and financial results were impacted. On account of Covid-19...

Revise down capacity utilisation levels on subdued demand On account of subdued demand from the steel sector (especially in H1FY21), we downward revise our capacity utilisation estimates for FY21E. For FY21E, we model capacity utilisation of 50% (downward revise from 75% earlier)....

Graphite electrodes are used in the EAF route of steelmaking. Global steel demand has been negatively impacted by a weakening global economy. World Steel Association (WSA) forecasts global steel demand will reach 1735 million tonnes (MT) in CY19, a modest increase of 1.3% and 1752 MT in CY20, an increase of 1.0% over 2019. In the current muted demand scenario, excess production of graphite electrodes in China due to relatively slow ramp up of EAF capacities has led to cheaper graphite electrode exports to other countries (from China). Against the backdrop of removal of...

HEG reported a steady Q4FY19 performance wherein the topline came in marginally lower than our estimates while EBITDA and PAT came in higher than our estimate. The company reported a capacity utilisation of ~80% (lower than our estimate of 85% in Q4FY19, 84% in Q4FY18 and 82% in Q3FY19). HEG reported a topline of | 1346.7 crore (down 27.8% QoQ, up 4.2% YoY, marginally lower than our estimate: | 1393.6 crore). EBITDA for the quarter was at | 788 crore (higher than our estimate of | 695.7 crore). EBITDA margin was at 58.5% (higher than our estimate of 49.9% in Q4FY19,...

The revenue from operation came in at |1865 crore (up 121% YoY, 4% QoQ) higher than our estimates of |1630.8 crore. Utilization for the quarter came in at ~82%, broadly in line with our estimate of 85%. HEG reported an EBITDA of |1313.5 crore higher than our estimate | 1021.5 crore, the resultant EBITDA margin came in at 70.4% (as against our estimate of 62.6%, Q3FY18: 66.2%, Q2FY19: 76.2%)....

HEG Ltd, incorporated in 1973 is a premier company of the LNJ Bhilwara group, is India's leading graphite electrode manufacturer. It has one of the largest integrated Graphite Electrode plants in the world, processing sophisticated UHP (Ultra High Power) Electrodes. The company exports over 70% of its production to more than 30 countries of the world. It has also established a Power Plant of 77MW capacity to cater its in-house demand for electricity which is one of the major inputs in manufacturing Graphite electrodes. The Graphite Electrode plant of the company is...

ICICI Securities Ltd | Retail Equity Research The board of HEG has approved a proposal to buy back up to 13,63,636 equity shares comprising 3.41% of the total paid-up equity share capital for an aggregate amount not exceeding | 750 crore. The buyback price has been fixed at | 5500/share. The buyback would be done through the tender offer route and is subject to approval of the shareholders by means of a special resolution through a postal ballot. The public announcement setting out the process, timelines and other requisite...

ICICI Securities Ltd | Retail Equity Research HEG again reported a stellar performance in Q2FY19 marked by sustained healthy realisation, lower raw material cost. Capacity utilisation was at ~85%. Revenue from operation was at | 1793.8 crore (up 338% YoY, 13% QoQ), higher than our estimate of | 1589.3 crore The company reported a strong EBITDA of | 1368.8 crore, higher than our estimate of | 1017 crore. Resultant EBITDA margin was at 76.3% (vs. Q2FY18: 46.3%, Q1FY19:74.8% and our estimate of 64%)...

ICICI Securities Ltd | Retail Equity Research HEG has been one of the good wealth creators for investors with the stock price nearly multiplying ~9x since our Company Update in August2017. Strong demand for graphite electrodes from the EAF steel making route amid supply constraints has led to a sharp increase in graphite electrodes prices thereby resulting in healthy profitability. The continued...

HEG reported a stellar performance wherein profitability was above our estimates. The company reported a capacity utilisation of 82% (vs. our estimate of 85%). Topline came in at | 1587 crore (up 673% YoY, 23% QoQ) in line with our estimate of | 1537.7 crore Raw material cost as a percentage of sales came in at 13% (vs. our estimate of 20.4%, Q4FY18: 11.3%). The resultant gross margin was at 87.0% (vs. our estimate of 79.6%, Q4FY18: 88.7%) EBITDA came in at a robust | 1188 crore vs. our estimate of | 1025.1...

ICICI Securities Ltd | Retail Equity Research HEG reported a stellar Q4FY18 performance, with higher-thanexpected realisations leading to a beat on all fronts. Topline for the quarter came in at | 1292.5 crore (up 401.4% YoY, 53.4% QoQ) notably higher than our estimate of | 1067.9 crore. Capacity utilisation during the quarter was at ~84% (our estimate: ~90%) The company reported a robust EBITDA of | 951 crore, significantly higher than our estimate of | 648.3 crore. The resultant EBITDA margin was at 73.6% (vs. our estimate of 60.7%, Q4FY17: 11.5%, Q3FY18:...

HEG reported an outperformance on all parameters for Q3FY18, primarily driven by higher-than-expected realisations. The topline for the quarter came in at | 842.7 crore (up 256.2% YoY, 105.8% QoQ) notably higher than our estimate of | 560.0 crore HEG reported strong EBITDA of | 557.5 crore significantly higher than our estimate of | 278.8 crore. The resultant EBITDA margin came in at 66.2% (vs. our estimate of 49.8%, Q3FY17: 12.3%, Q2FY18: 9.8%) The company reported a robust PAT of | 342.1 crore...

Both HEG and Graphite India, domestic graphite electrode stocks, have seen a sharp run up on the bourses in the last few months. A sustained positive outlook on the global graphite electrode segment coupled with healthy realisations of both global and domestic manufacturers has driven the strong rally. Key triggers have been: 1) consolidation of graphite electrode market globally, 2) ~20% of the global graphite electrode capacity (ex-China) shutting down in the last three years, 3) increase in steel production through EAF route (outside China) coupled with an...