Graphite India Ltd- Rs 58.00
Incorporated in 1963, Graphite India Ltd (GIL) part of Bangur Group, Kolkatta is one of the few players globally manufacturing graphite electrodes and supplying to leading steel makers worldwide. Presently, company boasts of producing nearly 8% of the total global graphite output. A truly global company, GIL exports around 65% of its production overseas with a customer base of over 150 in 50 countries. Being a closely guarded technology, it acts as an entry barrier and hence company faces very less competition. Infact in India there are only two producers of graphite electrodes with HEG being the other company. Graphite electrode is basically used in electric arc furnace (EAF) based steel mills for conducting current and is a consumable item for the steel industry. Apart from strong global demand, even the Indian steel policy has set a higher target of 150 million metric tons steel production by 2015 and major steel producers in India are in the midst of expanding their capacities. And more importantly, the share of EAF route is growing rapidly due to its various economic and other benefits. Hence in turn the demand for Graphite Electrodes is also robust and the GIL is well positioned to leverage this growth cycle.
As of today, GIL has a total electrode capacity of 78,000 tonne spread over four plants - Durgapur (34,000 mtpa), Bangalore (12,000 mtpa), Nashik (14,000 mtpa) and Germany (18,000 mtpa). The loss making plant in Germany was acquired in 2004 and is now running profitably under company’s leadership. To cater the rising demand of graphite electrode, GIL is implementing a capex at Durgapur plant to increase the graphite electrodes capacity by 10,500 tonne to be operational by FY09 end. Remarkably, GIL has also done backward integration in the manufacturing chain by putting up a 30,000 mtpa calcined petroleum coke facility. Moreover company has an installed capacity of 33 MW of power generation through Hydel and Multi-fuel routes and has also invested in an exclusive transmission line to get the benefit of low cost power in one of its plants. Further it is contemplating to enhance its captive power generation by 100 MW in next two years. Incidentally, apart from the core activity of manufacturing graphite electrodes which contributes 85% of revenues, GIL also has following three divisions:
· Graphite Equipent Division (5%): The Impervious Graphite Equipment (IGE) division is engaged in manufacturing and marketing of heat exchangers, ejectors, pumps and turnkey plants at Nashik. These equipments have wide application in corrosive chemicals industries such as pharmaceutical, agro-chemical, chloro alkali and fertilizer industries.
· Coke Division (5%): This division in Barauni, is enaged in the manufacture of Calcined Petroleum Coke (aluminium & graphite both), electrode paste and tamping paste. CPC is a raw material used in the manufacture of regular and high power grade graphite electrodes and Impervious Graphite Equipment. Electrode Paste is used in ferro alloy smelters and Tamping Paste is used as a lining material in steel and aluminium smelters.
· GRP PIPES & TANKS (5%): This division is engaged in manufacturing and marketing of GRP Pipes and Tanks. It converts users of conventional pipes to GRP through re-engineering, strategic marketing, superior product quality, competitive pricing and value added services.
Financially, company is doing extremely well as for FY08 it reported 30% growth in sales to Rs 1099 cr whereas PAT increased by 40% to Rs 133.65 cr posting an EPS of almost Rs 9 on equity of Rs 30.20 cr having face value as Rs 2/- per share. On consolidated basis it reported an EPS of Rs 10, against which company declared a dividend of 150% (i.e. Rs 3/- per share) which gives a yield of more than 5% at CMP. Earlier in Oct 2005 company raised nearly Rs 175 cr thru FCCB route which is yet to be fully converted @ Rs 55. It reported satisfactory nos for the June’08 quarter (although hit by forex loss to the tune of Rs 5 cr) and is expected to end FY09 with consolidated sales of Rs 1500 cr and consolidated profit of Rs 155 cr. This works out to an EPS of Rs 9 on fully diluted equity of around Rs 36 cr. Considering the current market sentiment, investors can accumulate this scrip at declines with a price target of Rs 75 in 9~12 months.
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