SHARETIPSINFO >>Research Reports >> GRAPHITE INDIA

COMPANY OVERVIEW:
Graphite India was established in the year 1963.Company is promoted by K K Bangur. It introduced Graphite Electrode manufacture in India. Graphite India Ltd (GIL) has total capacity of 33,000 MT per annum. The capacity is spread over three plants at Durgapur, Bangalore and Nasik. Over the years it has graduated to become Graphite technology specialist.
Company has backwardly integrated in order to cut the cost. Backward integration has led to the investment in 18 MW hydel power plant and 25000 MW petroleum coke calcining facility.

Export:
GIL exports around 65% of its production. It has customer base of 150 spread over 50 countries.
Capacity Expansion: Company has lined up Rs 400 crore for capacity expansion and setting up thermal power plant in Durgapur. Power constitutes the major cost in the electrode production. Board has approved coal based 50 MW power plant. It has 20 acres for setting up the power plant and has applied for coal linkage. Around Rs 214 crore is expected to be invested in power plant.
Company is also planning to ramp up capacity from 60,000 tons to 90,000 with an investment of Rs 186 crore.

PRODUCT MIX:

INDUSTRY OUTLOOK:
With the economic recovery Indian graphite manufacturers are doing well as the demands for graphite electrode are increasing. India players have operated at higher capacity utilization as compared to its Global peers. Graphite players also went for the capacity expansion. The low cost manpower, captive power benefit and strategic location have made Indian players more competitive as compared to its global counterpart.

INVESTMENT RATIONAL:
Bounce back in steel production has led to the increase in demand of Graphite electrode.
Company is setting up 50MW captive power plant at Durgapur facility will significantly reduce the cost of production. This cost saving could be reflected in FY11.
Company is expected to increase the capacity by 25% in FY11.
Company has cash balance of more than Rs 250 crore.
Company’s operating profit and net profit margins have shown constant increase over the last four years period.
Higher entry barrier due capital intensive nature of the industry and technology helps in protecting the margin.

 RISK:
Any downturn in the steel demand will hit the company.
Increasing needle coke prices will increase the input cost.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
Total Income grew at CAGR of 22% over the last four years.
PBDITA grew at CAGR of 26.25% over the last four years.
PAT grew at CAGR of 43% over the last four years.
RATIOS:

Key Highlights:
EPS has grown at CAGR of 43% over the last four year period from Rs 3.8 in FY06 to Rs 11.3 in FY09.
PBDITA margin has also shown consistent improvement from 19.3% in FY06 to 21.5% in FY09.
NPM has improved drastically over the last 4 years from 9.8% in FY06 to 16.02%in FY09.

COMPARISION OF Q3FY2010 WITH Q32FY2009:

Key Highlights:
Total Income has shown slight decline in Q3FY10 of 0.5% on YoY basis.
PBDITA has shown increase in Q3FY10 of 81.8% on YoY basis.
NPM has shown slight decline in Q3FY10 of 115% on YoY basis.

VALUATION &OUTLOOK:
At cmp of Rs 89, stock is trading at 5.5X to FY10E EPS of Rs 16.6. The industry average PE is at 10X.Even if we value the company at lower than industry average PE at 8, the fair value of the stock we arrive at is Rs 131 per share.
Company also has good dividend paying track record. At cmp of Rs 89, the dividend yield comes at around 3.3%. The good dividend yield limits the downside in the stock and is a value pick even in the downturn of economy.

CONCLUSION:
The risk reward ratio is very favorable. Investor with investment time horizon of 6-8 months can take exposure on the counter.

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