ET Intelligence Group: HEG and Graphite India, top electrode makes in the world, are expected to benefit from a sharp rise in the electrode costs due to tight supply in China. The electrodes are used for steel production. In the previous sword rally, the two stocks gained around 20 -3 0 terms within two years. With clean product gaining significance, especially in China, steel business are rapidly changing their capabilities from blast furnace to electric arc furnace( EAF ), which requires electrodes. This augurs well for the two listed Indian manufacturers.After a lacklustre veer in 2020, electrode costs have gained 10 -1 5% in the past two weeks. Electrodes are used in the EAF method of sword product which is less polluting than the conventional blast furnace method. China’s commitment to lower its carbon emissions has led to shutting down of blast furnace abilities amid rising prominence of EAF. Graphtech, the world’s largest graphite electrode producer, said in the latest earnings call that it expected premiums to shoot up crisply in the latter half of 2021. EAF currently organizes practically 15% of the full amounts of the global sword production. During the previous sword cycles/second between 2015 and 2018, the average electrode price rose by more than 10 meters while even further it has less than halved from the peak.The two Indian companies posted loss in the first nine months of FY2 1 due to lower average realization, lower creation and stock-take write off. But, they pictured a consistent sequential rise in the operating perimeter due to improving ability utilization.In the March quarter, specialists expect 5-10% decline in revenues of the two companies. But, they are likely to report net profits compared with losses a year ago. In addition, with improved outlook for the sector, FY22 is expected to be better than the previous fiscal year.At the heyday of the previous round, HEG and Graphite India had reported net profit of Rs 3,050 crore and Rs 3,500 crore. For FY22, advisers expect profits of Rs 900 crore and Rs 1050 crore in that order.Over the past month, the stocks of HEG and Graphite India has been achieved in 25% and 12% respectively. At Monday’s closing of Rs 2,045.6 for HEG and Rs 583.5 for Graphite India, the one-year forward price-earnings variou works out to be nine and 11 respectively.Each of the companies is obligation free. With greater earnings visibility opened conglomerate premiums and higher sword necessitate, they are expected to report a turnaround in fiscals in this fiscal.
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