Dec 02, 2016 04:05 PM IST IST | Source: Moneycontrol.com
Hold Graphite India; target of Rs 80: ICICI Direct
ICICI Direct recommended hold rating on Graphite India with a target price of Rs 80 in its research report dated December 02, 2016.
ICICI Direct's research report on Graphite India
Globally, steel is produced via two main routes: the blast furnace - basic oxygen furnace (BF-BOF) route and electric arc furnace (EAF) route. Graphite electrodes are used in the EAF route of steelmaking. On the back of a muted demand scenario, the global steel industry, as a whole, is undergoing challenging times. Consequently, a decline in steel produce through the EAF route adversely impacted the prospects of the graphite electrodes sector. A muted demand scenario has resulted in subdued realisations of graphite electrodes.
Graphite India reported healthy capacity utilisation for Q2FY17. Capacity utilisation was at 75%, higher than our estimate of 65% (capacity utilisation of 63% in Q2FY16 and 68% in Q1FY17). Hence, we have upward revised the consolidated capacity utilisation level to 70% for FY17E (from 65% earlier) and to 75% for FY18E (from 70% earlier). We have valued the company at 6.5x FY18E EV/EBITDA thereby arriving at a target price of Rs 80, with a HOLD recommendation on the stock.
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