Buy Graphite India; target of Rs 114: Angel Broking

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Buy Graphite India; target of Rs 114: Angel Broking

Angel Broking is bullish on Graphite India and has recommended buy rating on the stock with a target of Rs 114 in its February 4, 2011 research report.

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Angel Broking is bullish on Graphite India and has recommended buy rating on the stock with a target of Rs 114 in its February 4, 2011 research report.

"Graphite India (GIL) posted top-line growth of 21.0% yoy to Rs 337 crore (Rs 279 crore), which was below our estimates of Rs354 crore. However, PAT declined by 29.8% to Rs 44 crore (Rs 63 crore), mainly because of margin contraction. OPM came in at 21.7% (36.8%), much below our expectations of 24.8%. The main reasons for lower-than-expected OPM were a one-time dearness bonus, high input costs and higher electricity consumption. Going ahead, we expect OPM to improve from the current levels and the top line to post strong growth."

"For 3QFY2011, GIL reported below-expectation top-line growth mainly due to price pressures in the domestic market. OPM also witnessed a decline because of high input costs, dearness bonus and high electricity consumption due to relatively more graphitisation of electrodes during the quarter. However, going ahead, OPM is set to improve on the back of electrode price in crore announced by SGL Carbon recently. GIL has maintained a robust sales growth rate over the past few quarters, after witnessing a slump during the croreisis of 2009. During this quarter also, sales growth came in at healthy 21.0%. Going ahead, we expect growth to remain at decent levels, backed by an improvement in the company's business outlook."

"Going ahead, we expect volumes to remain robust on account of high demand for graphite electrodes, with prices also strengthening from current levels. The company's expansion plan places it well to capture the boom in demand. Overall, we expect the company to post a 17.6% CAGR in sales and a 5.9% CAGR in PAT over FY2010-12E. Owing to lower-than-expected margins, we have revised our margin estimates for FY2011 and FY2012 downwards to 23.2% and 23.5% from 24.4% and 24.2%. Currently, the stock is trading at 1.1x and 1.0x its FY2011E and FY2012E BV. We maintain Buy on the stock with a revised target price of Rs 114 (Rs 117)," says Angel Broking research report.

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