Hold Graphite India; target of Rs 200: ICICI Direct

ICICI Direct's research report on Graphite India

Graphite India (GIL) reported a subdued set of Q1FY21 numbers wherein it reported a consolidated loss at the EBITDA, PAT level. During the quarter, the performance was impacted by inventory write down taken by the company. For Q1FY21, GIL reported a consolidated topline of Rs 409 crore (down 58% YoY, 32% QoQ), compared to our estimate of Rs 335 crore. Better than expected topline was on account of higher-than-expected capacity utilisation. Consolidated capacity utilisation in Q1FY21 was at 36% (75% in Q1FY20, 41% in Q4FY20), higher than our estimate of 30%. Consolidated other income for the quarter was at Rs 68 crore (up 196% QoQ), higher than our estimate of Rs 20 crore. Consolidated EBITDA loss came in at Rs 131 crore (our estimate of consolidated EBITDA loss of Rs 70 crore). Net consolidated loss was at Rs 78 crore (our estimate of consolidated net loss of Rs 68 crore). During the quarter, GIL had recognised it carrying inventory on net realisable value (NRV) basis to the extent applicable and has accordingly taken a charge of Rs 159 crore on the cost of inventory. This resulted in negative reported EBITDA and net loss for the quarter.

Outlook

Graphite India's Q1FY21 performance was impacted by Rs 159 crore of inventory write down taken by the company. Furthermore, during the quarter, lower steel production levels impacted both graphite electrode demand and pricing. Going forward, FY21 is expected to remain a challenging year for the company as graphite electrodes demand and realisation is expected to remain under pressure. We value the stock at 4x FY22E EV/EBITDA and arrive at a target price of Rs 200, assigning a HOLD recommendation to the stock.

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