Hold Graphite India; target of Rs 400: ICICI Direct

ICICI Direct's research report on Graphite India

Graphite India reported a steady Q4FY19 performance wherein the topline came in broadly in line with our estimates while EBITDA and PAT came in higher than our estimate. On a consolidated basis, Graphite India reported capacity utilisation of 85% (80% in Q3FY19 and 91% in Q4FY18, in line with our estimate of 85%). The consolidated topline came in at Rs 1693 crore (down 8.7% QoQ, up 28.0% YoY, broadly in line with than our estimate: Rs 1677 crore). Consolidated EBITDA for the quarter was at Rs 864 crore (up 20% YoY, down 20% QoQ, higher than our estimate of Rs 778 crore). EBITDA margin was at 51.0% (higher than our estimate of 46.4%, 58.4% in Q3FY19 and 54.4% in Q4FY18). During the quarter, the company reported an exceptional expense to the tune of Rs 55 crore, with respect to the compensation payable to its workers/employees at the Bengaluru unit due to closure of its operations. The company reported consolidated PAT of Rs 562 crore (higher than our estimate of Rs 533 crore).

Outlook

While global graphite electrode prices have witnessed a softening trend; the uptick in prices of key raw material (viz. needle coke) is likely to impact the company’s margin profile. We downward revise capacity utilisation level to 82.0% for FY20E (from 85% earlier) and introduce FY21E capacity utilisation at 82.0%. We value the stock at 6x FY21E EPS and arrive at a target price of Rs 400. We have a HOLD recommendation on the stock.