Hold Graphite India; target of Rs 435: Centrum Research

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26 Aug, 2025 12:21

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Centrum's research report on Graphite India

We continue to remain positive on prospects of Graphite India (GIL) as we see the electrode industry remaining in an upcycle for next 4-5 years but see valuations getting stretched post a super strong recent rally in the stock (up 230% in 4 months since our IC). We believe that industry as well as GIL would have a super normal profitability levels in FY19E (EBITDA/t well above US$2500/t) but the same would normalise to more realistic and sustainable levels from FY20E (EBITDA of ~US$1800/t). Industry demand-supply outlook remains highly favorable in both near and medium term led by closures, consolidation and reduced Chinese exports of both steel & electrodes. However, constraints of limited needle coke supply and EAF CoP increase at higher electrode prices would limit gains in due course leading to reversion towards more sustainable profitability for both electrode and EAF producers. GIL remains the best bet to play the electrode upcycle with healthy balance sheet, strong adj. FCF generation, high dividend payout and strong management pedigree but valuations limit absolute upside and we downgrade to Hold with a TP of Rs435.

Outlook

Need for looking beyond FY19E supernormal profitability, downgrade to Hold: The stock has seen a relentless up move and is up 230% since our IC report titled “Electrifying growth ahead” dated 20 June 2017. We believe that investors need to look beyond FY19E supernormal profitability and we value GIL on our conservative AOCF/EV yield methodology using five year average adj. cash flows (FY16-20E) to arrive at our revised TP of Rs435.  Downgrade to Hold. Key downside risk is margin pressure due to raw material volatility while upside risk is similar spreads in FY20E as that of FY19E.

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