Shares of Graphite India, a leading manufacturer of graphite electrodes, hit a new 52-week low of ₹280 in Tuesday's trade. The stock has corrected by around 43.31% in the last one-year period, sliding from Rs. 495.75 to the current price of Rs. 281.
After hitting a 52-week high of ₹587 apiece in April last year, the stock started losing steam, and it has remained in the same trend to date, resulting in a 52% loss from its one-year high.
However, despite its recent downfall, the stock is still up by 128.75% over the past three years and 255% in the last 10 years.
In Q3FY23, the consolidated capacity utilization of the company stood at 42%, which is a significant drop compared to 90% in the same period of the previous year (Q3FY22) and 56% in the preceding quarter (Q2FY23).
"On the back of lower-than-expected capacity utilization, consolidated topline came in lower than our estimate," said ICICI Direct Research in its result update report.
The company's total revenue from operations during the quarter stood at ₹701 crore, down 15% QoQ and 20.34% YoY, and was lower than the brokerage estimate of ₹1,001 crore.
Further, the company’s operating profit fell by 46.26% YoY to ₹72 crore in Q3FY23 as against ₹134 crore in a similar quarter of last year, while the operating profit margin came in lower at 10%, a drop of 300 bps YoY and 200 bps QoQ.
The company's consolidated other income for the quarter was ₹33 crore, a decline of 50% YoY and 70% QoQ. The consolidated PAT for the quarter stood at ₹53 crore, which is down by nearly 60% YoY.
Commenting on the Q3FY23 performance, the company chairman K K Bangur said, "The reduced consolidated capacity utilization was caused by the closure of our German electrode plant and the downturn in the global economy. The company has a consolidated net cash position of Rs. 2,031 crores at the end of December 2022."
"The company remains confident in the prospects of the electrode industry. We continue to be focused on implementing best practices in operational efficiency and exercising financial prudence. The company is well positioned for the future," he added.
Despite such weak performance in the third quarter of FY23, ICICI Direct Research remains bullish on the stock and has kept its "buy" rating with a target price of ₹385 apiece.
The brokerage laid out some key triggers for the company's future performance. One of the positive factors is the recent allocation of ₹10 lakh crore towards capital expenditure in Budget 2023, which is expected to stimulate infrastructure development. This, in turn, is anticipated to lead to a rise in domestic steel demand, which bodes well for graphite electrode demand.
Furthermore, the brokerage noted that countries worldwide are striving towards carbon neutrality, resulting in corporations adopting environmentally friendly manufacturing processes. Steel manufacturers are also gradually shifting towards the EAF process, creating favourable conditions for the demand for graphite electrodes over the medium to long term.
Graphite India is a mid-cap stock with a market capitalization of over ₹5,498 crore. The company is the largest Indian producer of graphite electrodes and one of the largest globally, by total capacity. Its manufacturing capacity of 98,000 tonnes per annum is spread over three plants at Durgapur and Nashik in India, and Nurnberg in Germany.
Graphite India manufactures the full range of graphite electrodes but stays focused on the higher margin, large diameter, ultra-high power ("UHP") electrodes. The company has over 60 years of technical expertise in the industry.
04 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
