Graphite India, a leading manufacturer of graphite electrodes, has experienced a significant bullish trend in its stock performance over the last five trading sessions. During this period, the shares have grown from ₹321.10 apiece to ₹372.35, resulting in a stellar gain of nearly 16%.
The stock has been on an upward trend after hitting a 52-week low of ₹251 apiece on March 29, 2023, and it has since rallied 42% to date.
Brokerage firm ICICI Direct Research believes that the stock has the potential to rise even further. The brokerage has highlighted two key factors that could support the stock's upward trajectory.
According to World Steel Association (WSA) forecasts, the steel demand will see a 2.3% rebound to reach 1822 million tonnes (MT) during CY23, and the demand forecast is expected to grow by 1.7% to reach 1854 MT by 2024. The brokerage believes this augur well for graphite electrodes demand.
Secondly, steel manufacturers are increasingly adopting the Electric Arc Furnace (EAF) process, which is expected to drive sustainable demand for graphite electrodes in the long term.
The EAF process is considered more environmentally friendly compared to traditional steel production methods, making it an attractive choice for companies aiming to reduce their carbon footprint, the brokerage noted.
Considering these growth factors, ICICI Securities has maintained its 'buy' recommendation on the stock, setting a 12-month target price of ₹440 apiece. This target price implies an upside of 18% from the stock's previous closing price.
The stock experienced a continued downward trajectory from April last year until March 2023, reaching a 52-week low of ₹251. However, it has since demonstrated a steady upward momentum, with a 13% gain in April, a 9.60% gain in May, and a continuing 16% rally in June so far, resulting in a cumulative gain of 42%.
For the March ending quarter, the company reported a significant drop of 70% YoY and 45% QoQ in its consolidated net profit to ₹29 crore, ending FY23 with a total net profit of ₹199 crore, a drop of 60.6% over FY22's net profit of ₹505 crore.
During the quarter, the company's revenue from operations witnessed a marginal YoY decline of 3.4% to ₹815 crore. However, there was a sequential increase of 16%. Overall, for FY23, revenues came in at ₹3,181 crore, reflecting a 5% increase.
Despite higher realisation, rising input costs resulted in a lower EBITDA margin of 8% in Q4FY23. In the preceding December quarter, the company reported an EBITDA margin of 10%.
The company said its performance during FY23 was impacted by a decline in volumes as customers experienced higher energy costs and business uncertainties arising from the Russia-Ukraine conflict.
The outlook for the global steel market has deteriorated sharply due to a slowing global economy and as central banks continue to raise interest rates to contain inflation.
However, recent positive developments such as China’s market reopening, Europe’s resilience during the energy crisis, and the easing of supply chain bottlenecks are expected to support steel demand in 2023, the company added.
03 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.
