Graphite Latest Result in wake of Corona Virus

As per the company website, Graphite India Limited (GIL) is the pioneer in India for the manufacture of Graphite Electrodes as well as Carbon and Graphite Speciality products. GIL's manufacturing facilities are spread across 6 plants in India and it has also got a 100% owned subsidiary at Nuremberg, Germany, by name Graphite COVA GmbH.

HISTORY

Having started in 1967 in collaboration with erstwhile Great Lakes Carbon Corporation (GLCC) of USA, GIL has been continually improving its product quality and services thereby scaling newer heights of excellence and customer recognition. This journey has been fueled by our reliance on cutting-edge technology, a natural penchant for innovation and creativity, an eco-friendly approach in the production process, consistency of product quality and services as well as productivity and cost optimization.

Graphite - Q4 FY20 (Audited –Cons)**
CMP: 205

Total income from operations 602 Cr
1,693 Cr (-64.46%) YoY | 643 Cr (-6.32%) QoQ

Year ending revenue: 3,094 Cr Vs. 7,858 Cr (-60.61%)

Net Profit of (7) Cr
562 Cr (-101.27%) YoY (353) Cr (101.83%) QoQ

Year ending Net profit: 45 Cr Vs. 3,396 Cr (-98.61%)

EPS (in Rs.) (0.37)
28.74 YoY | (18.08) QoQ

Year ending EPS: 2.30 Vs. 173.80

View: The result is below expectations and continuously declined. YoY revenue significantly declined and company also posted also. However, since comparison from QoQ revenue slightly declined but losses significantly reduced.

Business Updates & Highlights:

Q4FY20 EBITDA is around INR (3) Cr Vs. 934 Cr in Q4FY19 Vs. (445) Cr
therefore declined by 100.7% in YoY and 99% in QoQ. EBITDA margin is (0%)
Vs. 55% in Q4FY19.

FY20 EBITDA to Rs. 95 Crores Vs. 5,233 Cr in FY19 therefore declined by 98%
in YoY. EBITDA margin of 3% Vs. 67% in FY19.

Key business updates

Due to steep fall in electrode prices, Inventory has been recognized on Net
Realizable Value as per Ind AS, resulting in a fair value adjustment of
carrying inventory. FY2020 – Rs. 584 Crores write down. Q4 FY2020 –
Reversal of Rs. 61 Crores out of the write down of Rs. 490 Cores in Q3
FY2020.

In Q3 FY2020 - The Company has recognized loss of Rs. 39 crores as per the
Insolvency Resolution process, towards sales made to one of its customers
in earlier period

The capacity utilization during the year was 55% as compared to 86% in
FY2019.

Financial

ROE and ROCE is around 8% and 18% respectively and book value per share is
around INR 180 and share is currently trading at 1.2x of its book value.
Company is currently trading at annualized PE of around 101 which is too
expensive as per Industry benchmark. Promoter holding is around 65.2% in
the company which is stable and fair. FIIs and insurance cos hold around 9%
and 3.5% in the company. Cash and cash equivalent from operating activities
as of March 2020 is around INR 171 Cr Vs. 1,770 Cr as of March 2019. Debt
as of March 20 is around INR 416 Cr and cash & cash equivalent as of March
20 is around 2,008 Cr.

Position: Share strong support price is INR 180. Book and exit based on
your risk appetite.

Share View: Share price high 427 (52 week) and now 203 almost 50% corrected
from their peak. Graphite India 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
electrodes are used in electric arc furnace ("EAF") based steel mills and
is a consumable item for the steel industry. The graphite electrode
industry is highly consolidated with the top five major global players
accounting for almost 75% of the high end UHP electrode capacity.

Opportunities: Share is currently trading at 80% discount for their
all-time high 1100 in 1.5 years back. Global slowdown in steel demand
coupled with increased steel exports from China is expected to impact
demand of electrodes. Electrode capacities have been ramped up in China.
However, EAF capacities have not kept pace due to higher scrap cost and
electricity cost thus creating an imbalance. Excess electrode volumes are
being exported to other countries at cheaper rates

Risk: India removed antidumping duties on graphite electrodes imported from
China in September 2018 which has resulted in increased imports. Steel
prices also continue to remain under pressure and combination of these
factors have resulted in significant correction of electrode prices.
Continuously deteriorated topline as well as bottom line on YoY and QoQ now
Covid also further correct the company overall product demand.

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