Buy Graphite India; target of Rs 1250: ICICI Direct
ICICI Direct’s research report on Graphite India
Graphite India has been one of the better wealth creators for investors with the stock price nearly multiplying ~5.5x since our Sector Update in July 2017. The graphite electrode sector has been on a dream run since the start of CY17 driven by 1) consolidation of the graphite electrode market globally, 2) ~20% of global graphite electrode capacity (ex-China) shutting down in the last four years, 3) increase in steel production through EAF route coupled with an increase in global steel prices, 4) decline in both steel and graphite electrode exports from China on account of capacity closures.
We change our valuation methodology and now value the stock on a P/E basis. We value the stock at 10x FY20E EPS of | 125 thereby arriving at a target price of | 1250, maintaining our BUY recommendation. Graphite India has a robust balance sheet, net cash status and healthy cash flow generation, which augurs well. Currently, the company’s net cash balance was at | 991 crore as on March 31, 2018, which is likely to increase to ~| 3053 crore in FY20E reflecting a cash per share of | 156/share (in FY20E).
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