I would recommend going through the beginning of this thread and you will be able to understand the reason for the rise. It was a once in a lifetime kind of opportunity and was primarily sourced from the Raw Material Shortage and Graphite Closure of capacity over the years.
There are six or seven companies in the world Outside China that produces GE but the overall demand supply is not in favor currently.
Also I am not sure whether the current COVID Scenario is going to drive Steel Demand , if any the effect will be negative
To put it simply, we need the following
High Steel Demand to drive GE demand as GE is the RM for Steel
Shift towards EAF (of producing Steel) as unless there is a big shift , we wont see
much of GE demand
Shortage of RM i.e. Needle Coke which is a RM for production of GE - This is a key as everybody else will start adding new GE capacity
All the three happened a couple of year back that led to the surge but I am seeing anything similar.
Bottomline: The Company may look cheap in terms of Cashflow / Assets etc but there is no tailwind pushing the business growth . If I have to chose between Valuations or Tailwinds , would always recommend the tailwind
The last thing here is we didnt saw a great Cashflow allocation when there is a windfall for the company in 2018 and 2019. A critical aspect of a great company is Capital Allocation and I havent seen any trend here or yet to spot one
Disclaimer: Pls use your judgement and do not take above as a buy or sell recommendation. I am not currently invested in this stock and my views may be biased
Hi , Agree here about 3 factors.
one thing surprising is that companies are not looking to move towards Graphite Anode production required for Li-Ion Batteries (electic batteries in general).
Only dark horse investment i see is that Graphite India invested in a US company thats commercializing large volume , high quality Graphene production. Graphene is considered next big material - if someone can master commercial / large scale production , this can revolutionize many industries. .
In general, HEG/GI sitting with cash in books and not investing to vertical integration or otherwise is worrying…
Graphene is supposed to revolutionize the charging time needed in batteries…the first use case I came across was powerbanks - Charge your powerbank in about 30mim rather than the conventional 6 hrs+
But now with phones getting bigger batteries and companies supporting WFH – Powerbanks seems to be a dying market.
Any other key markets for Graphene that you are aware of?
Graphene is hyped like crazy for multiple applications… Not just for batteries.
see here Graphene - All You Need to Know
problem is that no one knows how to manufacture in commercial scale yet… Lot of lab based try outs and proofs have happened.
This is an interesting company - https://generalgraphenecorp.com/ … Graphite India has picked up closed to 46% stake in this company first and then they also recently increased stake again. Dont remember the total stakes the company holds now.
PS: This is a totally new world , with lot of ifs and buts on technology. Chance of success is weak as well… However, looking at Graphene Corp’s progress in last 2 years - they have figured out a way to mass produce sheets … not sure who is their customer for trials…
Desclosure : Invested in recent fall of stock as it was available very cheap…
Q4 Concall of HEG will give a good over view of the graphite industry:
Supply is more than demand and around 50000 to 70000 TPA capacity have already been shut down.
Company is into CAPEX of 20000 TPA .
3.The Company has already taken a major hit on account of fall in inventory prices both Raw material(needle coke) as well as Finished Good (Graphite electrode).
There may be more losses if there is further fall in RM and FG prices which is very much possible as any unit would prefer to sell it at break even rather than closing the plant.
Working Capital cycle is very large say 8 to 10 months.
6, Backward integration not possible as it is very high end technology.
The bull run in graphite electorde price was exceptional and once in life time event.
In my opinion not much juice is not left in the Company and the ongoing CAPEX of 20000 TPA will consume most of the available cash in the Company.
Disclosure : Tracking the Company from 300 till 5000 and now at 1000 but not invested.
In the recent past, 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 . Since India removed anti-dumping duties on graphite electrodes imported from China in September 2018 which has resulted in increased imports to India , this will certainly have an impact on the pricing power of GI / HEG? Thoughts?
I believe business demand of steel is going to get big boost with Govt spending coming back and project like this. India’s finished steel demand around 100 MT and this project itself can boost demand by 70 MT over period of project.
Biggest game changer can be use in some way to EV battery manufacturing. However, companies does not seem to be hungry for that as seems complacent of the money made in recent past.
Views invited on business drivers of steel and any facts on how much of graphite company supply is to Indian steel companies.
Disc: Invested in GI recently, Have invested before in bull run and existed.
Graphite is a major raw material used in making lithium ion batteries. Does anyone know if Graphite India or HEG has any plans to start supplying graphite to lithium ion battery producers?
Couldn’t find anything here.
I will continue looking through conference calls but want to understand if management of either company are exploring this possible channel of revenue or they plan to continue selling only graphite electrodes to steel producers?
hii Graphite and HEG make graphite electrode Raw material using in lithium ion battery as a Anode martial called Synthetic and natural graphite 80% battery makers use synthetic graphite synthetic graphite has high density and longer battery cycle only indian company to do that that is himadri speciality chemical
Before answering that, first you should know :
Steel is in demand now, post the covid lockdown. Thats why all the steel stocks are rising due to its cyclical nature and rising steel prices.
Then, For the steel companies, they need Graphite electrode to furnace the steel.
Electrodes are used in the EAF method of steel production which is less polluting than the conventional blast furnace method
Graphite India and HEG are the world’s largest graphite electrode suppliers and there is limited supply from china due to pollution factors.
They are emptying their electrode inventory and there is a demand in Graphite Electrode for now.
In the past few days, the promoter of HEG has been transferring some of his shares held in personal capacity to various holding entities belonging to the promoter group.
I was hoping if some of the experienced members could throw some light on the likely reasons for the same. The first thing which comes to mind is for some tax related purpose. But the question is why now, when the industry is seeing a lot of activity. Just a few days ago, there was a investor call with Blackrock.
Why cyclicals are less appealing to majority of the investors? Only learned investors usually ride the benefits of an upcycle and mage huge profits to invest in non-cyclicals.
Is anybody tracking Graphite / HEG? I am interested in understanding how the current up-cycle is going to end. Few observations:
Currently the iron ore prices have gone down, esp. after China put a cap on Steel production.
Demand in China is likely to soften, as China is trying to balance its carbon footprint and esp. also after the Evergrande debacle
Overall global demand looks steady (it is more of an assumption), certainly the demand in India looks strong as Govt is committed to Infra. spending and construction sector is buoyant.
From this limited info. it is likely that carbon electrodes are going to see steady demand. But for how long?
Q2 2021-22 results update: Decent progress in line with what is happening in the Steel sector globally. Key points:
Sales growth - 44% up YoY and 12% QoQ, EBITDA at 192 cr (29%), sequentially down from 212 cr (39%)
Capacity Utilisation - 81% (up from 75% previous quarter)
Next quarters are looking promising, as excluding China all key markets are showing signs of recovery and growth in steel consumption. Graphite has 3 plants, two in India and one in Germany. Both Europe and India have promising outlook for steel demand in 2022, driven by infra, auto and manufacturing growth. The global steel demand will see a further increase by 2.2% to 1,896.4 Mt. Source: Worldsteel Short Range Outlook October 2021 - RECYCLING magazine
Graphite India is zero debt and cash rich company, with 2906 cr in cash (Q2 2021-22 balance sheet). It is allocating this money to diversify in the Graphene technology. It is all set to acquire 46% stake in General Graphene Corporation, a US based company which has developed a breakthrough proprietary technology which would allow them to produce large area, low cost graphene sheets in industrial volumes for commercial applications.
That said until then, Graphite is going to remain at the mercies of business cycles.
Valuation wise, it is at 17.47 EV/EBITDA. Quite undervalue when compared to HEG which is at 66.9 EV/EBITDA.
Disclosure - Not invested. But interested in understanding how this cycle works. Particularly its correlation with pick-up in steel demand. Theoretically, its growth is a 2nd order derivative of steel demand. That said, there is a displacement happening towards EAF technology in steel industry, particularly in China.
Due to rising price of raw material (crude oil based) for needle coke, china graphite electrode price increased by $300~$800/ton.
Needle coke price is expected to increase by $300~$1000/ton. Export of Chinese needle coke is expected to reach $2000-$3000/ton.
