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Thursday, Nov 18, 2004

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Graphite India: Charged by strong fundamentals

Jayanta Mallick

Kolkata , Nov. 17

THE Graphite India stock is of late attracting attention of a section of investors because of improvement in its business dynamics and fundamentals.

The stock, since November 1, has moved up by 23.49 per cent. During the last two sessions, the traded quantity in the counter has moved to six-digit figures from the usual four-digit ones on major bourses.

Among the recent developments that opened up bright possibilities for the company's future earnings and profits are: a recent acquisition in Germany, which will help it bypass EU's anti-dumping duty; a 37.77 per cent drop in interest outgo in the first-half of the current fiscal; steadily growing global prices for graphite electrodes; and the forthcoming capacity expansion plan.

Mr Rajesh Agarwal, an analyst with CD Equisearch, pointed out that in its recent edition, the Forbes magazine has placed it among the best small-size companies with at least 5 per cent return on capital in the next five years in the Asia-Pacific region.

"The share of electric arc furnaces, the main consumers of graphite electrodes, in the total global steel production has nearly doubled to around 34 per cent during the period between 1975 and 2003," he observed.

According to sources close to the management, debt repayment and swap has caused a sharp fall in the interest cost of the company.

According to the management, the proposed capacity expansion by 20,000 tpa is expected to be opertionalised by March 2005.

The closed 10,000 tpa electrodes, specialities and coatings producing German outfit, which Graphite India acquired in August, will also be fully operational by the fourth quarter of 2004-05.

Production from this unit will not attract the 16.7 per cent anti-dumping duty slapped by the EU on Graphite India's products. "Around one fourth of the total exports of Graphite India is targeted towards Europe," said Mr C.V. Desai who together with his broking outfit holds more than three per cent in Graphite India.

"The stock at today's closing price of 114.05 traded at 7 times its trailing four quarter EPS of Rs 7 and 0.87 times fiscal 2004 book value of Rs 130," Mr Pradip Hotchandani of Anagram Stockbroking said.

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