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Centrum Broking
Graphite India (Buy)
CMP: ₹143.75
Target: ₹165
We initiate coverage on Graphite India (GIL) with a ‘Buy’ rating as we see earnings at an inflection point with improved industry demand-supply outlook led by closures, consolidation and reduced Chinese exports of both steel and electrodes.
After several years of stagnation, Electric Arc Furnace (EAF) steel production is expected to grow at a CAGR of 4.6 per cent during CY16-18E and drive incremental annual electrode demand of 60 kt by CY18E. With recent commissioning of key technology upgradation projects providing an improved and flexible production base coupled with sharp improvement in gross profit/t, GIL is set to take a big leap in EBITDA/t over FY17-19E. Healthy balance sheet with ₹400 crore net cash, strong adj. FCF generation, high dividend payout and strong management pedigree are added positives.
Key risk is margin pressure due to forex losses & raw material volatility. Currently, the stock has no institutional sell side coverage.
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