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HDFC Securities
HEG (Buy)
CMP: ₹208.60
Target: ₹258-275
HEG Ltd was established by LN Jhunjhunwala group in technical and financial collaboration with Societe Des Electrodes Et Refractaires Savoie, a subsidiary of Pachiney of France in the year 1977. Investment rationale: a) Set to ride good times as user industry (steel) may rebound over the next few quarters. b) Strong entry barriers. c) Debt reduction to boost PAT margins. d) Softening of raw material prices a big positive. e) Captive power generation provides self-sufficiency.
We believe margin improvement from the current levels could be visible going forward with better utilisations and lower needle coke prices in FY15. Uncertainties on utilisation levels still remain as expectation of a better steel industry recovery still remains a question. However, we feel being an industry leader and a large exporter, HEG could benefit out of shakeout in global graphite electrodes industry.
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