Indian Graphite Sector_ICICI_March 2010

March 24, 2010

ICICIdirect.com | Equity Research

Initiating Coverage

In a global outperformance phase… The Indian graphite sector is currently going through a phase of global outperformance in a technology intensive industry on the back of cost competitiveness and sound operations of domestic graphite producers. Graphite demand has started improving globally. An improvement in steel production and robust product prices have led to a fine performance by Indian graphite players in 9MFY10 leaving global peers far behind. Capacity expansion is underway and low cost operations are ensuring better margins as compared to global peers. Hence, we expect Indian graphite companies to continue their outperformance over international players and increase their share in the global graphite market from ~13% in 2009 to ~18% in 2012E. We are initiating coverage on the graphite sector with a STRONG BUY rating on HEG Ltd and an ADD rating on Graphite India Ltd (GIL).

Bounce back in steel production to propel graphite electrode demand

Steel demand suffered a sharp drop from Q4CY08 and through much of 2009. This was on account of the global financial crisis that led to a severe drop in EAF steel production and the resultant graphite electrode demand. With the recovery in steel production growth firmly in place, we expect graphite demand to increase by ~17% YoY in 2010 on the back of steel production scaling back to pre-crisis levels.

Ongoing capacity expansion ensures economies of scale Indian graphite manufacturers enjoy competitive operating advantages with low manpower costs, captive power feeds and strategic location benefits. Brownfield capacity expansion (ranging from 13% to 21%) at existing locations being carried out by both Indian graphite producers would lead to further cost savings with economies of scale.

Low cost structure ensures highest capacity utilisation, margins globally Indian graphite producers have operated at higher capacity utilisation rates (45-75%) as compared to global peers (35-55%) even during recessionary periods (CY09) due to their low cost structure. Production cuts in response to a drop in demand have been more pronounced for high cost producers in the developed world. Domestic players have weathered the storm better. With the low cost structure being further improved upon, domestic players are expected to enjoy better margins (higher by 500-1000 bps) as compared to global peers, going forward.

Outlook and recommendation Indian graphite players have remained at the forefront of the recovery in graphite electrode demand globally. Apart from operating at higher capacity utilisation levels and achieving better profit margins as compared to global peers in the last few quarters, they have also announced capacity expansion plans recently. Despite possessing strong business models, the current valuations of domestic players are at a steep discount to global peers and leave room for upside. We are initiating coverage on the graphite sector with a positive view. HEG Ltd is our top pick in the space on account of its single location advantage, higher margins and value accretive investment in Bhilwara Energy Ltd.

Indian Graphite Sector Financials & Rating Grid

HEG Limited (HEG) STRONG BUYCMP Rs 338TP Rs 466Upside % 38%Market Cap Rs Cr 1380

FY09 FY10E FY11E FY12ENet Sales Rs Cr 1029.0 1069.7 1155.9 1352.4EBITDA Rs Cr 274.7 380.9 369.3 431.6EBITDA % % 26.7 35.6 31.9 31.9PAT Rs Cr 107.0 181.6 155.6 191.6EPS Rs 25.1 44.5 38.1 46.9P/E x 13.4 7.6 8.9 7.2EV/EBITDA x 8.1 5.4 5.5 4.8

Graphite India Limited (CAREVE) ADDCMP Rs 88TP Rs 95Upside % 8%Market Cap Rs Cr 1740

FY09 FY10E FY11E FY12ENet Sales Rs Cr 1501.0 1294.9 1443.4 1766.8EBITDA Rs Cr 307.6 359.3 295.3 366.7EBITDA % % 20.5 27.8 20.5 20.8PAT Rs Cr 235.5 205.6 166.4 207.6EPS Rs 13.8 12.0 8.4 10.5P/E x 6.4 7.3 10.5 8.4EV/EBITDA x 6.0 4.3 5.5 5.0

Comparative return metrics 1M 3M 6M 12M

HEG 2.1 -11.4 28.9 238.2Graphite India 13.1 13.4 44.8 269.2

Price Movement (Stock vs. Nifty)

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HEG GIL NIFTY

Analyst’s name

Pankaj Pandey [email protected]

Goutam Chakraborty [email protected]

Abhisar Jain [email protected]

Indian Graphite Industry

ICICIdirect.com | Equity Research Page 2

Table of Content Page No Global graphite electrodes industry dynamics 3

Technology intensive and oligopolistic in nature 3 Bounce-back in steel production to propel graphite demand 6 Graphite prices remain strong 9 Scarce availability of raw material remains a concern 10 Power a major cost, Indian players have captive advantage 11 Indian players operating at higher margins 12

Risk & Concerns 13 Financials 14 Valuations & recommendation 16 Companies: HEG Ltd Investment Rationale 21

Capacity build-up spree continues 21 Strong captive power base provides competitive edge 22 Low cost structure ensures better margins 24

Financials 25 Valuations 27 Tables 29 Graphite India Ltd Investment Rationale 34

Capacity expansion underway 34 Diversification benefits through other businesses 35 Realisation and cost of production to trend upwards 36 On competitive footing with global peers 37

Financials 38 Valuations 40 Tables 42



Global graphite electrodes industry dynamics

Technology intensive and oligopolistic in nature…

The graphite electrode industry is characterised by a closely guarded technology with just a small bunch of producers globally. The replacement cost of a new greenfield plant is exorbitantly high and remains non-viable. The last greenfield project was set up by HEG way back in 1977 in India. The industry has oligopolistic competition because of the existence of only seven or eight players on a global basis. Graphite manufacturers are involved in the production of ultra high power (UHP) electrodes that find application in steel production through electric arc furnace (EAF) route. Exhibit 1: Industry structure – Graphite electrode producers

Sr. No. Company Mid-1990's Current1 Graftech International, USA 5 200000 2200002 SGL Carbon, Germany 7 190000 2200003 Four Japanese producers 7 220000 2500004 Other Western producers 2 60000 350005 China 6 75000

Sub-total 27 670000 800000Growth 19.4%

6 HEG 1 20000 660007 Graphite India 4 25000 78000

Sub-total 5 45000 144000Growth 220.0%

Total - UHP Electrode 31 715000 944000Growth 32.0%

Production capacity (Tonne)No. of plants

Source: Industry data, ICICIdirect.com Research

Dependent on steel production growth through EAF route

Graphite electrodes are used as a consumable item in the steel production process through the EAF route. EAF steel plants, also known as ‘mini-mills’ due to their relatively small size (1-3 MT) as compared to blast oxygen furnace (BOF) steel plants, typically consume one graphite electrode every 8-10 hours and require 1.5-2 kg of graphite electrode per tonne of steel production.

Exhibit 2: EAF steel share in global steel production rises smartly

283405 450 473 539

691803

3234

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2523

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1975 1980 1985 1990 1995 2005 2011E

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Total Steel Produced (MT) EAF Steel (MT)Graphite Electrode Demand('000 tonne)

Source: Industry, ICICIdirect.com Research

Graphite industry is technology intensive andconstituted by just a few producers globally

Graphite capacity expansion is possible mainlythrough the brownfield route. Indian players haveexpanded capacity at a much faster pace as comparedto their global peers

Graphite electrode demand is dependent on steelproduction through the EAF route and has grownsmartly due to the increasing share of EAF in worldcrude steel production

EAF Share (R.H.S)

700045



The demand for graphite electrodes has increased consistently on the back of strong growth in overall steel production and increasing share of steel produced through the EAF route over the last two decades (EAF steel share has increased from 25% to 34% over 1985-2005).

EAF route enjoys strategic advantages over BOF method

EAF route method of producing steel is continuously increasing its share in the world’s total steel production due to several advantages over the traditional blast furnace method. Some of these include:

• Lower initial capital expenditure requirements and higher productivity

• Smaller size leading to easy switch on and off options (can be done every two or three hours), which allows flexibility in production

• Suitable for producing high-end special steel and batch process of production allows easy change in the product mix

• Lower cost of production as compared to non-integrated BOF steel producers

Exhibit 3: EAF steel production cost break-up

ParticularsCost/unit

(US$/tonne) I/P Reqd/tonne Cost (US$)Steel Scrap (tonne) 375 1.13 424Power (KwH) 0.075 600 45Ferro Alloys (tonne) 1200 0.01 12Graphite Electrodes (Kgs) 5 1.8 9Transport 10 1 10Labour 20 1 20Others 10Total Cost/tonne 530

EAF Production


Exhibit 4: BOF steel production cost break-up

ParticularsCost/unit (US$/tonne) I/P Reqd Cost

Iron Ore 90 1.7 153Coking coal 200 1 200Coke conversion 30 1 30Power (KwH) 0.075 500 38Scrap 375 0.1 38Ferro alloys 1200 0.015 18Other Raw Material 30 1 30Transport & Others 30 1 30Labour 25 1 25Total Cost/tonne 561

BF Production


EAF route more pronounced in the western world and Middle East …

Against the share of ~31% on a global basis, the EAF route accounts for 40-50% of steel produced in the western world and ~85% in Middle East. This is due to better availability of scrap (major ingredient in EAF steel making) and higher demand of special/alloy steel that is produced mainly

EAF route of steel production enjoys strategicadvantages over BOF method like lower cost ofproduction and easy switch on and off options



through EAF route. Due to higher share of EAF produced steel, graphite electrode demand is driven largely from these markets.

Exhibit 5: EAF steel share -2008 (Country wise)

CountryTotal Steel

produced (MT)EAF Steel

(MT)EAF Share

(%)Europe (EU 27) 198 82 41.4USA 91 53 58.1Central & South America 48 18 37.1Middle-east 16 14 87Asia 767 161 21Total 1323 405 30.6

Source: IISI, ICICIdirect.com Research

Exhibit 6: EAF steel production break-up

Location

Crude Steel (MT)

EAF Steel (MT)

EAF Share

(%)

Crude Steel (MT)

EAF Steel (MT)

EAF Share

(%)

Crude Steel (MT)

EAF Steel (MT)

EAF Share

(%)EU(27) 198 82 41 139 56 40 151 60 40USA 91 53 58 58 35 60 72 43 60Middle-east 16 14 88 17 15 85 20 17 85Asia 767 160 21 795 159 20 830 166 20World 1323 405 31 1220 341 28 1329 399 30

2008 2009 2010E


…but supply of graphite electrodes has increased mainly from India Exhibit 7: Share in world graphite production

28 27

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24 2427

13

21 2124

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US Europe Japan India

(% S

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Mid-1990s Current 2011-12E

India's share increasing steadily


While India has been increasing its market share (up from 6% to 13% in the last 10-12 years) of graphite electrode production steadily over the years (through brownfield expansion), the western world and Japanese share is steadily coming down. This is due to lesser capacity addition on account of higher operational and capital costs and lower cost competitiveness as compared to Indian players like HEG and GIL who enjoy lower power and manpower costs.

EAF share in steel production is ~58% in the US and~41% in Europe

India’s share in overall supply of graphite electrodeshas increased due to build-up in capacities by Indianplayers on account of better cost competitiveness andbrownfield expansion capability



Bounce-back in steel production to propel graphite electrode demand

Steel demand suffered a sharp drop from Q4CY08 and through much of 2009. This was due to the global financial crisis that, in turn, led to massive production cuts in the developed world on account of shrinking demand. This led to a severe drop in EAF steel production and the resultant graphite electrode demand. With the recovery in steel production growth firmly in place, we expect graphite demand to increase by ~17% YoY in 2010E. This will be on the back of steel production scaling back to pre-crisis levels of ~1330 MT and EAF steel production going up to 399 MT.

Exhibit 8: Strong bounce back expected in demand

SteelProduction

(MT) EAF Share

EAFProduction

(MT)

Implied UHP GraphiteElectrode Demand

('000 tonne)* Growth2005 1144 34% 389 7002006 1247 32% 393 707 1%2007 1346 32% 427 769 9%2008 1323 31% 405 729 -5%2009 1219 28% 341 614 -16%

2010E 1329 30% 399 718 17%2011E 1395 32% 446 804 12%

* Graphite electrode demand based on 1.8 Kgs reqd./tonne of EAF steel produced Source: Worldsteel.org, Industry, ICICIdirect.com Research

Significant EAF capacity additions planned in Asia and Middle East….

The advent of the global recession has led to significant demand destruction and production cutbacks in the developed world. However, Asia and Middle East have shown strong resilience. They have continued on their strong growth path with steel production growing over 13% in China and ~3% in India and the Middle East in 2009. EAF capacity to the tune of 110 MT is planned to be on stream in the next five to six years resulting in additional graphite electrode (UHP grade) demand of ~2 lakh tonne.

Exhibit 9: EAF capacity pipeline in the next five or six years

Location

New EAFCapacity

(MT)

Additional UHPGraphite electrode

demand ('000 tonne)Rationale for New EAF capacity

build-up

China 45 81Higher demand for special steel. Flexibility in production

India 10 18Better availability of captive power to run EAF plants

Middle-east 20 36Higher availability of cheap gas as a source of power

Sub-Total 75 135Other locations 35 63Total 110 198


The majority of the new EAF capacity (75 MT, which is ~68% of the total) is expected to be in the Asian and Middle East region. This will create demand for graphite electrode, which can be catered to easily by Indian producers due to close proximity. This is due to the fact that captive power availability remains strong in these regions and the requirement for special steel is on the rise. It is produced through the EAF route. We estimate an additional demand of ~1.35 lakh tonne of graphite electrode demand from these regions in the next five or six years.

The expected rise in steel production to the tune of9% is expected to result in EAF production growthand ~17% YoY rise in UHP electrode demand

EAF capacities planned to be on stream in thenext five to six years are ~110 MT. This couldresult in additional UHP electrode demand of ~ 2lakh tonne



….and graphite electrodes capacity expansions in India already underway

Keeping in mind the bounce-back in steel production and subsequent graphite electrode demand, Indian graphite electrode manufacturers have announced capacity expansions ranging from 13-21% recently. This reflects their intention of achieving growth and a larger footprint in the global graphite electrodes market. A strong balance sheet and robust operational cash flows provide ample comfort towards meeting capital requirements for the same.

Exhibit 10: Graphite electrode capacity build-up (Indian players)

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Mid 1990s Addition Current Expansion 2012E

HEG Ltd. Graphite India Ltd.

Source: Company, ICICIdirect.com Research

Both Indian manufacturers have almost tripled their installed graphite electrode capacities during the last 15 years on the back of brownfield expansions and focus on cost competitiveness with backward integration. HEG is slated to increase its capacity by ~21% to 80,000 tonne whereas Graphite India Ltd has announced plans to augment its existing capacity by ~13% to 88,500 tonne. The increased capacities are expected to be on stream by 2012 and help increase the volumes and sales growth for both companies.

Indian producers have announced capacity expansionplans to cater to increased demand in the next fewyears and increase their share in the graphite electrodeindustry further

While HEG is increasing its capacity by ~21%, GILis implementing a capacity increase of ~13%. Thecapacity expansions are slated to be completed by2012E



Indian players operating at higher capacity utilisation…

Exhibit 11: Plant capacity utilisation - Indian players stay ahead

38%42%40%

36%

56%

41%

65%63%

47%43%

75%69%

56%63%

0%

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Q1CY09 Q2CY09 Q3CY09 Q4CY09

Graftech SGL GIL HEG


The plant capacity utilisation factor for Indian players has remained well above their global counterparts during the recessionary phase in 2009. This reflects the cost competitive production ability of Indian players and their inherent strength in snatching share from big global producers during tough times.

…and further improvements expected, going forward

Exhibit 12: Indian players capacity utilisation trend

80%

85%80%

70%

84%

100%

83%

71%

60%

85%82%

94%

40%

50%

60%

70%

80%

90%

100%

110%

FY07 FY08 FY09 FY10E FY11E FY12E

HEG GIL


India’s graphite electrode manufacturers have been able to operate at capacity utilisation levels above 80% during FY07-09 on account of robust global steel production. After operating at lower utilisation rates for FY10 due to drop in steel production and graphite electrode demand, Indian players are expected to increase production during FY11-12E and operate closer to pre-crisis utilisation levels.

Indian producers have been able to operate at ahigher plant utilisation factor as compared to theirglobal peers during the tough times of slump in steelproduction

The capacity utilisation trend is expected toimprove, going forward, due to bounce-back in steelproduction and improvement in graphite electrodedemand



Graphite prices remain strong despite volatile steel prices

Although benchmark steel (HRC) prices have suffered huge volatility over the last few years due to the fluctuating steel cycle globally, graphite electrode prices have remained in an uptrend due to i) production cuts by global graphite players, ii) small share of graphite cost in overall production cost metrics of EAF producers, iii) high cost of its key raw material needle coke and iv) oligopolistic nature of the graphite industry.

Exhibit 13: HRC prices vs. graphite electrode prices

*Prices Indexed to 100 at 2005 Source: HEG presentation, ICICIdirect.com Research

Blended realisations/tonne of Indian manufacturers has remained strong during FY07-09. Though the realisations are expected to remain subdued in 2010, overall volatility remains low as compared to steel prices and the trend remains positive.

Exhibit 14: Blended realisation/tonne of Indian manufacturers

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Graphite prices are not cyclical in nature like steeland have remained firm

Blended realisations/tonne for Indian players hasincreased steadily but is expected to remainsubdued, going forward

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HRC GE Prices



Scarce availability of raw material remains a concern

In the production of various types of graphite electrodes, production of ultra high power (UHP) electrodes (that is used extensively in steel EAFs) requires a special type of coke named needle coke. The availability of needle coke remains scarce in global market and is in the hands of just four producers globally, in US and Japan. ConocoPhillips of US controls ~60% of the needle coke market. The current capacity of needle coke globally is ~8 lakh tonne. As approximately 1 tonne of needle coke is required to manufacture an equivalent amount of UHP electrode, we estimate that needle coke supplies could remain tight, going forward, with increase in EAF production and subsequent increase in UHP electrode demand. We believe that without a further build-up in needle coke capacity there could be a potential shortage of needle coke in CY11E. This, in turn, could lead to substantial contract price escalation and increase the costs for graphite electrode manufacturers globally.

Exhibit 15: Needle coke requirement

SteelProduction

(MT) EAF Share

EAFProduction

(MT)

Implied UHP GraphiteElectrode Demand

('000 tonne)

Needle cokeRequirement

(tonne)2007 1346 32% 427 769 7692008 1323 31% 405 729 7292009 1219 28% 341 614 614

2010E 1329 30% 399 718 7182011E 1395 32% 446 804 804


Needle coke prices are set on a yearly contract basis. Prices in 2010 were booked at approximately the same levels as that of 2009. This, in turn, was settled at ~40% higher over 2008 prices. Current needle coke prices are in the range of US$1700-1800/tonne. The industry as a whole keeps the cost of needle coke a closely guarded secret. Indian companies specify the total coke cost in terms of CP coke in their annual filings. Coke cost accounts for ~22-23% of blended realisations/tonne of graphite electrodes for Indian producers.

Exhibit 16: Coke cost comparison

FY08 FY09Coke cost/tonne (Rs) 42883 48290As % to costs 34.1 29.6As % to sales 23.7 22.2

Coke cost/tonne (Rs) 44683 56959As % to costs 29.7 29.3As % to sales 23.5 23.3

HEG

GIL


Needle coke availability remains tight and could be acause for concern for graphite electrodemanufacturers, going forward

Coke cost comprises 30-35% of the total cost ofproducing graphite electrode



Exhibit 17: Raw material cost as percentage of sales

29.2

33.5

27.3 29.2

32.9

41.239.0

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33.431.4

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Power a major cost component, Indian players enjoy captive advantage

Apart from the need for coke supplies, graphite electrode manufacturing requires a huge amount of power (~6,000 units of power are required to produce one tonne of graphite electrode). Power cost constitutes between 13-23% of total costs for Indian producers. It is sourced through captive power plants and state grids. Indian players enjoy the advantage of sourcing relatively cheap power through their captive power plants as compared to other global producers. Exhibit 18: Power cost metrics (as % to total cost)

FY08 FY09 Power sourcing % CaptiveHEG 27% 23% 77 MW CPP 100%GIL 13% 13% 33 MW CPP 20%

CPP-Captive power plant Source: Company, ICICIdirect.com Research

Indian players enjoy captive power plant advantage tomeet power requirements in graphite electrodeproduction



Indian producers operating at higher margin compared to global peers Indian graphite electrode producers have operated at comparatively higher operating margins as compared to global peers and have been able to achieve much higher margins in CY09 as compared to global graphite manufacturers due to better realisations, efficient product mix and reduction in costs.

Exhibit 19: EBIT margin trend - Indian producers stay ahead

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Graftec SGL Tokai Carbon HEG GIL

CY07/FY08 CY08/FY09 CY09/9MFY10


The total cost as a percentage of sales has come down for both Indian producers in the last few quarters due to the combined effect of robust realisations, better product mix and reduction in costs. Exhibit 20: Indian player’s total cost as percentage of sales

74.6 74.9 67.9

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Indian producers are operating at higher operatingmargins as compared to global producers due tolower cost structure and better product mix



Risks and concerns

Decrease in product prices due to competition

The global graphite industry had to resort to massive production cuts with a drop in steel production and graphite electrode demand in 2009. This, in turn, ensured that prices remained firm. Going forward, global players are expected to increase production with a bounce back in demand and product prices could dip more than expected due to competition among players and higher production levels.

Sudden spurt in raw material prices As discussed earlier, the supply of needle coke required to manufacture graphite electrodes remains scarce and in the hands of a few producers globally. This increases the risk of a sudden spurt in raw material costs for graphite manufacturers and negatively affects the profitability.

Lower-than-expected EAF steel production and graphite demand

We expect global steel production to increase by ~9% in 2010 resulting in increased production even through the EAF route. However, lower-than-expected EAF steel production could potentially result in lower graphite electrode demand and affect the sales volume and profit of the graphite producers negatively.

Adverse currency movements

Indian graphite producers have a major dependence on exports of graphite electrodes to various steel players across the globe. This exposes them to adverse currency risk. Any major fluctuations in the currency would negatively impact the earnings of graphite producing companies.



Financials

Revenue growth to remain moderate

Both Indian graphite companies are expected to show moderate revenue growth in the next two years due to steady build-up in sales volume but subdued realisations. While HEG is expected to increase sales volume in FY11E due to additional capacity of 6000 tonne created through debottlenecking, GIL is expected to increase volumes and sales on account of higher capacity utilisation.

We expect HEG to clock revenue CAGR of 9.5% over FY09-12E on the back of ~6% volume CAGR over FY09-12E to 56,100 tonne in FY12E. GIL is expected to exhibit revenue CAGR of 5.6% during FY09-12E.

Exhibit 21: Revenue growth to remain moderate

946 1029 1070 1156 1352

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CAGR (FY09-12E)HEG - 9.5%

GIL-Cons - 5.6%


EBITDA margin to remain robust, going forward

Both Indian graphite players have seen margin expansion in 9MFY10 on account of product price increase and reduction in costs. Though we expect lower graphite electrode prices in FY11E, margins are expected to remain firm as needle coke supplies for 2010 have been secured and other costs are under control. We expect HEG to achieve EBITDA margin of ~32% in FY11 and FY12E and GIL to have a consolidated EBITDA margin of ~21% in FY12E.

We expect HEG to clock revenue CAGR of 9.5% overFY09-12E on the back of ~6% volume CAGR overFY09-12E to 56,100 tonne in FY12E. GIL is expected toexhibit revenue CAGR of 5.6% during FY09-12E



Exhibit 22: EBITDA margin trend

31.9%

35.6%

26.7%

32.1% 31.9%

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27.8%

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25.0%

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35.0%

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HEG GIL-Cons


PAT margins to exhibit similar trend

PAT margins in FY10E are expected to be higher due to excellent performance by both Indian graphite players in 9MFY10. We expect the PAT margin to show a dip in FY11E in conjunction with the EBITDA margins but improve in FY12E and stay at a robust level considering the industry dynamics.

Exhibit 23: PAT margin trend

15.5%

10.4%

17.0%

13.5%14.2%

11.8%11.5%

15.9%

15.7%

10.7%

4.0%

8.0%

12.0%

16.0%

20.0%


HEG GIL-Cons


We expect HEG to achieve EBITDA margin of ~32%in FY11 and FY12E and GIL to have a consolidatedEBITDA margin of ~21% in FY12E

We expect HEG and GIL to achieve PAT margins of14.2% and 11.8% in FY12E, respectively



Valuations & recommendation With the fortunes of the global steel industry taking a sharp turn for the better during the last few months, the global graphite industry has seen a smart pick-up in capacity utilisation levels and is gearing for double-digit volume growth, going forward. Indian players have remained at the forefront of the recovery and apart from operating at higher capacity utilisation levels and better profit margins as compared to global peers have also announced capacity expansion plans. Though the product prices are expected to remain subdued and raw material price fluctuation remains a concern, Indian graphite producers have a competitive advantage on a global basis due to their low cost structure. We expect the domestic graphite players to keep up their outperformance over global players, going forward. We are initiating coverage on the Indian graphite sector with a positive view. HEG Ltd is our top pick in the sector with highest margin in the industry and additional value from its stake in Bhilwara Energy Ltd. We are initiating coverage on HEG Ltd with a STRONG BUY rating and GIL with an ADD rating. Valuation – Indian players trading at sharp discounts We have valued the Indian graphite companies on P/E and EV/EBITDA basis in comparison to global graphite players like Graftec, SGL Carbon, Tokai Carbon and Showa Denko, who together account for ~70% of global graphite market. Despite having strong fundamentals, robust business models and better margins, domestic players are trading at steep discount as compared to global peers on both P/E and EV/EBITDA basis. Currently for domestic players, the average P/E is at a discount range of 45-56% based on 1-2 years forward earnings. Average EV/EBITDA is at a discount range of 23-32% based on 1-2 years forward earnings and enterprise value. We also note that forward estimates of EBIT margins and return ratios for Indian players are higher as compared to global peers. This, in turn suggests that current valuation of domestic players leaves room for upside. While we are impressed by the low cost structure of Indian players resulting in higher margins, we remain cautious of the fact that bigger size and reach of global majors gives them the advantage of being price and industry setters and leave Indian players as just followers. Considering the industry dynamics and domestic player’s solid business profiles, we value the Indian graphite companies at a discount of 30% on P/E basis and 15% on EV/EBITDA basis, respectively, as compared to global peers. Based on the above reasoning, we are ascribing a P/E multiple of 10x and EV/EBITDA multiple of 6x to domestic players and taking the average of FY11E and FY12E earnings to arrive at our target price of Rs 466 for HEG Ltd and Rs 95 for GIL. We are initiating coverage on the Indian graphite sector with a STRONG BUY rating on HEG Ltd and ADD rating on GIL.

Despite having strong fundamentals, robust business

models and better margins, domestic players are trading at

steep discount as compared to global peers on both P/E

and EV/EBITDA basis. Currently for domestic players, the

average P/E is at a discount range of 45-56% based on 1-2

years forward earnings. Average EV/EBITDA is at a

discount range of 23-32% based on 1-2 years forward

earnings and enterprise value.



Exhibit 24: Global peer comparison

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12EBIT (%)HEG 22.3 31.3 27.1 27.1GIL 19.2 26.3 19.0 19.2Graftec 27.2 13.1 15.5 19.0SGL 19.7 3.0 8.7 12.6Tokai Carbon 16.4 5.1 11.3 14.0Showa Denko 2.3 -1.3 4.4 5.1

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12RONW (%)HEG 18.8 27.8 20.2 21.3GIL 25.2 17.3 12.0 13.0Graftec 41.7 16.0 18.9 20.2SGL 24.0 16.1 5.4 11.4Tokai Carbon 10.8 1.6 5.6 7.7Showa Denko 3.2 -16.5 6.0 8.4

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12P/E (x)HEG 13.4 7.6 8.9 7.2GIL 6.4 7.3 10.5 8.4Graftec 6.8 24.8 12.0 9.0SGL 7.1 30.1 29.6 15.0Tokai Carbon 9.0 72.7 22.0 16.7Showa Denko 30.1 NA 20.8 14.4Average for domestic players 9.9 7.5 9.7 7.8Average for global players 13.3 42.5 21.1 13.8Discount (%) 25.2 82.5 54.2 43.4

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12EV/EBITDA (x)HEG 8.1 5.4 5.5 4.8GIL 6.0 4.3 5.5 5.0Graftec 4.2 12.6 7.2 5.7SGL 4.6 11.4 9.6 6.8Tokai Carbon 4.5 10.1 6.9 5.5Showa Denko 8.2 14.4 7.5 6.7Average for domestic players 7.1 4.9 5.5 4.9Average for global players 5.4 12.1 7.8 6.2Discount (%) -31.3 59.7 29.7 20.8

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12P/BV (x)HEG 2.4 1.9 1.7 1.4GIL 1.3 1.2 1.1 1.0Graftec NA 2.7 2.2 1.9SGL 1.6 1.7 1.6 1.5Tokai Carbon 1.0 1.1 1.0 1.0Showa Denko 0.9 1.3 1.2 1.1Average for domestic players 1.9 1.6 1.4 1.2Average for global players 1.2 1.7 1.5 1.4Discount (%) -61.6 7.8 6.5 10.5

Source: Bloomberg, ICICIdirect.com Research



Exhibit 25: One year forward P/E chart

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Exhibit 26: One year forward EV/EBITDA chart

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March 24, 2010


Initiating Coverage

Ahead of the competition… HEG is the world’s largest single location graphite electrode producer with an installed capacity of 66,000 MT of UHP grade graphite electrode and captive power plants of 77 MW. Organic growth through brownfield expansion and better capacity utilisation is expected to drive sales volume. Also, with captive power providing the competitive edge and low cost of operations ensuring higher margins as compared to global peers, HEG finds itself a stretch ahead of the competition. We expect HEG to register an FY09-12E CAGR of 9.5% and 21.4% in net sales and net profit, respectively. We are initiating coverage on the stock with a STRONG BUY rating.

Capacity build-up spree continues

HEG has achieved organic growth through a smart build-up in capacity in graphite electrode and captive power during the last decade by leveraging its technological expertise and single-location advantage. After adding 6,000 tonne of capacity through de-bottlenecking recently, the company is expected to increase its graphite electrode capacity through the brownfield route by ~21% (14,000 tonne) to 80,000 tonne by FY12E.

Strong captive power base provides competitive edge HEG holds a competitive edge over its peers on account of its strong captive power base with 77 MW of installed capacity. Apart from being self-sufficient in terms of its captive requirement of power even at expanded capacity, the company is currently also enjoying the benefits of surplus power sales, which is an added advantage.

Low cost structure ensures high margin The company’s low-cost structure on account of cost efficiencies, lowest manpower costs globally and economies of scale ensure high operating margins. This places it well ahead of its global peers in terms of profitability and capacity utilisation levels.

Valuations At the CMP of Rs 338, the stock is currently trading at cheap valuations of 7.2x FY12E EPS of Rs 46.9 and FY12E EV/EBITDA of 4.8x. We expect an upward re-rating of the stock on the back of a strong operational performance, going forward. We value the stock using P/E and EV/EBITDA in comparison with global peers and assign a target price of Rs 466 to the stock with a STRONG BUY rating.

Exhibit 27: Key Financials FY08 FY09 FY10E FY11E FY12E

Net Sales (Rs cr) 946.0 1029.0 1069.7 1155.9 1352.4EBITDA (Rs cr) 303.9 274.7 380.9 369.3 431.6Net Profit (Rs cr) 146.4 107.0 181.6 155.6 191.6EPS (Rs) 33.0 25.1 44.5 38.1 46.9P/E (x) 10.2 13.4 7.6 8.9 7.2P/BV (x) 2.7 2.4 1.9 1.7 1.4EV/EBITDA (x) 7.0 8.1 5.4 5.5 4.8RoE (%) 32.4 18.8 27.8 20.2 21.3RoCE (%) 19.5 15.9 21.1 19.3 21.0


HEG Ltd (HEG) Rs 338

Rating Matrix Rating : Strong Buy

Target : Rs 466

Target Period : 12 months

Potential Upside : 38%

YoY Growth (%)

FY09 FY10E FY11E FY12ENet Sales 8.8 4.0 8.1 17.0EBITDA -9.6 38.6 -3.0 16.9Net Profit -26.9 69.6 -14.3 23.1EPS (Rs) -23.9 76.9 -14.3 23.1 Stock Metrics Bloomberg/Reuters Code HEG.IN/HEGL.BOSensex 17451Average volumes 35000Market cap (Rs Cr) 1380.152 week H/L 412/94Equity capital (Rs Cr) 40.8Promoter's stake (%) 54.7FII holding (%) 2.6DII holding (%) 13.5

Price movement (Stock vs. Nifty)

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FY09 FY10E FY11E FY12EPE (x) 13.4 7.6 8.9 7.2Target PE (x) 18.5 10.5 12.2 9.9EV/EBITDA (x) 8.1 5.4 5.5 4.8Target EV/EBITDA (x) 10.1 6.8 6.9 6.0

Analyst’s name




HEG Ltd (HEG)


Company Background HEG Ltd, a flagship of the LNJ Bhilwara group, is Asia’s leading graphite electrode manufacturer and exporter. The company was set up in 1977 and had graphite manufacturing technology, which was originally sourced from ‘SERS’ – a subsidiary of Pechiney, France. Currently the company has interests in graphite electrode and power with an installed capacity of 66,000 MT of UHP graphite electrodes and 77 MW of power.

HEG operated as a JV partner with Pechiney till early 1990s with a capacity of 10,000 tonne of mainly lower grade electrodes. After the exit of its French partner Pechiney, the company started to grow and expand its capacity rapidly. Since 1990s HEG has invested ~Rs 825 crore in capex and has increased its graphite electrode capacity from 10,000 tonne to 66,000 tonne.

The company exports ~80% of its production outside India to more than 100 customers across 30 countries around the globe. HEG has an established global customer base comprising steel majors like Arcelor Mittal, Nucor, Posco and Tata Steel.

Exhibit 28: Sales break-up (By region-FY09)

3%

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15%

Middle-east, 26%

Asia, 14%

Europe , 14%


Well distributed sales mix by geography with focuson Middle East and India markets

Promoter and institutional holding trend (%)

51.5 52.7 53.7 54.7

17.2 16.4 15.9 16.1

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HEG Ltd (HEG)


Investment Rationale HEG owns the world’s largest capacity of manufacturing graphite electrodes (UHP Capacity: 66000 MT) at a single location creating cost efficiencies and economies of scale. This is impressive when considered along with the fact that it has fully owned captive power plants providing self-sufficiency and diversification through merchant power sales and access to cheap manpower resulting in lowest employee costs globally. With a bounce-back in steel production across the globe already underway and subsequent increase in graphite electrode demand looking inevitable, we expect the company to achieve higher sales volume, going forward. This will be through better capacity utilisation resulting in revenue and net profit of Rs 1352.4 crore and Rs 191.6 crore in FY12E, respectively and a CAGR of 9.5% and 22%, respectively, during FY09-12E. We are initiating coverage on the stock with a STRONG BUY rating and a target price of Rs 466.

Capacity build-up spree continues

HEG has achieved a smart build-up in capacity in graphite electrode and captive power during the last decade by leveraging its technological expertise and single-location advantage. Continuous brownfield expansion has resulted in the graphite electrode capacity increasing from just 14,000 tonne in 1990 to 30,000 tonne in 2002 and 66,000 tonne in 2009 (up by 120% in seven years). The company has also set up three captive power plants with a total capacity of 77 MW during this period and spent ~Rs 825 crore on its expansion activities.

Exhibit 29: Capacity build-up spree continues

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Capacity expansion is in progress continuously at HEG. After adding 6,000 tonne of capacity through de-bottlenecking recently, the company is expected to increase its graphite electrode capacity through the brownfield route at its existing location in Mandideep, Bhopal by ~21% (14,000 tonne) to 80,000 tonne by FY12E at a competitive cost of Rs 225 crore. The additional capacity is expected to be on stream by H2FY12E and would result in YoY topline growth of ~17% in FY12E.

HEG has achieved a smart build-up in capacity ingraphite electrode and captive power during the lastdecade by leveraging its technological expertise andsingle-location advantage

The company is expected to increase its graphiteelectrode capacity through the brownfield route at itsexisting location in Mandideep, Bhopal by ~21%(14,000 tonne) to 80,000 tonne by FY12E at acompetitive cost of Rs 225 crore.

HEG Ltd (HEG)


Strong captive power base provides the competitive edge

HEG enjoys a strategic advantage and holds a competitive edge over its peers on account of its strong captive power base comprising two thermal power plants with rated capacity of 63 MW and a hydro-electrical power plant of 13.5 MW. While the thermal power plants are located adjacent to its graphite electrode manufacturing facility, the hydro-electric power plant is situated at just about 80 km from the graphite plant. Taking into account the fact that graphite manufacturing process is power intensive and requires ~6,000 units of power for producing one tonne of graphite electrode, the current capacity of 77 MW is enough to meet all captive power requirements even at HEG’s expanded capacity of 80,000 tonne.

Exhibit 30: Power revenue metrics

106.9 97.075.4

107.5135.1 144.2

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Currently, HEG has surplus power that is sold to third parties at attractive rates. We believe the company would have surplus power for selling on a merchant basis before commissioning its additional capacity. We expect the company to clock net revenues of ~Rs 54 crore and ~Rs 63 crore in FY10E and FY11E, respectively, through sales of surplus power. Cost of production to remain under control Apart from enjoying the benefits of economical captive power, HEG has the distinction of having the lowest manpower costs in the industry globally on account of its single site location of graphite electrode manufacturing and efficient production processes. HEG’s manpower costs have remained at an industry low of ~5.5% of overall production costs during the last few years. We expect the manpower cost to account for ~6% of overall costs in FY11E and FY12E.

HEG’s current power capacity of 77 MW is enoughto meet all the captive power requirements even atexpanded capacity base of 80,000 tonne

We believe the company would have surplus powerfor selling on a merchant basis beforecommissioning its additional capacity and expectthe company to clock net revenues of ~Rs 54 croreand ~Rs 63 crore in FY10E and FY11E, respectively,through sales of surplus power

HEG’s manpower costs have remained at anindustry low of ~5.5% of overall production costsduring the last few years. We expect the manpowercost to account for ~6% of overall costs in FY11Eand FY12E

HEG Ltd (HEG)


We expect the overall cost of production to remain under control for HEG, going forward, despite the increase in cost of its key raw material needle coke. This will be due to reduction in costs on account of power, lower manpower costs and operational efficiencies reducing other costs. Exhibit 31: Cost of production break-up

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HEG Ltd (HEG)


Low cost structure ensures better margins as compared to global peers Due to its low cost structure, HEG has enjoyed better EBIT margins as compared to global peers in the last few years. We expect it to stay well ahead of the competition in terms of profitability, going forward. We expect HEG to achieve EBIT margins of ~27% in both FY11E and FY12E, whereas consensus estimates for global peers indicate EBIT margins well below 20% in the next few years. Exhibit 33: EBIT margin comparison

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HEG's EBIT margins well ahead of global peers


Exhibit 34: Key Assumptions - Sales volume

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We expect HEG to achieve EBIT margins of ~27% inboth FY11E and FY12E, whereas consensusestimates for global peers indicate EBIT margins ofwell below 20% in the next few years

HEG Ltd (HEG)


Financials

Steady revenue growth

The company reported a topline of Rs 946.0 crore and Rs 1029.0 crore in FY08 and FY09, respectively. The topline has grown at a CAGR (FY07-FY09) of 10.1%, on account of 6.1% CAGR (FY07-09) in sales volume. We expect the topline to grow at a healthy CAGR (FY09-FY12E) of 9.5% to Rs 1352.4 crore, backed by sales volume CAGR (FY09-12E) of 5.8%.

Exhibit 35: Steady revenue growth

946.01029.0 1069.7

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Sales CAGR (FY09-12E) - 9.5%


Healthy EBITDA margin, going forward

HEG reported a strong EBITDA of Rs 303.9 crore in FY08 with EBITDA margin of 32.1%. After a slight drop in profitability in FY09, the company has shown a very strong performance in 9MFY10 and reported EBITDA margin of 34%. Going forward, we expect the company to maintain healthy EBITDA margins on account of its low-cost structure and robust demand. We expect the company to clock EBITDA and PAT margin of 31.9% and 14.2%, respectively, in FY12E.

Exhibit 36: Margins to sustain at higher levels

31.9%31.9%

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We expect the topline to grow at a healthy CAGR(FY09-FY12E) of 9.5% to Rs 1352.4 crore, backed bysales volume CAGR (FY09-12E) of 5.8%

We expect the company to maintain healthy EBITDAmargins on account of its low-cost structure androbust demand. We expect the company to clockEBITDA and PAT margin of 31.9% and 14.2%,respectively, in FY12E

HEG Ltd (HEG)


Strong return ratios

HEG reported strong return ratios in FY08 on account of higher profitability. However, it suffered a drop in FY09 due to a drop in demand on account of recession. We expect the company to maintain strong return ratios, going forward, and achieve RoNW and RoIC of 21.3% and 22.5%, respectively, in FY12E on the back of strong operational performance overall.

Exhibit 37: Strong return ratios

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Balance sheet strength provides comfort

The company boasts of a strong balance sheet with debt-equity ratio of 1.2 and net worth of ~Rs 700 crore. The company expects to complete its expansion largely through internal accruals accumulated from strong cash flow generation. We expect the net worth of the company to increase to ~Rs 973 crore and debt-equity ratio to drop to 0.8 by FY12E.

Exhibit 38: Strong balance sheet

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We expect the company to maintain strong returnratios, going forward, and achieve RoNW and RoIC of21.5% and 22.5%, respectively, in FY12E on the back ofan overall strong operational performance

HEG Ltd (HEG)


Valuations HEG is the better of the two graphite players in India and has the best margins on a global basis currently due to its low-cost business model. We have valued HEG’s graphite business using P/E and EV/EBITDA methodology to arrive at a target price of Rs 466. We are initiating coverage on the stock with a STRONG BUY rating. P/E based valuation of Rs 462/share At the CMP of Rs 338, the stock is trading at 8.9x FY11E EPS of Rs 38.1 and 7.2x FY12E EPS of Rs 46.9. The stock is trading at a discount of ~47% as compared to global average on CY11/FY12 earnings. We value the stock at 10x (30% discount to global average) the average of FY11E and FY12E EPS and arrive at a fair value of Rs 425.1/share for its core graphite business. HEG’s other investment value comes out to Rs 36.9/share. The total fair value based on P/E methodology works out to Rs 462/share. Exhibit 39: P/E based valuation (Rs) FY11E FY12EEPS 38.11 46.91Weightage 0.5 0.5Adj. EPS 42.51Average global P/E (x) 13.8Discount given 30%P/E (x) 10

Core business value/share 425.1Other investment value/share 36.9

Total Value/Share 462.0 Source: Company, ICICIdirect.com Research

Exhibit 40: Global P/E valuation comparison

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12P/EHEG 13.5 7.6 8.9 7.2Graftec 6.8 24.8 12.0 9.0SGL 7.1 30.1 29.6 15.0Tokai Carbon 9.0 72.7 22.0 16.7Showa Denko 30.1 NA 20.8 14.4Average for global players 13.3 42.5 21.1 13.8Discount (%) -2.1 82.0 57.7 47.4


We value the stock at 10x (30% discount to globalaverage) the average of FY11E and FY12E EPS

HEG Ltd (HEG)


EV/EBITDA based valuation of Rs 470/share The stock is trading at a discount of ~20-30% as compared to the global average on CY10-11 earnings. We value the stock at 6x (15% discount to global average) the average of FY11E and FY12E EBITDA and arrive at a fair value of Rs 1768.4 crore for its core graphite business. HEG’s other investment gives an additional value of Rs 150.8 crore. The total fair value based on EV/EBITDA methodology works out to Rs 470/share. Exhibit 41: EV/EBITDA based valuation (Rs Cr) FY11E FY12EEBITDA 369.3 431.6Weightage 0.5 0.5Adj. EBITDA 400.4Average global EV/EBITDA (x) 7.0Discount given 15%EV/EBITDA (x) 6

EV 2402.7Less: Net debt 634.3

Core business value 1768.4

Other investment value 150.8Total market cap 1919.2No. of shares (Cr) 4.1Total value/share (Rs) 470.0


Exhibit 42: Global EV/EBITDA valuation comparison

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12EV/EBITDAHEG 8.2 5.5 5.5 4.8Graftec 4.2 12.6 7.2 5.7SGL 4.6 11.4 9.6 6.8Tokai Carbon 4.5 10.1 6.9 5.5Showa Denko 8.2 14.4 7.5 6.7Average for domestic players 5.4 12.1 7.8 6.2Discount (%) -51.7 55.0 29.8 22.6


Based on the average of the above two valuation methodologies, we have arrived at a target price of Rs 466 for the stock. We are initiating coverage on the stock with a STRONG BUY rating.

We value the stock at 6x (15% discount to globalaverage) the average of FY11E and FY12E EBITDA

HEG Ltd (HEG)


Table and Ratios Exhibit 43: Profit & Loss account (Rs Crore)

FY08 FY09 FY10E FY11E FY12ENet sales 946.0 1029.0 1069.7 1155.9 1352.4Growth (%) 8.8 4.0 8.1 17.0Op. Expenditure 672.6 771.2 688.8 786.6 920.8EBITDA 303.9 274.7 380.9 369.3 431.6Growth (%) -9.6 38.6 -3.0 16.9Other Income 0.0 0.0 5.1 0.0 0.0Depreciation 45.1 45.6 51.2 55.9 64.7EBIT 258.8 229.2 334.8 313.4 366.9Interest 50.6 66.7 70.0 77.7 76.7PBT 207.2 161.4 264.7 235.7 290.2Growth (%) -22.1 64.0 -10.9 23.1Tax 60.8 54.4 83.2 80.2 98.7Extraordinary Item 0.0 0.0 0.0 0.0 0.0Rep. PAT before MI 146.4 107.0 181.6 155.6 191.6Minority interest (MI) 0.0 0.0 0.0 0.0 0.0Rep. PAT after MI 146.4 107.0 181.6 155.6 191.6Adjustments 0.0 0.0 0.0 0.0 0.0Adj. Net Profit 146.4 107.0 181.6 155.6 191.6Growth (%) -26.9 69.6 -14.3 23.1


Exhibit 44: Balance sheet (Rs Crore)

FY08 FY09 FY10E FY11E FY12EEquity Capital 44.3 42.6 40.8 40.8 40.8Preference capital 17.4 17.3 17.3 17.3 17.3Reserves & Surplus 483.5 533.7 702.8 819.5 963.2Shareholder's Fund 545.2 593.6 712.4 829.1 972.7Minority Interest 0.0 0.0 0.0 0.0 0.0Secured Loans 617.5 664.1 639.1 539.1 619.1Unsecured Loans 94.3 218.0 188.0 188.0 188.0Deferred Tax Liability 73.6 75.0 76.1 76.1 76.1Source of Funds 1330.6 1550.6 1615.5 1632.2 1855.9Gross Block 795.0 853.5 935.5 1095.5 1255.5Less: Acc. Depreciation 246.3 289.4 340.6 396.5 461.1Net Block 548.8 564.0 594.9 699.0 794.4Capital WIP 56.5 134.2 124.2 84.2 44.2Net Fixed Assets 605.2 698.3 719.1 783.2 838.6Investments 30.3 83.5 83.5 83.5 83.5Cash 43.2 6.4 53.0 9.2 49.0Trade Receivables 288.4 328.5 330.5 348.4 407.6Loans & Advances 212.1 162.7 180.2 190.0 222.3Inventory 273.4 409.7 413.0 416.3 487.4Total Current Asset 817.0 907.3 976.7 963.9 1166.3Current Liab. & Prov. 124.4 140.0 165.2 199.8 234.0Net Current Asset 692.6 767.4 811.5 764.0 932.4Application of funds 1330.6 1550.6 1615.5 1632.2 1855.9


HEG Ltd (HEG)


Exhibit 45: Cash flow statement (Rs Crore)

FY08 FY09 FY10E FY11E FY12EProfit before Tax 207.2 161.4 264.7 235.7 290.2Depreciation 45.1 45.6 51.2 55.9 64.7CF before change in WC 252.3 207.0 315.9 291.6 354.9Inc./Dec. in Current Liab. -26.2 -34.8 25.2 34.6 34.1Inc./Dec. in Advances 87.6 -49.4 17.6 9.8 32.3Inc./Dec. in Current Assets 77.7 176.5 5.2 21.2 130.3CF from operations 54.5 59.7 306.4 292.8 204.4Purchase of Fixed Assets 89.0 -136.2 -72.0 -120.0 -120.0(Inc.)/Dec. in Investment 26.1 -53.2 0.0 0.0 0.0CF from Investing 115.1 -189.4 -72.0 -120.0 -120.0Inc./(Dec.) in Debt -176.1 170.3 -55.0 -100.0 80.0Inc./(Dec.) in Net worth 21.4 -1.9 -50.3 0.0 0.0CF from Financing -256.4 69.5 -187.8 -216.6 -44.6Opening Cash balance 103.3 43.2 6.4 53.0 9.2Closing Cash balance 43.2 6.4 53.0 9.2 49.0


Exhibit 46: Key Ratios (%) Return ratios FY08 FY09 FY10E FY11E FY12ERONW 32.4 18.8 27.8 20.2 21.3ROCE 19.5 15.9 21.1 19.3 21.0ROIC 21.3 16.9 22.8 20.8 22.5DuPont ratio analysisPAT/PBT 70.6 66.3 68.6 66.0 66.0PBT/EBIT 80.1 70.4 79.1 75.2 79.1EBIT/Net sales 27.4 22.3 31.3 27.1 27.1Net Sales/ Total Asset 71.1 66.4 66.2 70.8 72.9Total Asset/ Networth 244.1 261.2 226.8 196.9 190.8Spread of RoIC over WACCRoIC 21.3 16.9 22.8 20.8 22.5WACC 12.0 12.0 12.0 12.0 12.0EVA (Rs Crore) 117.3 71.1 159.4 135.0 180.8RoIC-WACC 9.3 4.9 10.8 8.8 10.5Turnover ratios (days)Inventory turnover 148.3 193.9 218.8 193.2 193.2Debtor turnover 111.3 116.5 112.8 110.0 110.0Creditor turnover 67.5 66.2 87.5 92.7 92.7Current Ratio 6.6 6.5 5.9 4.8 5.0Quick ratio 0.3 0.0 0.3 0.0 0.2


HEG Ltd (HEG)


Exhibit 47: Profitability and per share data Profitability ratios (%) FY08 FY09 FY10E FY11E FY12EEBITDA Margin 32.1 26.7 35.6 31.9 31.9PAT Margin 15.5 10.4 17.0 13.5 14.2Per share data (Rs)Revenue per share 213.5 241.7 262.0 283.1 331.2 EV per share 482.0 524.1 507.1 493.3 503.2 Book Value 123.0 139.4 174.5 203.0 238.2 Cash per share (Incl. Invst.) 16.6 21.1 33.4 22.7 32.5 Attributable EPS 33.0 25.1 44.5 38.1 46.9 Dividend per share 11.6 7.5 3.0 9.5 11.7


Exhibit 48: Valuation ratios Valuation (x) FY08 FY09 FY10E FY11E FY12EP/E 10.2 13.4 7.6 8.9 7.2P/BV 2.7 2.4 1.9 1.7 1.4EV/EBITDA 7.0 8.1 5.4 5.5 4.8FCF Yield (%) 9.6 -5.3 17.0 12.5 6.1EV/Sales 2.3 2.2 1.9 1.7 1.5Div Yield (%) 3.4 2.2 0.9 2.8 3.5


March 24, 2010


Initiating Coverage

Niche capabilities… Graphite India Ltd (GIL) is India’s largest graphite electrode producer with an installed capacity of 78000 MT of graphite electrode and captive power plants of 33 MW. Organic growth through brownfield expansion and better capacity utilisation is expected to drive sales volume. Also, with backward integration insulating margins and diversification benefits from other businesses of GRP tanks & pipes and high speed steel, GIL has the distinction of possessing niche capabilities in a technology intensive global graphite industry. We expect GIL to register an FY09-12E CAGR of 5.6% and 6.0% in net sales and operating profit, respectively. We initiate coverage on the stock with an ADD rating.

Capacity expansion under way

GIL has achieved a smart build-up in capacity during the last five years through a mix of organic and inorganic route by leveraging its strong balance sheet. The company is expected to increase its graphite electrode capacity through the brownfield route by ~13% (10500 tonne) to 88,500 tonne and set up a captive power plant of 50 MW at Durgapur by FY12E.

Diversification benefits through other businesses The company has a small exposure to other business segments like impervious graphite equipment business, GRP pipes & tanks business and speciality steel business that provides it with diversification benefits. The company has been making good progress in these segments. We expect the total revenue from its other businesses to more than double from Rs 102 crore in FY09 to Rs 228.6 crore in FY12E.

On competitive footing with global peers Due to its low cost structure on account of India advantage, GIL has remained on a competitive footing as compared to global peers in the last few years. We expect it to stay slightly ahead of the competition in terms of profitability, going forward, with EBIT margins of ~19% in both FY11E and FY12E.

Valuations At the CMP of Rs 88, the stock is currently trading at cheap valuations of 8.4x FY12E EPS of Rs 10.5 and FY12E EV/EBITDA of 5.0x. We have valued the stock using P/E and EV/EBITDA in comparison with global peers and assigned a target price of Rs 95 to the stock with an ADD rating.

Exhibit 48: Key Financials FY08 FY09 FY10E FY11E FY12E

Net Sales (Rs cr) 1331.5 1501.0 1294.9 1443.4 1766.8EBITDA (Rs cr) 277.6 307.6 359.3 295.3 366.7Net Profit (Rs cr) 142.4 235.5 205.6 166.4 207.6EPS (Rs) 9.4 13.8 12.0 8.4 10.5P/E (x) 9.3 6.4 7.3 10.5 8.4P/BV (x) 1.8 1.3 1.2 1.1 1.0EV/EBITDA (x) 6.4 6.0 4.3 5.5 5.0RoE (%) 20.4 25.2 17.3 12.0 13.0RoCE (%) 18.6 18.3 19.3 14.5 16.4


Graphite India Ltd (CAREVE) Rs 88

Rating Matrix Rating : Add

Target : Rs 95

Target Period : 12 months

Potential Upside : 8%

YoY Growth (%)

FY09 FY10E FY11E FY12ENet Sales 12.7 -13.7 11.5 22.4EBITDA 10.8 16.8 -17.8 24.2Net Profit 65.4 -12.7 -19.0 24.8EPS (Rs) 46.2 -12.7 -30.0 24.8 Stock Metrics Bloomberg/Reuters Code GRIL.IN/GRPH.BOSensex 17451Average volumes (BSE) 165000Market cap (Rs Cr) 1740.252 week H/L 95/23Equity capital (Rs Cr) 34.2Promoter's stake (%) 56.7FII holding (%) 6.3DII holding (%) 6.5

Price movement (Stock vs. Nifty)

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FY09 FY10E FY11E FY12EPE (x) 6.4 7.3 10.5 8.4Target PE (x) 6.9 7.9 11.3 9.0EV/EBITDA (x) 6.0 4.3 5.5 5.0Target EV/EBITDA (x) 6.4 4.7 6.0 5.4

Analyst’s name




Graphite India Ltd (CAREVE)


Company Background Graphite India Ltd is India’s largest graphite electrode manufacturer by capacity. The company was set up in 1963 in collaboration with “The Great Lakes Carbon Corporation” of US. Currently, the company has three graphite manufacturing plants in India with a total capacity of 60,000 tonne and one in Nuremberg, Germany with a capacity of 18,000 tonne. GIL has core expertise in manufacturing value-added ultra-high power (UHP) electrodes and 85% of its capacity is in UHP electrodes.

Exhibit 49: Plant wise capacity

Plant location Capacity (MT/year)Durgapur 34000Bangalore 13000Nasik 13000Nuremberg, Germany 18000Total 78000


GIL boasts of backward integration. Apart from manufacturing calcined petroleum (CP) coke (capacity: 30,000 tonne) for use in graphite electrode manufacturing, it also has installed power generation capacity of 33 MW through hydel and multi-fuel routes.

The company has diversification benefits through exposure and sales through its graphite equipment business, GRP pipes and tanks business and special steel business.

The company exports ~60% of its electrode production outside India to more than 150 customers across 50 countries around the globe. The company has an established global customer base comprising steel majors like Arcelor Mittal, Nucor, Posco and JSW Steel.

Exhibit 50: FY09 revenue share

Graphite & Carbon, 90%

Steel & Others, 6%

Power, 4%


Promoter and institutional holding trend (%)

53.2 54.7 56.8 56.8

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Investment Rationale GIL is the largest producer of graphite electrodes in India. The company is in the midst of a brownfield expansion with planned capacity expansion of 10,500 tonne of graphite electrodes and setting up of 50 MW thermal captive power plant at Durgapur. The company possesses niche capabilities with backward integration and diversification benefits in place. With a bounce-back in steel production across the globe already under way and subsequent increase in graphite electrode demand looking inevitable, we expect GIL to achieve higher sales volume, going forward. This will be through better capacity utilisation resulting in revenue and EBITDA of Rs 1766.8 crore and Rs 366.7 crore in FY12E, respectively, and a CAGR of 5.6% and 6%, respectively, during FY09-12E on a consolidated basis. We are initiating coverage on the stock with an ADD rating and a target price of Rs 95.

Capacity expansion underway again

GIL has achieved a smart build-up in capacity in graphite electrode manufacturing during the last five years through brownfield expansion at its manufacturing facility in Durgapur and investment in its overseas subsidiary in Germany. Brownfield expansion has resulted in the graphite electrode capacity increasing from just 14,000 tonne at Durgapur in FY04 to 34,000 tonne currently. The company also acquired an 18,000 tonne manufacturing facility in Nuremberg, Germany during FY05 in order to increase its reach in the European markets.

Exhibit 51: Capacity build-up

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In view of the improved graphite demand in the medium term, capacity expansion is underway again at GIL. The company is expected to increase its graphite electrode capacity through the brownfield route at its existing location in Durgapur by ~31% (10,500 tonne) to 44,500 tonne by FY12E at a competitive cost of Rs 187.5 crore. The focus of the expansion plan is to provide the existing facility with advanced technology and greater energy efficiency. The additional capacity is expected to be on stream by H2FY12E and would result in YoY topline growth of ~22% in FY12E on a consolidated basis for the company.

GIL has achieved a smart build-up in capacity ingraphite electrode manufacturing during the last fiveyears through brownfield expansion at Durgapur andinvestment in its overseas subsidiary in Germany

The company is expected to increase its graphiteelectrode capacity through the brownfield route at itsexisting location in Durgapur by ~31% (10,500 tonne)to 44,500 tonne by FY12E at a competitive cost of Rs187.5 crore



Partial backward integration and power capacity build-up an added advantage

GIL enjoys an added advantage over its peers on account of its CP coke manufacturing capacity of 30,000 tonne and captive power plants of 33 MW through hydel and multi-fuel routes, which provides backward integration benefits. The captive power capacity is being expanded by 50 MW at the company’s Durgapur plant at a capex of Rs 214 crore. Graphite manufacturing process is power intensive and requires ~6000 units of power for producing one tonne of graphite electrode. Taking this into account, the new capacity of 50 MW is enough to meet all the captive power requirements of the company’s Durgapur plant even at its expanded capacity of 44,500 tonne.

Exhibit 52: Power sourcing metrics

PlantCapacity

(tonne)

Powerreqd./tonne

(units)

Total powerreqd.(mn

units) Current sourcing FY12 sourcing

Durgapur 34000 6000 204 Supply from DVC CPP of 50 MW

Nasik 13000 6000 78 Supply from MSEBSupply from KSK

energy at lower cost

Bangalore 13000 6000 78

18 MW Hydel powerplant, supply from

grid Source: Company, ICICIdirect.com Research

Diversification benefits through other businesses The company has small exposure to other business segments like impervious graphite equipment business (IGE), GRP pipes & tanks business and speciality steel business, which provides it with diversification benefits. The company has been making good progress in these segments. We expect the total revenue from its other businesses to more than double from Rs 102 crore in FY09 to Rs 228.6 crore in FY12E. Exhibit 53: Revenue from other business segments

47.5 60.8 50.0 49.0 61.6 72.0

44.059.1

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The company is expanding its captive powercapacity by 50 MW at Durgapur to reduce its powercosts and achieve better backward integration

The company has been making good progress in thesesegments. We expect the total revenue from its otherbusinesses to more than double from Rs 102 crore inFY09 to Rs 228.6 crore in FY12E



Realisation and cost of production to trend upwards

Graphite electrode prices have risen gradually during the last few years due to robust demand, increase in raw material prices and oligopolistic nature of the industry. We expect graphite electrode prices to remain subdued in FY11E before rising again in FY12E on the back of strong demand. Exhibit 54: Blended realisation movement

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We expect the overall cost of production to keep trending upwards but remain largely under control for GIL, going forward. This is despite the increase in cost of its key raw material, needle coke, due to reduction in costs on account of power, lower manpower costs and operational efficiencies reducing other costs. Exhibit 55: Cost of production break-up

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We expect overall cost as percentage of sales to remain at ~80% in both FY11E and FY12E, thus ensuring ~20% operating margin for the company. Exhibit 56: Cost metrics

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On competitive footing with global peers Due to its low cost structure on account of India advantage, GIL has remained on a competitive footing as compared to global peers in the last few years. We expect it to stay slightly ahead of the competition in terms of profitability, going forward. We expect GIL to achieve EBIT margin of ~19% in both FY11E and FY12E. In contrast, consensus estimates for global peers indicate EBIT margins well below 15% in the next few years for players like SGL and Tokai Carbon. Exhibit 57: EBIT margin comparison

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CY07/FY08 CY08/FY09 CY09/FY10E CY10/FY11E CY11/FY12E

GIL's EBIT margins slightly ahead of global peers


We expect the overall cost as percentage of sales toremain at ~80% in both FY11E and FY12E, thusensuring ~20% operating margins for the company



Financials

Steady revenue growth

The company reported a consolidated topline of Rs 1331.5 crore and Rs 1501.0 crore in FY08 and FY09, respectively. The topline has grown at a CAGR (FY07-FY09) of 10.1%. We expect the topline to grow at a CAGR (FY09-FY12E) of 5.6% to Rs 1766.8 crore, backed by sales volume CAGR (FY09-12E) of 11%.

Exhibit 58: Steady revenue growth (Consolidated)

1331.5

1501.0

1294.91443.4

1766.8

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Sales CAGR (FY09-12E) - 5.6%


Healthy EBITDA margin, going forward

GIL reported strong EBITDA of Rs 307.6 crore in FY09 with EBITDA margin of 20.5% on a consolidated basis. The company has shown a very strong standalone performance in 9MFY10 and has reported standalone EBITDA margins of 35.4%. However, the subdued performance of its overseas subsidiary is expected to keep the consolidated margin at a lower level. Going forward, we expect the company to maintain healthy EBITDA margins on account of its low cost structure and robust demand. We expect the company to clock EBITDA and PAT margin of 20.8% and 11.8%, respectively, in FY12E. Exhibit 59: Margins to sustain at higher levels

20.8%20.5%

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We expect the topline to grow at CAGR (FY09-FY12E) of 5.6% to Rs 1766.8 crore, backed by salesvolume CAGR (FY09-12E) of 11%

We expect the company to clock EBITDA and PATmargin of 20.8% and 11.8%, respectively, in FY12E



Good return ratios

HEG reported strong return ratios in FY09 on account of higher profitability. We expect the company to maintain good return ratios, going forward, and achieve RoCE and RoIC of 16.4% and 20.3%, respectively, in FY12E on the back of strong operational performance overall and completion of its expansion and capex programme.

Exhibit 60: Strong return ratios

23.4

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RoNW RoCE RoIC


Balance sheet remains extremely strong

The company boasts of an extremely strong balance sheet with debt-equity ratio of 0.5, net worth of ~Rs 1,100 crore and cash of more than Rs 250 crore. The company expects to complete its expansion largely through internal accruals accumulated from strong cash flow generation. We expect the net worth of the company to increase to ~Rs 1,671 crore and debt-equity ratio to drop to 0.3 by FY12E.

Exhibit 61: Strong balance sheet

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We expect the company to maintain good return ratiosgoing forward, and achieve RoCE and RoIC of 16.4%and 20.3%, respectively, in FY12E on the back of astrong operational performance overall and completionof its expansion and capex programme



Valuations GIL is the larger of the two graphite players in India. It enjoys a production presence in Europe and has diversification benefits through GRP pipes/tanks and special steel businesses. We have valued GIL using P/E and EV/EBITDA methodology to arrive at a target price of Rs 95. We are initiating coverage on the stock with an ADD rating. P/E based valuation of Rs 94.6/share At the CMP of Rs 88, the stock is trading at 10.5x FY11E EPS of Rs 8.4 and 8.4x FY12E EPS of Rs 10.5. The stock is trading at a discount of ~39% as compared to global average on CY11/FY12 earnings. We value the stock at 10x (30% discount to global average) the average of FY11E and FY12E consolidated EPS and arrive at a fair value of Rs 94.6/share. Exhibit 62: P/E based valuation (Rs) FY11E FY12EEPS (Cons.) 8.4 10.5Weightage 0.5 0.5Adj. EPS 9.5Average global P/E (x) 13.8Discount given 30%P/E (x) 10

Total Value/Share 94.6 Source: Company, ICICIdirect.com Research

Exhibit 63: Global P/E valuation comparison

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12P/EGIL 6.4 7.3 10.5 8.4Graftec 6.8 24.8 12.0 9.0SGL 7.1 30.1 29.6 15.0Tokai Carbon 9.0 72.7 22.0 16.7Showa Denko 30.1 NA 20.8 14.4Average for global players 13.3 42.5 21.1 13.8Discount (%) 51.8 82.8 50.4 39.2


We value the stock at 10x (30% discount to globalaverage) the average of FY11E and FY12Econsolidated EPS and arrive at a fair value of Rs94.6/share



EV/EBITDA based valuation of Rs 95.4/share The stock is trading at a discount of ~18-30% as compared to global average on CY10-11 earnings. We value the stock at 6x (15% discount to global average) the average of FY11E and FY12E consolidated EBITDA and arrive at a fair value of Rs 1768.4 crore for its graphite business, which translates to a value of Rs 95.4/share. Exhibit 64: EV/EBITDA based valuation (Rs Cr) FY11E FY12EEBITDA (Cons.) 295.3 366.7Weightage 0.5 0.5Adj. EBITDA 331.0Average global EV/EBITDA (x) 7.0Discount given 15%EV/EBITDA (x) 6

EV 1986.0Less: Net debt 99.7Total market cap 1886.3No. of shares (Cr) 19.8Total value/share (Rs) 95.4


Exhibit 65: Global EV/EBITDA valuation comparison

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12EV/EBITDAGIL 6.0 4.3 5.5 5.0Graftec 4.2 12.6 7.2 5.7SGL 4.6 11.4 9.6 6.8Tokai Carbon 4.5 10.1 6.9 5.5Showa Denko 8.2 14.4 7.5 6.7Average for domestic players 5.4 12.1 7.8 6.2Discount (%) -11.6 64.3 29.4 18.7


Based on the average of the above two valuation methodologies, we have arrived at a target price of Rs 95 for the stock and initiate coverage on the stock with an ADD rating.

We value the stock at 6x (15% discount to globalaverage) the average of FY11E and FY12Econsolidated EBITDA and arrive at a fair value of Rs1768.4 crore for its graphite business whichtranslates to a value of Rs 95.4/share



Table and Ratios Exhibit 66: Profit & loss account (Rs Crore)

FY08 FY09 FY10E FY11E FY12ENet sales 1331.5 1501.0 1294.9 1443.4 1766.8Growth (%) 12.7 -13.7 11.5 22.4Oerating Expenditure 1054.0 1193.4 935.6 1148.1 1400.1EBITDA 277.6 307.6 359.3 295.3 366.7Growth (%) 10.8 16.8 -17.8 24.2Other Income 29.4 25.3 27.8 30.6 33.7Depreciation 41.0 44.0 47.0 51.5 60.5EBIT 266.0 288.9 340.2 274.4 339.9Interest 42.9 35.1 28.7 22.3 25.3PBT 223.1 253.8 311.5 252.1 314.6Growth (%) 13.8 22.7 -19.0 24.8Tax 80.7 18.3 105.9 85.7 107.0Extraordinary Item 0.0 0.0 0.0 0.0 0.0Rep. PAT before MI 142.4 235.5 205.6 166.4 207.6Minority interest (MI) 0.0 0.0 0.0 0.0 0.0Rep. PAT after MI 142.4 235.5 205.6 166.4 207.6Adjustments 0.0 0.0 0.0 0.0 0.0Adj. Net Profit 142.4 235.5 205.6 166.4 207.6Growth (%) 65.4 -12.7 -19.0 24.8


Exhibit 67: Balance sheet (Rs Crore)

FY08 FY09 FY10E FY11E FY12EEquity Capital 30.2 34.2 34.2 39.6 39.6Preference capital 0.0 0.0 0.0 0.0 0.0Reserves & Surplus 724.8 1083.2 1221.6 1487.6 1631.5Shareholder's Fund 755.0 1117.4 1255.8 1527.2 1671.1Minority Interest 0.0 0.0 0.0 0.0 0.0Secured Loans 396.4 345.6 295.6 295.6 295.6Unsecured Loans 222.7 182.9 182.9 75.9 125.9Deferred Tax Liability 70.0 62.8 79.5 79.5 79.5Source of Funds 1444.1 1708.6 1813.7 1978.2 2172.1Gross Block 834.5 994.6 1044.6 1144.6 1344.6Less: Acc. Depreciation 303.0 347.0 394.0 445.5 506.0Net Block 531.5 647.6 650.6 699.1 838.6Capital WIP 9.5 14.0 34.0 74.0 164.0Net Fixed Assets 541.0 661.6 684.6 773.1 1002.6Investments 105.7 101.0 101.0 101.0 101.0Cash 65.9 87.8 324.8 384.4 220.8Trade Receivables 411.8 318.2 354.8 355.9 435.7Loans & Advances 108.3 131.9 129.7 129.7 129.7Inventory 533.8 694.9 487.0 566.2 690.5Total Current Asset 1132.6 1246.6 1310.1 1450.2 1490.5Current Liab. & Prov. 335.2 300.6 281.9 346.0 422.0Net Current Asset 797.4 946.1 1028.2 1104.1 1068.6Application of funds 1444.1 1708.6 1813.7 1978.2 2172.1




Exhibit 68: Cash flow statement (Rs Crore)

FY08 FY09 FY10E FY11E FY12EProfit after Tax 142.4 235.5 205.6 166.4 207.6Dividend 53.0 60.0 67.2 51.9 63.7Depreciation 41.0 44.0 47.0 51.5 60.5Cash Profit 136.6 212.3 202.1 166.0 204.4Inc./Dec. in Current Liab. 83.5 -34.6 -18.6 64.1 75.9Inc./Dec. in Current Assets 165.6 92.2 -173.5 80.4 204.0CF from operations 54.5 85.5 357.0 149.7 76.4Purchase of Fixed Assets 20.8 164.7 70.0 140.0 290.0Inc./Dec. in Investment -4.9 -4.8 0.0 0.0 0.0CF from Investing -16.9 23.0 -70.0 -140.0 -290.0Inc./Dec. in Debt -86.5 -90.7 -50.0 -106.9 50.0Inc./Dec. in Equity capital 23.1 4.0 0.0 156.9 0.0CF from Financing -63.4 -86.7 -50.0 50.0 50.0Opening Cash balance 91.7 65.9 87.8 324.8 384.4Closing Cash balance 65.9 87.8 324.8 384.4 220.8


Exhibit 69: Key ratios (%) Return ratios FY08 FY09 FY10E FY11E FY12ERONW 20.4 25.2 17.3 12.0 13.0ROCE 18.6 18.3 19.3 14.5 16.4ROIC 21.4 20.7 23.4 19.1 20.3DuPont ratio analysisPAT/PBT 63.8 92.8 66.0 66.0 66.0PBT/EBIT 83.9 87.8 91.6 91.9 92.6EBIT/Net sales 20.0 19.2 26.3 19.0 19.2Net Sales/ Total Asset 92.2 87.8 71.4 73.0 81.3Total Asset/ Networth 191.3 152.9 144.4 129.5 130.0Spread of RoIC over WACCRoIC 21.4 20.7 23.4 19.1 20.3WACC 12.0 12.0 12.0 12.0 12.0EVA (Rs Crore) 119.9 132.1 158.2 105.3 154.2RoIC-WACC 9.4 8.7 11.4 7.1 8.3Turnover ratios (days)Inventory turnover 184.9 212.5 190.0 180.0 180.0Debtor turnover 112.9 77.4 100.0 90.0 90.0Creditor turnover 116.1 91.9 110.0 110.0 110.0Current Ratio 3.4 4.1 4.6 4.2 3.5Quick ratio 0.2 0.3 1.2 1.1 0.5




Exhibit 70: Profitability and per share data Profitability ratios (%) FY08 FY09 FY10E FY11E FY12EEBITDA Margin 20.8 20.5 27.8 20.5 20.8PAT Margin 10.7 15.7 15.9 11.5 11.8Per share data (Rs)Revenue per share 88.1 87.8 75.7 73.0 89.3 EV per share 117.6 107.9 91.1 82.2 93.0 Book Value 50.0 65.3 73.4 77.2 84.5 Cash per share (Incl. Invst.) 11.4 11.0 24.9 24.5 16.3 Attributable EPS 9.4 13.8 12.0 8.4 10.5 Dividend per share 3.6 3.9 3.9 2.6 3.2


Exhibit 71: Valuation ratios Valuation (x) FY08 FY09 FY10E FY11E FY12EP/E 9.3 6.4 7.3 10.5 8.4P/BV 1.8 1.3 1.2 1.1 1.0EV/EBITDA 6.4 6.0 4.3 5.5 5.0FCF Yield (%) 2.5 -5.3 19.1 0.6 -12.3EV/Sales 1.3 1.2 1.2 1.1 1.0Div Yield (%) 4.1 4.4 4.5 3.0 3.7




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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor, Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai – 400 093

[email protected]

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ICICI Securities Limited has been mandated to act as one of the Book Running Lead Manager to manage the IPO of the group company of HEG Limited, viz., Bhilwara Energy Limited. This report is prepared on the basis of publicly available information.

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Indian Graphite Sector_ICICI_March 2010