Graphite India: Worthy Investment Or Risky Venture?

Should you invest in Graphite India? Well, it's complicated. As of August 2024, Graphite India's share price was predicted to increase from 522.050 INR to 529.144 INR in one year. However, in January 2019, Graphite India's share price had dropped by 55% from its all-time high, causing a loss of 51% of investors' wealth. This drop was attributed to concerns about margin pressure and rising raw material costs, as well as the removal of anti-dumping duties on graphite electrodes imported from China. So, while there are predictions of a long-term increase in Graphite India's share price, there have also been significant drops in value, and it's important to consider all factors before making any investment decisions.

Graphite India's share price has been falling

Should I invest in Graphite India?

As of the 13th of November 2024, Graphite India's share price was Rs. 485.50, down from its previous close of Rs. 511.55. This represents a decrease of 0.00% based on the previous day's share price. The company's share price has been on a downward trend over the past week, with a 9.72% decrease in value. Over the past three months, the stock has seen an 8.40% drop in price.

Graphite India's share price has been impacted by several factors, including the removal of anti-dumping duties in September 2018, increased imports from China, and the stoppage of exports to Iran. These factors have contributed to a decline in domestic non-UHP prices and tightened margins for the company. Additionally, there are expectations of a further price fall, as steel mills that were previously re-stocking their graphite electrode inventories have started destocking.

The company's financial performance has also been affected by the closure of its Bangalore plant, which has led to a predicted 15% QoQ drop in volume growth. Graphite India's net profit after tax for the latest quarter was Rs 194.00 Crore, down from Rs 3254.06 Crore in the previous year. The company's total income has also decreased by 12.04% compared to the last quarter.

Despite the recent downward trend, Graphite India has a median target price of Rs. 663.5 in 12 months, according to analyst predictions. The company has a market capitalization of Rs 9,532.38 Crore and is considered a Mid Cap company in the Industrial Consumables sector.

The company's revenue and profit are down

Graphite India's poor sales growth is further evidenced by a five-year compounded sales growth of -17.8%. This negative sales growth is a significant factor to consider when evaluating the company's financial health and future prospects.

In addition to the decline in sales, Graphite India has also experienced a decrease in profit. The company's profit after tax and before extraordinary items has decreased, and its profit/loss for the period has also been negative.

The decline in revenue and profit may be attributed to various factors, including competition from imports, changes in export destinations, and fluctuations in raw material costs. For example, the removal of the anti-dumping duty in September 2018 and higher imports from China impacted domestic non-UHP prices, while UHP prices were affected by weakness in steel prices.

Furthermore, Graphite India's decision to stop exporting to Iran, a key export destination, tightened margins and contributed to the decline in revenue. The company has also faced challenges due to the closure of its Bangalore plant, which led to a predicted 15% QoQ drop in volume growth.

Overall, the decline in revenue and profit may be concerning for potential investors, and it is essential to carefully consider these financial indicators before making any investment decisions.

The price of non-UHP graphite has been impacted by higher imports from China

The removal of the anti-dumping duty in September 2018 and higher imports from China impacted domestic non-UHP prices in India. This led to a decline in graphite electrode (GE) margins, with companies like Graphite India and HEG experiencing plunges of up to 50% from their 52-week high levels.

China's graphite electrode prices have also dropped due to slow demand and the use of different raw materials by producers. The market is currently saturated in China, and prices are falling.

The impact of higher imports from China on non-UHP graphite prices in India is further exacerbated by the stoppage of exports to Iran by Indian graphite electrode producers since Q3 of FY19, pending clarification on exemption from US sanctions. Iran is a key export destination, accounting for 8-10% of combined volumes for Graphite India and HEG, tightening margins even further.

The dynamics between the North American and Chinese graphite markets also play a role in the pricing of non-UHP graphite. North American battery manufacturers will pay more to access local graphite supply due to higher production costs and increased demand for lower-carbon products. The North American market will not be price-competitive against the mature Chinese market, and the disconnect in pricing is expected to widen.

In summary, the price of non-UHP graphite in India has been influenced by higher imports from China, impacting domestic prices and company margins. The situation is further complicated by export stoppages and the dynamics between the North American and Chinese graphite markets.

Graphite India has stopped exporting to Iran

Graphite India Limited (GIL) is a large Indian manufacturer of graphite electrodes and carbon and graphite speciality products. The company has six plants in India and a subsidiary in Germany. GIL has been in operation since the 1960s and has continually improved its product quality and services.

In 2019, Graphite India and HEG, another Indian graphite electrode producer, stopped exporting to Iran in the third quarter of the financial year 2019, pending clarification on exemption from US sanctions. Iran was a key export destination, accounting for 8-10% of combined volumes for the two companies. The stoppage of exports tightened margins and contributed to a decline in graphite stocks.

The decision to halt exports to Iran was likely due to US sanctions on the country. In 2018, India had briefly halted exports of graphite electrodes to Iran due to sanctions but resumed exports in December 2018, with Iran importing around 2,000 metric tons, the highest quantity that year.

While there is a demand for Indian-origin graphite electrodes in Iran, it is unclear if Graphite India has resumed exports to the country since 2019. The company has a history of adapting to market dynamics, and its focus on continuous cost reduction measures and product quality enhancement may influence its decision on whether to resume exports to Iran.

The company's share price is expected to rise in the long term

Wallet Investor's analysis also implies that there will be a positive trend in the future, and the Graphite India Ltd shares might be good for investing for making money. The site recommends the stock as a part of your portfolio when trading in bull markets.

Additionally, Graphite India has generated a BUY signal for the short term two days back, according to MunafaSutra. The site also lists a number of upside targets for the stock, including:

• Upside intraday target
• Upside short-term target
• Upside mid-term target
• Upside long-term target

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