Industrial Consumables

India I Equities Company Update

Change in Estimates Target Reco 

13 November 2021

Graphite, India Rating: Buy

Target Price: Rs652
Sequential improvement in realisation persists; maintaining a Buy Share Price: Rs527

Aided by q/q improved utilisation (from 75% to 81% in Q2 FY22) and

Key data GRIL IN / GRPH.BO
realisation (up 8.8% q/q), Graphite India’s revenue grew 13.4% q/q. Greater 52-week high / low Rs816 / 178
utilisation at its German operations was due to rising demand and better Sensex / Nifty 60687 / 18103
prices. As per WSA, global crude steel production (excl. China) rose 15.3% 3-m average volume $5.3m
y/y, 2.7% q/q. This increase is on demand shifting from China towards Market cap Rs103bn / $1385.1m
other steel-producing nations, leading to more production by electric-arc Shares outstanding 195m
furnaces, benefiting graphite electrode manufacturers. End-Sep’21 cash and
investments were Rs30.7bn (30% of M.cap), to be used for growth. Shareholding pattern (%) Sep'21 Jun'21 Mar'21
Favourable prices underpinned by rising demand augurs well. We have Promoters 65.3 65.3 65.3
tweaked our estimates and introduce FY24e. Valuing the stock at 6.5x - of which, Pledged - - -
FY24e EBITDA, we arrive at a target price Rs652. We maintain a Buy. Free float 34.7 34.7 34.7
- Foreign institutions 12.8 11.4 7.7
Sequential betterment. Demand for steel is set to rise backed by greater - Domestic institutions 69.9 70.3 72.5
demand from end-users. This, coupled with China’s intent to reduce steel - Public 17.3 18.3 19.9
exports, augurs well for electric-arc-furnace steel producers across the globe.
Hence, we expect demand for GE to be strong and lead to greater utilisation. Estimates revision (%) FY22e FY23e FY24e
This and the favourable pricing context would lead to better realisations. Sales 2.2 0.9 NA
EBITDA 0.8 0.1 NA
Execution of some past orders dented margins. Needle-coke prices are EPS 9.9 6.5 NA
now moving in line with graphite electrode prices. Q2 FY22 gross margin
declined q/q to 48% (54% the previous quarter) on the execution of some
Relative price performance
older-priced orders and higher needle-coke prices. Management said the full 900
impact of current GE pricing will come from Q3 FY22. 750
600
Valuations: On a consolidated basis, we expect continuous improvement in 450
realisation and profitability. We have slightly tweaked our FY22e/FY23e 300
revenue and margins. We introduce FY24e, of 25%/35% revenue/PAT growth 150
y/y and a 31.5% EBITDA margin. We value the stock at 6.5x FY24e EBITDA, 0
Mar-21
Nov-20
Dec-20
Jan-21
Feb-21

Aug-21
Sep-21
Apr-21

Jun-21
May-21

Jul-21

Nov-21
Oct-21
arriving at a TP of Rs652 and maintain our Buy rating. Risk: Less-than-
anticipated demand for electrodes would cap prices, leading to lower
GRIL Sensex
realisations.
Source: Bloomberg

Key financials (YE Mar) FY20 FY21 FY22e FY23e FY24e

Sales (Rs m) 30,936 19,576 31,032 40,447 50,700
Net profit (Rs m) 2,040 -323 6,612 10,448 14,108
EPS (Rs) 10.5 -1.7 33.8 53.5 72.2
PE (x) 50.4 -318.6 15.6 9.9 7.3
EV / EBITDA (x) 110.5 -40.8 12.8 7.1 4.7 Ashwani Sharma
PBV (x) 2.3 2.3 2.0 1.8 1.5 Research Analyst

RoE (%) 4.1 -0.7 13.8 19.2 22.2

RoCE (%) 3.7 1.2 17.5 24.1 27.7
Rahul Jain
Research Associate
Dividend yield (%) 0.6 0.9 1.6 2.5 3.4
Net debt / equity (x) -0.3 -0.4 -0.4 -0.4 -0.4
Source: Company, Anand Rathi Research

Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.

Anand Rathi Research India Equities

13 November 2021 Graphite India – Sequential improvement in realisation persists; maintaining a Buy

Quick Glance – Consolidated Financials and Valuations

Fig 1 – Income statement (Rs m) Fig 2 – Balance sheet (Rs m)
Year-end: Mar FY20 FY21 FY22e FY23e FY24e Year-end: Mar FY20 FY21 FY22e FY23e FY24e
Volumes (tonnes) 54,390 57,330 79,360 84,100 87,700 Share capital 391 391 391 391 391
Net revenues 30,936 19,576 31,032 40,447 50,700 Net worth 45,543 45,411 50,370 58,206 68,787
Growth (%) -60.6 -36.7 58.5 30.3 25.3 Debt 4,156 2,230 2,730 3,558 4,460
Material cost 19,781 11,879 14,026 16,553 19,728 Minority interest - - - - -
Employee & other exps. 10,355 9,750 10,370 12,432 15,000 DTL / (Assets) 770 900 930 977 1,025
EBITDA 799 -2,053 6,636 11,461 15,971 Capital employed 50,468 48,541 54,030 62,741 74,273
EBITDA margins (%) 2.6 -10.5 21.4 28.3 31.5 Net tangible assets 6,356 6,390 6,118 5,842 5,549
- Depreciation 515 519 519 521 540 Net intangible assets 17 20 -15 -11 -7
Other income 1,744 3,159 2,866 3,153 3,558 Goodwill - - - - -
Interest expenses 178 61 21 1 1 CWIP (tang. & intang.) 347 790 790 790 790
PBT 1,851 527 8,963 14,093 18,988 Investments (strategic) 6,551 9,130 9,630 9,930 10,230
Effective tax rates (%) -13.9 142.4 25.0 25.0 25.0 Investments (financial) 14,117 18,910 19,910 20,910 21,910
+ Associates / (Minorities) -69 -100 -110 -121 -133 Current assets (ex cash) 23,835 17,591 25,705 32,191 38,994
Net income 2,040 -323 6,612 10,448 14,108 Cash 4,559 2,440 816 4,229 10,317
Adjusted income 2,040 -323 6,612 10,448 14,108 Current liabilities 5,313 6,730 8,924 11,141 13,510
WANS 195 195 195 195 195 Working capital 18,522 10,861 16,781 21,050 25,483
FDEPS (Rs / sh) 10.5 -1.7 33.8 53.5 72.2 Capital deployed 50,468 48,541 54,030 62,741 74,273
EPS growth (%) -94.1 - - 58.0 35.0 Contingent liabilities - - - - -

Fig 3 – Cash-flow statement (Rs m) Fig 4 – Ratio analysis

Year-end: Mar FY20 FY21 FY22e FY23e FY24e Year-end: Mar FY20 FY21 FY22e FY23e FY24e
PBT 1,851 527 8,963 14,093 18,988 P/E (x) 50.4 -318.6 15.6 9.9 7.3
+ Non-cash items -598 -1,263 -1,471 -1,634 -1,770 EV / EBITDA (x) 110.5 -40.8 12.8 7.1 4.7
Oper. prof. before WC 1,254 -736 7,491 12,459 17,218 EV / Sales (x) 2.9 4.3 2.7 2.0 1.5
- Incr. / (decr.) in WC -2,907 -7,803 5,907 4,259 4,424 P/B (x) 2.3 2.3 2.0 1.8 1.5
Others incl. taxes 65 620 2,211 3,477 4,698 RoE (%) 4.1 -0.7 13.8 19.2 22.2
Operating cash-flow 4,095 6,448 -627 4,723 8,095 RoCE (%) - after tax 3.7 1.2 17.5 24.1 27.7
- Capex (tang. + intang.) -428 -999 -212 -249 -251 RoIC (%) - after tax 8.6 -1.1 32.2 41.1 47.8
Free cash-flow 3,668 5,449 -838 4,474 7,845 DPS (Rs / sh) 3.3 5.0 8.5 13.4 18.1
Acquisitions - - - - - Dividend yield (%) 0.6 0.9 1.6 2.5 3.4
- Div. (incl. buyback & taxes) 645 977 1,653 2,612 3,527 Dividend payout (%) - incl. DDT 31.6 -302.3 25.0 25.0 25.0
+ Equity raised - - - - - Receivables (days) 48 63 58 60 62
+ Debt raised 560 -1,926 500 828 902 Inventory (days) 185 189 184 179 174
- Fin investments -5,678 6,291 365 108 48 Payables (days) 23 39 48 53 55
- Misc. (CFI + CFF) 8,781 -1,626 -732 -831 -917 FCF : PAT% 179.8 -1,685.9 -12.7 42.8 55.6
Net cash-flow 480 -2,119 -1,624 3,413 6,088 EBITDA per tonne 207 -484 1,122 1,829 2,444
Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research

Fig 5 – Price movement Fig 6 – Capacity utilisation to improve sequentially

(Rs) 90%
1,200 87%
85%
85%
81%
1,000 80%
75% 75%
75%
800 70%
65%
600
60% 59%
56%
400 55%
50%
200
45%
40%
0
FY17

FY18

FY19

FY20

FY21

Q1 FY22

Q2 FY22
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
May-20
Aug-20
Nov-20
Feb-21
May-21
Aug-21
Nov-21

Source: Bloomberg Source: Company

Anand Rathi Research 2

13 November 2021 Graphite India – Sequential improvement in realisation persists; maintaining a Buy

Quarterly Highlights
Fig 7 – Quarterly and annual performance (consolidated)
(Rs m) Q2 FY22 Q2 FY21 YoY (%) Q1 FY22 QoQ (%) H1 FY22 H1 FY21 YoY (%)
Net Revenue 6,920 4,850 42.7 6,100 13.4 13,020 8,940 45.6
EBITDA 1,090 (780) NA 1,410 (22.7) 2,500 (2,090) NA
EBITDA margins (%) 16 (16) NA 23 (736) 19 (23) NA
Other Income 790 500 58.0 780 1.3 1,570 1,180 33.1
Depreciation 130 130 0.0 140 (7.1) 270 260 3.8
Interest - 20 NA 10 NA 10 40 (75.0)
Share of profit from JV/ass (40) (20) 100.0 (70) (42.9) (110) (40) 175.0
Profit before tax 1,710 (450) NA 1,970 (13.2) 3,680 (1,250) NA
Tax 430 (40) NA 470 (8.5) 900 (60) NA
Reported PAT 1,280 (410) NA 1,500 (14.7) 2,780 (1,190) NA
PAT margins (%) 18 (8) NA 25 (609) 21 (13) NA
EPS (Rs) 6.6 (2.1) NA 7.7 (14.7) 14.3 (6.1) NA
Source: Company

Fig 8 – Cost analysis

(Rs m) Q3 FY20 Q4 FY20 Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22 Y/Y (%) Q/Q (%)
Sales 6,430 6,020 4,090 4,850 4,990 5,650 6,100 6,920 42.7 13.4
Material cost 9,130 4,510 3,890 3,580 3,620 2,150 2,400 3,280 (8.4) 36.7
Employee cost 630 650 570 640 650 710 740 790 23.4 6.8
Power & fuel 550 520 410 690 760 810 860 970 40.6 12.8
Other expenditure 1,000 600 530 720 700 500 690 790 9.7 14.5
EBITDA * (4,880) (260) 280 (780) (740) 1,480 1,410 1,090 NA (22.7)

% of Sales bps y/y bps q/q

Material cost 142.0 74.9 95.1 73.8 72.5 38.1 39.3 47.4 -2642 bps 805 bps
Employee cost 9.8 10.8 13.9 13.2 13.0 12.6 12.1 11.4 -178 bps -71 bps
Power & Fuel 8.6 8.6 10.0 14.2 15.2 14.3 14.1 14.0 -21 bps -8 bps
Other expenditure 15.6 10.0 13.0 14.8 14.0 8.8 11.3 11.4 -343 bps 10 bps
EBITDA margins (75.9) (4.3) 6.8 (16.1) (14.8) 26.2 23.1 15.8 NA -736 bps
Source: Company, Anand Rathi Research.

Fig 9 – Realisations to improve

Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22
Capacity utilisation % 75.0 61.0 45.0 41.0 36.0 60.0 65.0 75.0 75.0 81.0
Production (tonnes) 18,375 14,945 11,025 10,045 8,820 14,700 15,925 18,375 18,375 19,845
Sales realizations ($ / tonne) 7,306 8,203 8,030 8,034 5,577 4,174 4,053 4,010 4,010 4,363
EBITDA / tonne (Rs) 2,310 1,335 (6,270) (362) 429 (717) (641) 1,030 1,030 737
Source: Company, Anand Rathi Research

Anand Rathi Research 3

13 November 2021 Graphite India – Sequential improvement in realisation persists; maintaining a Buy

Q2 FY22: Underpinned by higher demand, better prices

Consolidated revenue, at Rs6.9bn, was in line with our estimate, up 43% y/y.
The gross margin declined q/q to 48% in Q2 FY22 (from 54% the prior
quarter) because of the execution of some earlier-priced orders and higher
needle coke prices (which are rising in line with graphite electrode prices.
Other income was up 58% y/y to Rs790m. Due to the margin impact, the
company reported Rs1.3bn PAT (below our estimates Rs1.6bn).
Capacity utilisation was sequentially better at 81% in Q2 FY22 (against 75%
the quarter prior, 60% a year earlier). With the old orders almost all executed
now and new order being executed at higher prices, realisations have been
~9% higher q/q to $4,363 in Q2 FY22 (against $4,010 the previous quarter).
We believe long-term demand to be healthy
Our positive stance on the stock continues, expecting better utilisation and
realisations in H2 FY22. We have built in on average 81% utilisation and
$4,962 realisation for FY22. We expect sturdy demand to persist in coming
years, boosted by increasing steel production via the EAF route. Also, prices
realisation betterment would continue for graphite electrode manufacturers in
the near to medium term, but plateau in the longer run at reasonable levels.
The WSA lowers forecast of CY21 steel demand growth, from
5.8% y/y to 4.5% y/y
The World Steel Association says global crude-steel production was 462.6m
tonnes in Q3 CY21, declining 2.4% y/y, 10.5% q/q. Excl. China, global crude
steel production rose 15.3% y/y, 2.7% q/q. China’s Q3 CY21 crude-steel
production was 243.8m tonnes, declining 14.2% y/y, 16.6% q/q. The WSA
has lowered its forecast of global steel demand due to restricting exports from
China on lower carbon emission and production cuts due to power crisis.
Now it expects global steel demand to grow 4.5% y/y to 1,855m tonnes (vs.
1,874m tonnes forecast in a Q1 CY21 release). It also reduced its forecast for
CY22 to 1,896m tonnes (increasing y/y 2.2%) vs. 1,924.6m tonnes forecast in
the Q1 CY21 release. In India, increased government spending on
infrastructure and the revival of key sectors such as construction, mining,
capital goods and automobiles could have a positive impact on steel
production and demand for electrodes.
Curtailed exports by China augurs well
S&P Platts estimates China’s EAF steelmaking capacity to increase by 14.3m
tonnes in 2021 to 197m tonnes by end-2021. This will constitute 15% of
China’s crude steel capacity. However, the growth of EAF capacities in China
is expected to slow down in 2022-23 due to tight scrap supplies and expensive
electricity.
China recently abolished the 13% VAT rebate on certain steel exports in order
to reduce steel production and exports. China’s lower exports augurs well for
other EAF steel-producing nations. Hence, a pick-up in EAF steel production
globally is expected to drive demand for electrodes in the near term.
Commentary from Graftech International on pricing
Graftech International (USA), a largest producer of Graphite electrode with a
capacity of 230 kg tonnes p.a. It mentioned that the non-LTA price rose 12%
q/q in Sep’21 quarter and expects to increase further by 7% to 9% q/q in Q4
CY21. The company expects a larger portion of price increase to come in
CY22. In Q3 CY21, graphite electrode shipments were 28,000 tonnes under
LTA’s at an average price of ~$9,500 /tonnes and 15,000 tonnes of non-LTA
sales at an average price of ~$4,600 / tonne.

Anand Rathi Research 4

13 November 2021 Graphite India – Sequential improvement in realisation persists; maintaining a Buy

Fig 10 – World crude steel production

(Mn tonnes) (%)
350 80.0

300 60.0

250 40.0

200 20.0

150 0.0

100 -20.0

50 -40.0

0 -60.0

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21

Q1 FY22

Q2 FY22
India China ROW (Ex China and India) India - y/y gr China - y/y gr ROW (Ex China and India) - y/y gr

Source: Company

Fig 11 – Spread expected to be $4,970/tonne in FY24

($/tonne)
12,000
10,440
10,000

8,000

6,000
4,970
4,408
4,000 3,725
3,254
2,634
2,038
2,000 1,679 1,474

0
FY16

FY17

FY18

FY19

FY20

FY21

FY22e

FY23e

FY24e
Source: Company

Fig 12 – Cash and investment at end-Sep’21 were Rs30.7bn (30% of M.Cap)

(Rs m)
35,000

30,000

25,000

20,000

15,000

10,000

5,000

0
FY16

FY17

FY18

FY19

FY20

FY21

H1 FY22

Cash Current Investments Non-current Investments

Source: Company

Anand Rathi Research 5

13 November 2021 Graphite India – Sequential improvement in realisation persists; maintaining a Buy

Valuation
Being the third-largest manufacturer globally and the largest in its domestic
market (capacity: 98,000 tonnes), we expect Graphite India to benefit from a
pick-up in steel production and higher realisations in electrodes. Q2 FY22
(consolidated) realisation was $4,363/tonne, which we believe is likely to
move up due to mounting demand for graphite electrodes.
At end-Sep’21, the company had (consolidated) cash plus investments (non-
current + current) of Rs30.7bn (~30% of M.cap). With the favourable
environment for graphite electrode manufacturers in terms of utilisation,
pricing and realisation, along with the improving situation at Germany, we
have slightly tweaked our estimates.
We expect Rs6.6bn/Rs11.5bn EBITDA for FY22/FY23. We have rolled over
our forecast to FY24, expecting 25%/35% revenue/PAT growth y/y, and
~Rs16bn EBITDA. The stock trades at ~13x/~7x/~5x FY22e/FY23e/
FY24e EV/EBITDA. We value the company at 6.5x FY24e EBITDA and
retain our Buy rating with a target price of Rs652.

Fig 13 – Change in estimates

Old estimates Revised Estimates Change %
(Rs m) FY22e FY23e FY24e FY22e FY23e FY24e FY22e FY23e FY24e
Revenue 30,377 40,097 - 31,032 40,447 50,700 2.2 0.9 NA
EBITDA 6,586 11,447 - 6,636 11,461 15,971 0.8 0.1 NA
EPS (Rs) 30.8 50.2 - 33.8 53.5 72.2 9.9 6.5 NA
Source: Company, Anand Rathi Research

Key risks
 Less-than-expected demand for electrodes would cap prices, leading to
lower realisations.
 Delay in converting plants in China from blast furnaces to electric-arc
ones.
 Greater production of GEs by China, leading to dumping in India and
other markets.

Anand Rathi Research 6

Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s)
in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of
India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing
whatsoever on any recommendation that they have given in the Research Report.

Important Disclosures on subject companies

Rating and Target Price History (as of 13 November 2021)
TP Share
1,200
GRIL Date Rating (Rs) Price (Rs)
1 29-Jun-17 Buy 296 159
1,000 2 21-Sep-17 Buy 524 377
7 3 24-Oct-17 Buy 574 454
800 4 8-Dec-17 Hold 793 660
6 5 2-Feb-18 Hold 740 721
6 17-May-18 Sell 707 818
600 7 13-Nov-18 Sell 757 1,003
4 5 15
8 12-Feb-19 Sell 327 421
400 14 9 21-May-19 Hold 405 358
3 8 11 10 16-Aug-19 Sell 300 293
2 12
200
9 11 22-Nov-19 Sell 318 303
10
12 17-Feb-20 Sell 257 283
13 13 11-May-20 Sell 212 199
1
0 14 8-Dec-20 Buy 373 269
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
May-20
Aug-20
Nov-20
Feb-21
May-21
Aug-21
Nov-21
15 17-Feb-21 Buy 590 487

Anand Rathi Ratings Definitions

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%

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