India Equity Analyst - Fundamental & Thematic, Beat the Street

Sudarshan Bhandari

India Equity Analyst - Fundamental & Thematic

Beat the Street

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Read Business Not Stock Prices

Thematic (Sector/Industry)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> announced a significant<strong> price hike</strong>, triggering a massive rally in Indian graphite stocks like <a href="https://www.smartkarma.com/entities/heg-ltd" target="_blank" data-smartkarma-citation="entities:6675:1" rel="noopener">Heg Ltd (HEG IN)</a> and <a href="https://www.smartkarma.com/entities/graphite-india-ltd" target="_blank" data-smartkarma-citation="entities:16859:1" rel="noopener">Graphite India (GRIL IN)</a>
</li>
<li>This<strong> reset was necessitated by prolonged EBITDA losses and rising input costs</strong>, signaling a critical structural shift for the global graphite electrode pricing benchmark.</li>
<li>While sentiment is positive, the sustained recovery depends on Indian management confirming price follow-through and the ability to maintain spreads against rising needle coke costs.</li>
</ul>



GrafTech International Ltd (EAF US) announced a significant price hike, triggering a massive rally in Indian graphite stocks like Heg Ltd (HEG IN) and Graphite India (GRIL IN)

This reset was necessitated by prolonged EBITDA losses and rising input costs, signaling a critical structural shift for the global graphite electrode pricing benchmark.
While sentiment is positive, the sustained recovery depends on Indian management confirming price follow-through and the ability to maintain spreads against rising needle coke costs.


The Graphite Reset: What’s Fuelling the Rally in HEG and Graphite India?

Global Materials | Industrials | Commodities

Rahul Jain

Equity Bottom-Up

<ul>
<li>Q4 FY25 delivered best operational quarter with 27% EBITDA margin and steady 80–85% utilization despite global steel demand weakness.</li>
<li>Expanding graphite electrodes to 100 ktpa, commissioning 20 ktpa anode plant by FY27, and deepening exposure via GrafTech stake.</li>
<li>Base case SOTP implies Rs614/share, valuing core at 8× EV/EBITDA and anode business at 2.5× invested capital.</li>
</ul>


Q4 FY25 delivered best operational quarter with 27% EBITDA margin and steady 80–85% utilization despite global steel demand weakness.
Expanding graphite electrodes to 100 ktpa, commissioning 20 ktpa anode plant by FY27, and deepening exposure via GrafTech stake.
Base case SOTP implies Rs614/share, valuing core at 8× EV/EBITDA and anode business at 2.5× invested capital.


HEG IN – Graphite Leader Expands into Anodes; Capacity Edge and Battery Optionality Key

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

GrafTech International Ltd / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> results for Q4 2022 were worse than expected, and guidance for volumes down 50% in H1 2023e was shocking.</li>
<li>In summary, our intrinsic value was too aggressive, and there was a low margin of safety on the investment. Constant execution issues in a favorable environment didn't help our cause.</li>
<li>The stock isn't as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story now gets pushed out to the end of FY25. The investment is dead money for two years.</li>
</ul>



GrafTech International Ltd (EAF US) results for Q4 2022 were worse than expected, and guidance for volumes down 50% in H1 2023e was shocking.
In summary, our intrinsic value was too aggressive, and there was a low margin of safety on the investment. Constant execution issues in a favorable environment didn't help our cause.
The stock isn't as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story now gets pushed out to the end of FY25. The investment is dead money for two years.


Graftech: Deleveraging Story Moves Out Even Further / Dead Money

<ul>
<li>
<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> thesis has taken a turn for the worse with the suspension of the operations in Mexico (impact 50% of production in Q4 2022/H1 2023). </li>
<li>The negotiations of LTA pricing ( based on spot pricing ) in the near term also prove to be a headwind, with spot prices 40% below the contract. </li>
<li>At 7.3x PE FY23 (earnings down 60% YoY), the stock price reflects these challenges. The recovery for the company to normalized cash flow levels will take much longer.</li>
</ul>



GrafTech International Ltd (EAF US) thesis has taken a turn for the worse with the suspension of the operations in Mexico (impact 50% of production in Q4 2022/H1 2023). 
The negotiations of LTA pricing ( based on spot pricing ) in the near term also prove to be a headwind, with spot prices 40% below the contract. 
At 7.3x PE FY23 (earnings down 60% YoY), the stock price reflects these challenges. The recovery for the company to normalized cash flow levels will take much longer.


Graftech: Operational Issues Plague Thesis

<ul>
<li>Since our first bullish note on  <a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> the stock is down -31% due to softer ASP's and cost inflation. We believe these headwinds will persist.</li>
<li>Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. </li>
<li>Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.</li>
</ul>


Since our first bullish note on  GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP's and cost inflation. We believe these headwinds will persist.
Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. 
Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.


Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance

United States

GrafTech International Ltd. manufactures and provides natural and synthetic graphite and carbon based products and services. The Company offers graphite electrodes, petroleum needle coke, crystalline form of carbon, and energy solutions for manufacture of steel, aluminum, silicon metal, automotive products, and electronics. GrafTech International serves customers worldwide.

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GrafTech International Ltd (EAF US)

The Graphite Reset: What’s Fuelling the Rally in HEG and Graphite India?

GrafTech International Ltd triggers rally in Indian graphite stocks with significant price hike, signaling critical shift in global electrode...

Sudarshan Bhandari

HEG IN – Graphite Leader Expands into Anodes; Capacity Edge and Battery Optionality Key

Strong operational performance in Q4 FY25 with high EBITDA margin and utilization, plans for expansion and deepening exposure driving positive...

Rahul Jain

Graftech: Deleveraging Story Moves Out Even Further / Dead Money

Graftech stock isn't as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story with the Monterrey incident gets pushed out to the end...

Sameer Taneja

Graftech: Operational Issues Plague Thesis

At 7.3x PE FY23 (earnings down 60% YoY), Graftechs stock price reflects its production challenges. The stock could be dead money with no resolution...

Sameer Taneja

Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance

Graftech is a play on the graphite electrode industry. Trading at 6.3x FY23 PE and 4.7x EV-EBITDA, the company is a debt deleveraging and capital...

Sameer Taneja

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

The Graphite Reset: What’s Fuelling the Rally in HEG and Graphite India?

​GrafTech International Ltd triggers rally in Indian graphite stocks with significant price hike, signaling critical shift in global electrode...

Sudarshan Bhandari

HEG IN – Graphite Leader Expands into Anodes; Capacity Edge and Battery Optionality Key

​Strong operational performance in Q4 FY25 with high EBITDA margin and utilization, plans for expansion and deepening exposure driving positive...

Rahul Jain

Graftech: Deleveraging Story Moves Out Even Further / Dead Money

Graftech stock isn't as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story with the Monterrey incident gets pushed out to the end...

Sameer Taneja

Graftech: Operational Issues Plague Thesis

At 7.3x PE FY23 (earnings down 60% YoY), Graftechs stock price reflects its production challenges. The stock could be dead money with no resolution...

Sameer Taneja

Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance

Graftech is a play on the graphite electrode industry. Trading at 6.3x FY23 PE and 4.7x EV-EBITDA, the company is a debt deleveraging and capital...

Sameer Taneja

GrafTech International Ltd triggers rally in Indian graphite stocks with significant price hike, signaling critical shift in global electrode...

Strong operational performance in Q4 FY25 with high EBITDA margin and utilization, plans for expansion and deepening exposure driving positive...