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Graphite India 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Graphite India’s (GIL) top line came in at Rs.436cr, registering 29.2% yoy growth. EBITDA margin contracted by 137bp yoy to 20.3%. EBITDA increased by 21.1% yoy to Rs.89cr. PAT increased by 27.1% to Rs.56cr on the back of higher revenue. Going ahead, the scenario is positive for the company, as it has started steel production again in June 2011 (post the shutdown) and is showing a strong rising trend. We maintain our Buy view on the stock.

Strong sales growth momentum continues: GIL reported strong sales growth in 3QFY2012. The company’s revenue increased by 29.2% yoy to Rs.436cr. The graphite segment, which contributed around 85.6% to the company’s total revenue, registered strong growth of 27.1% yoy to Rs.373cr, while the steel segment managed a 15.8% yoy increase to Rs.30cr. Sequentially also, the steel segment’s sales increased by 6.7% on the back of volume growth. The company’s OPM declined by 137bp yoy to 20.3% due to increased raw-material cost, which grew to 54.2% as a percentage of sales vs. 51.1% in 3QFY2011. PAT increased by 27.1% yoy to Rs.56cr. Despite a 137bp yoy contraction in OPM, PAT margin only declined by 21bp yoy to 12.9% due to lower tax provision and higher other income. Tax rate declined to 32.1% of PBT in 3QFY2012 vs. 33.2% of PBT in 3QFY2011, while other income increased by 96.8% to Rs.7cr in 3QFY2012 vs. Rs.4cr in 3QFY2011.

Outlook and valuation: We remain positive on the prospects of GIL, owing to strong demand from steel manufacturers. Realizations are also set to increase, as global players have hiked their prices recently. We expect GIL to post a 19.2% CAGR in revenue over FY2011–13E and PAT to witness a 17.7% CAGR over the same period. At the CMP, the stock is trading at attractive valuations of 0.9x its FY2013E BV, respectively. We have valued the stock at its five-year median of 1.1x one-year forward book value to arrive at a target price of Rs.102. We maintain our Buy recommendation on the stock.