Buy HEG- target price of `238:: Angel Broking,

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HEG reported revenue growth of 6.5% yoy to `319cr during 2QFY2012. EBITDA
margin contracted by 987bp yoy to 10.2% due to a 27% yoy increase in
raw-material cost and forex loss of `11.6cr. On the profitability front, HEG
reported a decline of 54.5% yoy to `14cr in 2QFY2012 as compared to profit of
`30cr in 2QFY2011. We maintain our Buy recommendation on the stock.
OPM impacted by increased raw-material costs and forex losses: During
2QFY2012, HEG reported net sales growth of 6.5% yoy to `319cr. The
company’s EBITDA margin came in at 10.2% in 2QFY2012, down 987bp yoy
from 20.1% in 2QFY2011, on the back of higher raw-material costs and forex
loss. On the bottom-line front, HEG reported a 54.5% decline to `14cr from
`30cr in 2QFY2011.
Outlook and valuation: We expect HEG’s revenue to grow at a 25% CAGR over
FY2011-13E, aided by higher prices of graphite electrodes. The company’s
EBITDA margin is expected to witness a downward trend in FY2012E and
FY2013E due to higher raw-material prices and INR depreciation. However, PAT
is expected to rebound to `134cr in FY2013E from `123cr in FY2011 and `63cr
in FY2012E. At `195, HEG is trading at PE of 5.9x its FY2013E earnings and P/B
of 0.8x for FY2013E. We maintain our Buy recommendation on the stock with a
target price of `238, based on a target P/B of 1.0x for FY2013E.