HEG, Topline in line, margin beats estimate…. :: ICICI Securities, link

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Angel Broking - HEG - RU4QFY2012 - Result Updates - PDF link

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HEG - RU4QFY2012

Hold HEG Ltd; Target :Rs 219 :: ICICI Securities, (pdf link)

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PDF link for report- click here




P e r f o r m s   w e l l …
HEG Ltd’s (HEG) Q3FY12 numbers were better then our expectation on the
back of healthy sales volumes. The  topline came at | 418.0 crore (our
estimate: | 317.8 crore), which was 34.7% higher YoY and 30.9% QoQ. The
EBITDA margin increased 660 bps QoQ but was lower by 200 bps YoY at
20.4%. The subsequent EBITDA stood at | 85.1 crore (our estimate: | 58.2
crore), which was 22.1% higher YoY and 92.7% QoQ. In the quarter under
review, the company reported exceptional items to the tune of | 35.5 crore.
Exceptional items represent forex realisation losses on hedges and foreign
currency borrowings. As a result, the ensuing reported PAT stood at | 24.0
crore.
ƒ Healthy growth in sales volume
HEG reported healthy numbers for Q3FY12 on the back of robust sales
volumes. During the quarter under review, an optimised product mix
led to record capacity utilisation over 100%. Exports also witnessed a
significant growth momentum. The management expects higher
capacity utilisation levels to sustain, going forward.
V a l u a t i o n
At the CMP of | 206, the stock is trading at FY13E P/E of 5.0x and FY13E
EV/EBITDA of 5.6x. We have valued  the stock at a 15% discount to the
global average of 6.6x CY12E EV/EBITDA, thus arriving at a target price of
| 219. We have assigned a HOLD rating to the stock

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.

HEG Input costs, forex loss weighed on margins ACCUMULATE ::Emkay

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HEG

Input costs, forex loss weighed on margins

ACCUMULATE

CMP: Rs209                                        Target Price: Rs224

---

n     Q2FY12 topline above estimates at Rs 3,192, up 7% YoY and 14% QoQ, primarily driven by higher volume and INR depreciation that improved realizations in INR term

n     EBITDA in line with estimates at Rs 442 mn, down 27% YoY and flat QoQ due to increased domestic input costs and also weak INR that raised landed cost of needle coke

n     Reported PAT stood at Rs 135 mn, down 32% QoQ, however, adjusted for forex loss of Rs 116 mn, APAT came at Rs 251 mn, up by 27% QoQ

n     Adjusted for share buy back, our FY12E and FY13E EPS stand at Rs 22.5 and Rs 32.9 respectively; Revising our SOTP target price to Rs 224; Maintain Accumulate   

Hold HEG; Target : Rs 202 ::ICICI Securities

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M u t e d   p e r f o r m a n c e …
HEG’s Q2FY12 PAT was below our expectation on the back of higher cost
of domestic inputs and adverse forex movement on working capital
borrowings. The topline came at | 319.2 crore (our estimate: | 289.3 crore),
which was 6.5% higher YoY and 14.2% higher QoQ. However, on the back
of higher input costs, the EBITDA margin declined 630 bps YoY and 200
bps QoQ to 13.8%. The subsequent EBITDA stood at | 44.2 crore (our
estimate: | 55.4 crore), which was  26.6% lower YoY and flattish QoQ.
During the quarter under review, there was forex loss to the tune of | 11.55
crore. As a result, ensuing reported PAT stood at | 13.5 crore (our estimate:
| 24.7 crore), which was 54.5% lower YoY and 31.5% QoQ.
ƒ Sharp decline in EBITDA margin
During the quarter under review, there was a sharp decline in the
EBITDA margin. The EBITDA margin declined 630 bps YoY and 200
bps QoQ to 13.8%. In Q2FY12, the import price of needle coke in US
dollar terms remained stable. However, the steep depreciation of the
rupee against US dollar has led to higher landed cost of needle coke in
Q2FY12. With crude oil prices remaining at elevated levels, prices of
domestic inputs such as binder pitch, furnace oil, etc. were also
notably higher during the quarter under review.

V a l u a t i o n
At the CMP of | 205, the stock is trading at FY13E P/E of 7.5x and FY13E
EV/EBITDA of 6.2x. We have valued  the stock at a 15% discount to the
global average of 6.5x CY12E EV/EBITDA, thus arriving at a target price of |
195. We have assigned a HOLD rating to the stock.

Hold HEG; Target : Rs 219:: ICICI Securities

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D i s m a l   p e r f o r m a n c e …
HEG reported its results for Q1FY12 that were lower than our estimates.
Revenues for the quarter stood at | 279.5 crore higher ~ 25.8% YoY but
lower ~0.7% QoQ (our estimate: | 308.3 crore). The performance during
the quarter under review was impacted on account of one-off process
loss in graphite electrodes segment. The volume loss for the same was
~4-5% while the impact was to the tune of ~ | 10 crore. Furthermore, the
thermal plants operated below par on account of maintenance shutdown.
Operating margins were also under pressure on account of higher costs
of furnace oil and LDO. As a result, the EBITDA margin contracted ~ 990
bps YoY and ~480 bps QoQ. EBITDA stood at | 44.1 crore (lower 22.7%
YoY and 24.1% QoQ) (our estimate: | 59.5 crore). The ensuing PAT stood
at | 19.8 crore (our estimate: | 31.2 crore) lower by 25.5% YoY and
42.5% QoQ.
ƒ Capacity expansion well on schedule
Phase I of capacity expansion from 66,000 tonnes per annum (TPA)
to 80,000 TPA is now operational  and the full capacity commercial
production is expected to be operational by Q3FY12. An investment
of approximately | 275 crore had been earmarked for the expansion.
Total expansion capex is being funded through a mix of debt and
internal accruals.
V a l u a t i o n
At the CMP of | 226, the stock is trading at FY13E P/E of 7.7x and FY13E
EV/EBITDA of 5.9x. We have valued  the stock at a 20% discount to the
global average of 6.8x CY12E EV/EBITDA, thus arriving at a target price of
| 219. We are assigning a HOLD rating to the stock

HEG - Margin squeezed by power & fuel costs ACCUMULATE ::Emkay

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HEG

Margin squeezed by power & fuel costs

ACCUMULATE

CMP: Rs230                                        Target Price: Rs261

---

n     Q1FY12 topline came in line with estimates at Rs 2,795 mn, up 26% YoY and flat QoQ, primarily driven by volume growth on YoY basis

n     EBITDA at Rs 441 mn down 23% YoY and 24% QoQ due to increased power and fuel expenses, higher domestic input costs and muted realizations

n     Lower depreciation, tax and interest costs gave some respite to the PAT that stood at Rs 198 mn, down 26% YoY and 43% QoQ

n     We cut our earnings estimate for FY12E and FY13E to Rs 27 and Rs 33 respectively; Revise our SOTP target price to Rs 261; Downgrade to Accumulate   

Dismal performance… HEG Q4FY11 :: ICICI Securities,

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Dismal performance…
HEG reported its Q4FY11 results that came lower than our estimates.
Revenues for the quarter stood at | 282 crore, down ~ 16% YoY and
~9% QoQ as against our expectation of | 340 crore. The de-growth in
topline can be attributed to lower realisations in both segments (graphite
and power) coupled with lower sales volumes, due to lower utilisation,
which for the quarter stood at ~82% as compared to our expectation of
90%. The EBITDA contracted ~22% YoY and ~16% QoQ due to lower
realisations and higher cost pressure (increase in staff cost, other
expense and power & fuel). Despite a decline in the interest cost (by
~15% YoY), the PAT fell ~13% YoY and ~10% QoQ to | 34.4 crore
against our expectation | 43 crore. In CY10, global steel demand grew
12%. However, going forward, in CY11 steel production is expected to
grow at a slower pace of ~5%. In CY10, steel production through the EAF
route has been close to 2007 levels and is expected to rise further, going
ahead, implying higher demand for graphite electrodes. On the cost front,
needle coke contract price negotiations have settled at slightly lower
prices compared to CY10. However, rising domestic input costs would
put margins under pressure.

HEG Q4FY11 Result Update; Margin under pressure; stable performance likely; Buy; Target: Rs 276 :: Emkay

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HEG Q4FY11 Result Update; Margin under pressure; stable performance likely; Buy; Target: Rs 276

n    Q4FY11 topline at Rs 2816 mn, down 16% YoY and 9% QoQ on account of subdued prices for graphite electrodes and lower volumes

n    EBITDA fell by 22% and 17% on YoY and QoQ respectively to Rs 581 mn mainly due to rise in employee costs and other expenditure    

n    Rise in other income coupled with lower depreciation, interests and taxes helped the company to report a PAT of Rs 344 mn, down 12% YoY and 10% QoQ 

n    Our SOTP target comes at Rs276 valuing the core business at 5xFY13 EV/ EBITDA and 25.8% stake in Bhilwara energy at 1.5x P/BV with 20% holding company discount; Buy 

Add HEG Ltd -Stable performance… price Rs 206: ICICI Sec

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HEG Ltd -Stable performance… 
HEG reported its Q3FY11 results that came in line with our estimates.
Revenues grew at a modest pace to | 310 crore (up ~7% YoY and ~4%
QoQ) against expected | 298 crore. Topline growth can be attributed to
higher sales volumes. However, realisations of graphite electrodes and
power remain muted. EBITDA margins improved sequentially by 230
bps but declined 970 bps YoY due to a rise in operational expenses (up
~22% YoY) due to higher input prices. Despite the decline in the
interest cost (by ~32% YoY), PAT fell ~16% YoY but managed to grow
~28% QoQ to | 38.2 crore against our expectation of | 29.5 crore. Going
forward, improved production from EAF-based units will see better
capacity utilisation levels backed by an improved demand scenario. On
the cost front, needle coke contract price negotiations for CY11 are in
progress and are expected to settle at slightly lower prices compared to
last year. We have revised our target price to | 206/share and assigned
an ADD rating to the stock.

HEG:: Re-rating expected post uptick in volumes:: Quant

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HEG -Re-rating expected post uptick in volumes
India Equity Research I Engineering & Capital Goods Initiating coverage

We initiate coverage of HEG with a BUY rating and a 12-month price target of Rs324,
implying 22% potential upside from current levels. We believe HEG is an attractive play
on the graphite electrodes (GE) industry and it is expected to benefit by the recovery in
the steel cycle. A steady improvement in capacity utilization levels based on increased
capacity with a recovery in margins is likely to result in steady growth in earnings even
with muted realizations. The company’s focus on cost controls and assuring raw
materials and power supplies in advance is likely to provide for stable operating margins
and higher capacity utilization rates. The stock trades at 5.6x FY12E EV/EBITDA and 7.8x
FY12E earnings, which, in our view, is not justified, given a potential rebound in return
ratios from FY12 and another Rs42/share upside from the possible Bhilwara Energy (BEL)
listing.