Shares of HEG have returned more than 900% in the last one year. On Friday, the shares surged 5% to hit the upper circuit.
Shares of HEG have returned more than 900% in the last one year. On Friday, the shares surged 5% to hit the upper circuit. While this may seem as a lost opportunity, global research firm Macquarie has initiated coverage on the shares with an outperform rating. The shares closed at Rs 3,311.5 on Friday afternoon. Macquarie has a target price of Rs 4,810. Macquarie’s target price implies an upside of more than 45% from the current levels.
According to the research firm, the GE (graphite electrode) market should remain tight on the back of supply chain bottlenecks. “With growing demand, it’s more a ‘strategic resource’ now,” it said in a report. Despite a five-time rise in prices, Macquarie sees GE prices to remain strong for another three years, as utilisation remains on an uptrend. It still accounts for more than 5% of steel cost.
A recent Nomura report had noted lowered the forecast from margins for GEs. “Although government-enforced curbs on production at SMEs have forced many of these smaller producers out of the market in China, companies compliant with environmental regulations have been adding production capacity since the latter half of 2017.
We lower our 2019 forecast for margins on graphite electrodes from $6,000/tonne to $3,800/tonne and our 2020 forecast from $6,000/tonne to $2,500/tonne,” Nomura said. Notably, HEG is the fourth largest GE producer in the world with a 10% global market share. The company supplies around 25% of its production in domestic market but has a higher export in India.