HEG hits new high; stock zooms 56% in 6 trading days

The stock hit a new high of Rs 4,950, rallied 56% in past six trading days, after BofAML initiated coverage of the stock with a 'Buy' rating and target price of Rs 6,700 per share.

Shares of HEG hit a new high of Rs 4,950, up 15%, extending its gains for the past one week of over 30% on the BSE, after Bank of America Merrill Lynch (BofAML) initiated coverage of the stock with a 'Buy' rating and target price of Rs 6,700.

The stock surpassed its previous high of Rs 4,560 recorded on August 2, 2018. It zoomed 55% in past six trading days from Rs 3,182 on October 8, as compared to a 2% rise in the S&P BSE Sensex.

“HEG has seen a significant rise in profitability over the last 12 months as graphite electrode (GE) prices have risen fivefold. Chinese limits on steel production and efforts to cut pollution are lifting steel output by Electric Arc Furnaces (EAF). High entry barriers and limited needle coke supplies mean we see capacity staying tight and a multi-year period of high prices and profit. With 99% of revenue from electrodes, 2/3 as exports, HEG is the purest play on the global sector,” BofAML said in a note.

“We rate HEG at Buy. We forecast an extended period of strong earnings driven by a supercycle in graphite electrode demand and pricing and see HEG as the purest play on the sector. Sector strength is driven by Chinese policies to curb pollution and limit steel output, which is lifting electrode demand globally. Producers are inhibited to add supply given limited needle coke availability. HEG's valuation does not appear to have priced the strength and longevity of this cycle, in our view,” it added.

The board of directors of HEG is scheduled to meet on Wednesday, October 31, 2018, to consider the unaudited financial results of the company for the quarter & half year ended the 30th September 2018.

At 01:27 PM; HEG was trading 12% higher at Rs 4,799 on the BSE, as compared to 0.82% rise in the benchmark index. The trading volumes on the counter more than doubled with a combined 1.27 million equity shares changed hands on the BSE and NSE so far.

Graphite India too locked in upper for the fifth trading days at Rs 1,008, up 5% on the BSE. In the past six trading days, the stock surged 28% from Rs 787. It hit an all-time high of Rs 1,126 on August 14, 2018, in intra-day trade. A combined 1.14 million equity shares changed hands and there were pending buy orders for 431,514 shares on both the exchanges.