HEG stocks up 32% due to healthy outlook as China tightens graphite grip

Rise has occurred over past 2 days, pushing stock to a 70-month high

Shares of HEG hit an intraday high of Rs 596, rising 19.5 per cent on the BSE in Wednesday’s intraday trade amid heavy volumes. The stock closed 16.7 per cent higher at Rs 581.9. Over the past two days, the stock of the graphite electrode manufacturer has risen nearly 33 per cent due to a healthy outlook and reports of possible gains arising from export curbs being planned by China. It was trading at its highest level since January 2019, having previously hit a record high of Rs 990 on October 16, 2018.

 

According to media sources, China has announced that it will implement stricter end-user and end-use reviews for graphite exports to the US.

 

A Bloomberg report indicated that China announced an outright ban on several materials crucial to chipmaking from being exported to the US, citing concerns over military usage in a tit-for-tat move after US president Joe Biden’s government escalated technology curbs on Beijing.

 

HEG has long been the world’s largest single-site graphite electrode plant under one roof, with a capacity of 80,000 tonnes per annum (tpa). The company recently completed an expansion to 100,000 tpa, becoming the third-largest producer of graphite electrodes in the Western world. It has been exporting 65–70 per cent of its production to about 35 countries globally for more than 20 years.

 

HEG expects initiatives for steel industry decarbonisation to increase demand for graphite electrodes, driven by the adoption of electric arc furnace steelmaking. This will result in an additional demand of about 200,000 tonnes by 2030 (excluding China).

 

Given the irreversible process of decarbonisation, HEG is optimistic about the growth of graphite electrode demand in the medium to long term.

 

According to ICICI Securities, China’s move is a response to geopolitical tensions between China and the US, with the new US president vehemently articulating his stance on imposing tariffs on Chinese goods entering US territory. If this move is implemented, it is expected to limit the availability of graphite in the US, creating a favourable opportunity for domestic graphite electrode manufacturers like HEG and Graphite India.

 

HEG, in particular, stands to benefit as exports account for over 70 per cent of its revenue, with the US being a key market within this segment (contributing about 17 per cent of sales). Additionally, the central government has proposed a Rs 9,000 crore production-linked incentive scheme for electric battery components, marking a promising development for HEG, given its intent to venture into the production of graphite anodes, a crucial component for lithium-ion batteries, according to the brokerage firm.

 

HEG stock closed 16.7 per cent higher on Wednesday at Rs 581.9, compared to a 0.14 per cent rise in the S&P BSE Sensex. The average trading volumes on the counter surged more than fivefold, with a combined 46.65 million equity shares changing hands on the National Stock Exchange and BSE on Wednesday.

 

On October 18, 2024, HEG subdivided/split the face value of the company’s equity shares from Rs 10 each into five equity shares with a face value of Rs 2. The company said that the rationale behind the stock split was to enhance the liquidity of the company’s equity shares and encourage retail investor participation by making the shares more affordable.

 

Meanwhile, shares of Graphite India rallied nearly 8 per cent to Rs 614 on the BSE in intraday trade on Wednesday. Over the past two days, it has surged about 17 per cent. The stock had hit a 52-week high of Rs 709.45 on April 25.

 

However, the two stocks are covered by only a few (six to eight) brokerages. According to Bloomberg data, the average one-year target price of brokerages that have rated the stocks recently is Rs 514.25 for HEG and Rs 719 for Graphite India.