HEG, Graphite India soar up to 12.5% today; here's what's driving the rally

HEG, Graphite India share price today: Resonac Graphite has announced a minimum 20 per cent of global price increase on all new orders

HEG share price zoomed 12.5 per cent to Rs 2,376 per share on the BSE on Wednesday after ICICI Direct maintained its 'Buy' rating on the stock with a target price of Rs 2,520 per share on the stock. ICICI Direct's 12-month target price suggested a 19.3 per cent upside in the stock from Tuesday's closing level of Rs 2,111.5 per share.

According to ICICI Direct, the ongoing global shift towards Electric Arc Furnace (EAF) route, coupled with expansion led volume growth, augurs well for the company.

"As the global steel industry progresses decarbonisation, it is increasingly adopting the Electric Arc Furnace (EAF) route of steel making, which emits 75 per cent less carbon versus traditional steelmaking (BOF) and also reduces production costs. HEG, being amongst the top 5 graphite electrodes producers globally, is poised to benefit from this transition," ICICI Direct said.

 

With structural tailwinds, ICICI Direct expects demand and pricing recovery in graphite electrode space from the second half of the current financial year (H2FY25) onwards and it bakes in capacity utilisation of around 75 per cent for FY25E and 80 per cent for FY26E, on expanded base (1 lakh tonne).

According to industry estimates, EAF share in total crude steel production (ex-China) is expected to rise from 50 per cent in 2023 to 55 per cent in next 3 to 4 years. By 2030, more than 170 million tonne of EAF capacity (ex-China) is expected to be added, leading to an incremental demand for graphite electrodes by ~2 lakh tonne versus present industry size of 8 lakh tonne.

That apart, HEG plans set up a 20,000 tonne capacity of graphite anode at a capex of Rs 1,800 crore. This venture, ICICI Direct said, is anticipated to offer value addition benefits with targeted Ebitda margins and RoCE pegged at over 20 per cent.

Separately, HEG's plan  to segregate itself into two entities -- Pure play Graphite Electrode business, and Greentech -- thereby creating two listed entities i.e. HEG Graphite & HEG

Greentech will unlock business potential by prioritising core business strength.

At 12:50 PM, HEG shares were ruling 10.25 per cent higher at Rs 2,327.90 per share. Its peer firm, Graphite India's share price, too, was up 9.6 per cent after soaring 11.1 per cent intraday. By comparison, the BSE Sensex was up 181 points (0.2 per cent).

Resonac announces 20% price hike

On the global front, Resonac Graphite, which is one of the leading players in manufacturing of graphite electrodes, announced a minimum 20 per cent of global price increase on all new graphite electrode orders on September 9.

According to analysts this unexpected positive move amid an overall sluggish demand scenario, may lead to other global players such as HEG and Graphite India to consider the similar price hike.

Since the announcement, shares of HEG have surged 18 per cent and Graphite India 19.4 per cent, including today's gains. By comparison, the BSE Sensex is up just 2.1 per cent since September 9.