Would you buy HEG(Hindustan Electro Graphite) ? – Fundamental Analysis


Would you buy HEG(Hindustan Electro Graphite) ? – Fundamental Analysis

The Graphite Electrode Company – HEG (Hindustan Electro Graphite) is engaged its business in manufacturing of Graphite Electrodes, Carbon Speciality and Power. It was started by the LNJ Bhilwara Group in India, where the exports are over 70 percent of its production to more than 30 countries across the World

The First time in the last 40 years, the company had suffered a loss of Rs. 8 Crore in the FY2015-16. In the year of 2015-16, HEG shares was trading between Rs. 120 – RS. 230/- Then the Share price were taken enormously to 25 times in the year 2018-19. The Demand in Graphite Electrodes across the world was loaded its earnings to multi profit.

Currently, the Market Cap is around Rs. 6,600 Crore after the buy back completion of Rs. 5,500/- per share in the month of April 2019. The Current market price is trading in the 2 year low as the sector was seen as Sluggish. The Book value of HEG Ltd was seen of Rs. 964 per share.

The Price to earning is also trading at the value of 2.17, which was similarly seen in Graphite India (2.04). The Dividend yield of 4.83 percent for the Current price, which is attractive for the Value Investors.

ROCE(Return on Capital Employed) and ROE (Return on Equity):

  • The Return on Capital Employed for the HEG Ltd is 90.57 percent, which is good for its 3.86 Crore Equity Shares.
  • The Return on Equity is 80.50 percent for the last one year. For the 5 years and 10 years, the ROE was seen as 23 % and 22 Percent respectively.
  • The Sales growth for the last three years were also seen with 30.79 percent and for the 10 years, it was 11.30 percent.
  • The Profit Growth were also rallied to 210 percent for the last 3 years due to recent earnings.
  • 22.30 percent Compounded profit growth was seen for the last 10 years for this Graphite Electrode firm.

The Promoters holding is standing at 61 percent and there is no pledging of shares in the Promoters Holding. The Current liabilities and Current Assets were stood at Rs. 1,218 Crore and Rs. 3,436 Crore respectively. It has rich cash on Reserves of Rs. 3,680 Crore in the Financial year 2018-19.

The Debt to Equity ratio is 0.18 which was little higher than Graphite India – 0.07. But, we can expect this HEG as Debt free company in the near future. The Current market price to the book value is also trading at 1.70 times. The Debt was seen for this company is Rs. 667 Crore.

The Recent Q4FY19 income from operations were Rs.1,347 Crore and the net profit was Rs. 524 Crore, where the other income of Rs. 42 Crore included. The PBT was 806 Crore rupees in the march ended quarter. The Earning per share(EPS) was declined to Rs. 131 from the Rs.216 which was seen in the December quarter (Q3FY19).

Revenue & Net Profits – FY18 vs FY19:

In the Financial year 2017-18, the standalone report said that the revenue of Rs. 2758 Crore and the net profit was Rs. 1,082 Crore. It was seen as a good year for the company, after a net loss of 50 Crore rupees in the FY17.

For the FY2018-19, the standalone revenue was seen as Rs. 6,592 Crore and the net profit of 3050 Crore rupees, which was tremendous in the last 10 years of its business.

HEG Ltd Balance Sheet FY2019

For the recent QoQ, the March quarterly net profit declined 17 percent to Rs. 524 Crore from the Rs. 634 Crore seen in the March 2018. The Revenue was increased by 4 percent to Rs. 1,347 Crore from the Rs. 1,292 Crore in the same quarter in 2018.

The Interest coverage ratio is at 261 times, which is better for this company to manage its debt. The average Return on Equity stands at 23 percent. The total Non current liabilities were increased to Rs. 133 Crore from RS. 125 Crore. The Trade payable were also increased to Rs. 666 Crore from Rs. 297 Crore which was seen in the March 2018.

However the Cash & Cash equivalents and Bank Balances was increased to Rs. 557 Crore from the Rs. 8 Crore. Currently, the Fair value for HEG Ltd is between Rs. 2450 and Rs. 3070, including Margin of Safety of 20 percent.

We will see the detailed analysis for the share of HEG Ltd in the upcoming weeks.

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