Dalal Street Investments

BUY Graphite India – Indiainfoline

November 27, 2007

Indiainfoline has initiated coverage on Graphite India Ltd [GIL] with a BUY rating. Graphite electrode is an indispensable material used in the electric arc furnace steel. The average consumption of graphite electrodes is 2.3 kgs per ton of steel. Contract prices for electrodes have increased by 20% in the last two years driven by strong demand, tight supply and rising needle coke prices.

GIL’s consolidated revenues and profits have registered a CAGR of 40% and 45% respectively over FY05-07. The robust performance has been driven by proactive capacity expansion (from 40,000 mtpa to 70,000 mt pa).

At CMP Rs80, GIL trades at ~50% discount to global peers and ~25% discount to the domestic competitor HEG (core business) on FY08 P/E. One-year target price of Rs114 implying 42% upside is based on a P/E multiple of 9x on fully diluted FY09E EPS of Rs12.6


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