HEG, Graphite India Target Price Raised By Jefferies. Here's Why
Production of electric arc furnace is expected to increase by 100 million tonnes by 2030.
Jefferies Financial Group Inc. has upgraded the target price of HEG Ltd. and Graphite India Ltd. as decarbonisation objective boosts electrode demand.
Jefferies retained its 'buy' rating on HEG and raised the target price by 49% to Rs 2,170, implying a 27.64% upside. It also maintained a 'buy' rating on Graphite India, whose target price has been increased by 23% to Rs 515, implying a 19.1% upside.
Production of electric arc furnace is expected to increase by 100 million tonnes by 2030, driven by a decarbonisation push, leading to a 2,00,000-tonne potential electrode demand globally, excluding China, the brokerage said in a note on Friday.
Electric arc furnace produces a quarter of the emissions compared to the traditional blast furnace. The goal of decarbonisation drove a 78-million-tonne increase in EAF production globally, excluding China, during 2015–22.
Decarbonisation and rising EAF adoption across countries is expected to continue to act as a catalyst for medium-term electrode demand, benefitting export-oriented companies like HEG and Graphite India. HEG's export's account for 70% of its revenue, while Graphite India's exports contribute to 50% of its revenue, according to Jefferies.
Jefferies raised HEG's Ebitda estimates for FY25 and FY26 by 4% and 10% respectively. HEG is set to foray into manufacturing graphite anodes for lithium-ion cells. The company plans to produce 10,000 tonnes of graphite anode, which will cater to 10 gigawatt hours of cell manufacturing. FY25 volume growth is expected to be aided by the 20,000 tonnes electrode capacity expansion, expected to commission by September.
Jefferies expects the electrode-selling prices to increase to $6,000–6,100 per tonne, which would remain 50% below its up-cycle peak in FY19. The FY24 capacity utilisation for the segment is expected to dip to 60–66% before recovering to 75–80% in FY25 on account of demand revival, according to Jefferies.
Of the four analysts tracking HEG, three recommend a 'buy' rating on the stock while one suggests a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 30.5%.
Of the five analysts tracking Graphite India, four recommend a 'buy' rating on the stock, while one suggests 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 21%.
