Three graphite electrodes glow red hot in an electric arc furnace at the electric steel-making plant in Volzhsky, Russia. (Photographer: Andrey Rudakov/Bloomberg)

Recent Slip In HEG, Graphite India A Good Entry Opportunity, Jefferies Says

The steep fall in shares of Graphite India Ltd. and HEG Ltd. provides a good buying opportunity, according to broking firm Jefferies.

Shares of the two graphite electrode makers are down nearly 15 percent after market regulator SEBI placed them under additional surveillance mechanism along with other select mid-cap stocks effective June 1.

The increased vigil is aimed at checking any abnormal rise in stock prices not commensurate with the financial health of companies. This should not be construed as an adverse action against the companies, Jefferies said.

Despite the fall, HEG is still holding on to year-to-date gains of nearly 25 percent while Graphite India has risen around 5 percent. The stocks are trading at cheap valuations, Jefferies said.

Also read: Why HEG Is Trading At A Discount To Its Peers

The foreign brokerage has a target of Rs 1,275 apiece for Graphite India and Rs 4,400 apiece for HEG -- a potential upside of 62 percent and 45 percent respectively.

Reason For Jefferies’ Bullishness

  • A tight demand-supply situation for graphite electrodes
  • Expiry of legacy contracts
  • Bullish outlook over prices of graphite electrodes, which are used in steel-making through electric arc furnaces
  • Better availability of needle coke—a key raw material
  • Allayed fears over China adding electrode and needle coke capacity

Of the six analysts covering Graphite India, five have a bullish rating and one ‘Sell’ rating. Meanwhile, all the three analysts tracking HEG have a ‘Buy’ rating on the stock, according to Bloomberg data.