HEG - 4QFY2012 Result Update - Angel Broking

HEG reported revenue growth of 44.7% yoy to Rs.407cr in 4QFY2012 compared to Rs.282cr in 4QFY2011, mainly driven by higher prices of graphite electrodes. However, on a qoq basis, revenue declined marginally by 2.5% due to lower capacity utilization during the quarter. EBITDA margin contracted by 288bp yoy to 17.8%, while net profit plunged by 85.5% yoy to Rs.5cr on account of forex loss of Rs.48cr. We recommend an Accumulate on the stock.

Shrinkage of EBITDA margin and forex loss drag net profit downwards: During 4QFY2012, realization of graphite electrodes witnessed an uptrend; however, this was offset by higher needle coke prices. The company's EBITDA margin contracted by 288bp yoy to 17.8% due to increased power and fuel costs, which can be attributed to higher coal costs and shortage in supplies of coal from linkages. Moreover, HEG reported forex loss of Rs.48cr on account of hedging positions and forex fluctuations on working capital borrowings during the quarter. All these factors led to a significant decline in net profit to Rs.5cr in 4QFY2012.

Outlook and valuation: We expect HEG's revenue to post a 16.9% CAGR over FY2012-14E, aided by better volumes on expanded capacity and improved realizations. The company's EBITDA margin is expected to be range-bound over FY2012-14E with a marginal increase of 74bp to 17.7% in FY2014E, while PAT is expected to rebound from Rs.57cr in FY2012 to Rs.132cr in FY2014E. At the CMP, HEG is trading at PE of 6.4x its FY2014E earnings and P/B of 0.9x for FY2014E. We recommend an Accumulate on the stock with a target price of Rs.242.

Source : Equity Bulls

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