India Ratings and Research (Ind-Ra) has downgraded HEG Limited's (HEG) Long-Term Issuer Rating to 'INDAA-' from 'INDAA'. The Outlook is Stable.
The downgrade reflects a significant fall in the price of graphite electrode (GE) over 2HFY20 resulting in a sharp compression in the spreads between GE prices and its raw material needle coke (NC) prices, coupled with a significant inventory valuation hit, which resulted in a significantly lower-than-Ind-Ra-expected EBITDA. The rating downgrade also factors in the limited diversification achieved by the company to mitigate EBITDA volatility risks. The strong cash flows generated over FY18-FY20 have been used towards shareholder dividends and equity share buyback in line with HEG's historical dividend payout ratio of 30%-35%. Moreover, the company has embarked on a significantly large capex to increase the capacity that has the potential to lower the liquidity available on the balance sheet and the management expects the same to come on-stream by FY23.
The Stable Outlook reflects the favourable industry structure, healthy on balance sheet liquidity, and the low production cost advantages enjoyed by HEG on account of its single-location plant, labour cost advantages and moderate electricity tariffs.
Shares of HEG LTD. was last trading in BSE at Rs.746 as compared to the previous close of Rs. 774.25. The total number of shares traded during the day was 14300 in over 1265 trades.
The stock hit an intraday high of Rs. 778 and intraday low of 742.6. The net turnover during the day was Rs. 10806533.