HEG Ltd - Company Update - ICICI Securities

HEG reported a disappointing set of Q4FY20 numbers wherein it reported a loss at the EBITDA and PAT level. During the quarter, the performance was impacted by inventory write down taken by the company. Topline came in at Rs. 374.4 crore (down 72% YoY, 5% QoQ). Reported EBITDA loss was at Rs. 497.4 crore (positive EBITDA of Rs. 4.7 crore in Q3FY20 and Rs. 788 crore in Q4FY19) while net loss was at Rs. 366 crore (net profit of Rs. 5.9 crore in Q3FY20, Rs. 524.4 crore in Q4FY19). During the quarter, HEG had recognised its carrying inventory on net realisable value (NRV) basis to the extent applicable and has accordingly written down the cost of inventory by Rs. 427 crore [included in cost of raw material consumption (RM) Rs. 321 crore and in changes in inventories of finished goods and work-in-progress (FG & WIP) Rs. 106 crore]. This resulted in negative EBITDA and net loss for the quarter.

Valuation & Outlook

HEG reported a muted performance in Q4FY20 on the back of weak demand from the steel sector. Furthermore, it reported a loss at the EBITDA as well as PAT level on account of inventory write downs. Going forward, over the near term, demand for graphite electrodes is expected to remain subdued due to partial closure of steel capacities globally, lower steel production and de-stocking of electrode inventory at the customer end at a slower pace than anticipated, thereby adversely impacting demand prospects. We value the stock at 6x FY22E EPS and arrive at a target price of Rs. 900. We have a HOLD recommendation on the stock.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_HEG_CoUpdate_Jun20.pdf

Shares of HEG LTD. was last trading in BSE at Rs.882 as compared to the previous close of Rs. 911.95. The total number of shares traded during the day was 36382 in over 3190 trades.

The stock hit an intraday high of Rs. 931 and intraday low of 880. The net turnover during the day was Rs. 32924999.

Source : Equity Bulls

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