Why HEG Share Price is Rising

Sometimes, even the Bollywood icon Akshay Kumar makes a bad movie. Or even Lata Mangeshkar, one of the most influencers in the music industry, sings a bad song.

Then there's MS Dhoni, captain cool. In the past two years, even he was seen losing his cool sometimes.

Similarly, if we take this analogy in the stock markets, even a fundamentally strong company's share price may suffer for a brief time.

However, when a star actor, singer or cricketer gives a bad performance, we all trust that they will bounce back stronger. Investors need to keep a similar attitude of trust while investing because if it's a fundamentally strong stock, the company's share price will bounce back sooner or later. After all, Mr market eventually gets it right.

A very recent example of the above is HEG's share price.

A month ago, in May 2023, we wrote about why HEG's share price was falling as it came under pressure for a brief period after declaring its quarterly results.

However, the share price bounced back even stronger and in the next couple of days, it was back to 52-week high.

In 2023 so far (up to 22 June 2023), HEG share price has gained 53.2% and in the past one year, it has rallied 71%.

Let's find out why the stock is on a roll...

#1 Steady performance in Q4 and FY23

For the financial year ended March 2023, the company reported total sales of Rs 25,763.8 million (m), up 12.9% on a YoY basis. Softening steel prices led to a steady demand for electric furnaces around the globe which boosted the company's sales during the year.

The profit was up by 16.6% compared to last year. This was driven by reducing input prices.

The company's profit margins also improved marginally on a YoY basis.

HEG Annual Financial Performance

Particulars	FY22	FY23
Total Revenues (Rs in m)	22,811.60	25,763.80
Profit after tax (Rs in m)	3,905.80	4,555.10
Profit margin (%)	17.1	17.7

Source: Equitymaster

Improving financial performance amid a challenging market environment indicates a strong market presence.

Along with decent financial performance, the management expects the company to do well in the medium to long term on the back of multiple factors.

#2 Positive sectoral outlook

If estimates turn out to be accurate, the global steel industry is poised for a demand rebound this year with a projected growth rate of about 2.3% and going forward, in 2024, the industry is expected to sustain its growth trajectory with a forecast increase of 1.7%.

These projections indicate a positive outlook for the global steel market, signalling opportunities for continued development in the years to come.

Globally, countries are shifting steel manufacturing from blast furnaces to electric furnaces as the world focuses on saving the environment.

Thus, from a medium-to long-term perspective, the company may benefit as the entire world continues to focus on decarbonisation and the reduction of greenhouse gas emissions. Steel produced by electric arc furnaces account for one-fourth of carbon as compared to the same steel produced by blast furnaces.

The company is expanding its production capacity from 80,000 tonnes to 100,000 tonnes, and the trial runs are already at the final stage.

Its long-standing relationship in the international market boosts management's confidence in the company's ability to succeed at a rapid pace.

Owing to multiple sectoral tailwinds, the company has been on a good run for months now.

#3 Manufacturing of Lithium-ion batteries

This is a big tailwind that could change the fortunes of HEG.

The company is diversifying into graphite anode for lithium-ion cells, which forms the battery for electric vehicles and energy storage systems. Given that it's the first such plant coming into the country, the management sees a huge opportunity here in the long term.

The company has already incorporated a wholly-owned subsidiary of HEG in the name of TACC for this new business. The board has approved a budget of Rs 10 billion (bn) for setting up a manufacturing facility of 10,000 tons of anodes per annum in Phase 1, which should be in operation by Q2 of the calendar year 2025.

At present, cells and battery packs are all imported into India, and soon there will be a huge domestic demand for graphite anode as cell manufacturing shifts to India. There is good potential for this business in the next three to five years as more-and-more EVs are manufactured in India.

The company is extensively working on capacity utilisation. By 31 December 2022, the company had already incurred a capex of Rs 10 bn out of the total capex of Rs 12 bn planned for financial 2023.

Its new project for graphite anode is progressing well, and the company might soon begin operating its pilot plant, which will facilitate trials.

The location is decided for the plant. The land acquisition is under process, and the first phase of the project is to make 10,000 tonnes of anode by mid-2025.

How HEG share price has performed recently

In the past one month, HEG's share price went up by 31.4%. On a YTD basis, it has gained 53.2%.

While in the past one year, it has rallied 71%.

HEG shares touched a 52-week high of Rs 1,747 on 20 June 2023 and a 52-week low of Rs 906 touched on 21 June 2022.

About HEG

HEG was incorporated in 1972 as Hindustan Electro-Graphites. The company is among the leading graphite electrode manufacturer in India.

The company owns one of the largest integrated graphite electrode plants in South-East Asia that processes sophisticated ultra-high power electrodes.

HEG is a flagship company of LNJ Bhilwara Group. HEG exports over 80% of its production to more than 25 countries that include the US, Canada, Germany, France, Italy, Australia, and South Korea.

The company has clientele including majors such as ArcelorMittal, Posco, ThyssenKrupp, US Dynamics, Nucor, Severstal, and Usinor to name a few.

Investors can make a back door entry in steel sector though HEG. To know more about it tune in to the video below:

To know more about the company, check out the HEG fact sheet and quarterly results on our website.

You can also compare HEG with its peers:

HEG vs Graphite India

HEG vs De Nora India

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...