Graphite India profit nearly wipeout, realisation hit badly

Shares of Graphite India declined 3.81% to Rs 195.55, extending slide for the second straight session following the dismal earnings performance for the fiscal fourth quarter.

On Tuesday reported a net loss of Rs 7 crs for the Jan-Mar quarter, as compared to a PAT of Rs 563 crs in Q4 last year and a net loss in the Dec Quarter totalling Rs 353 crs which was impacted by COVID-19 pandemic and subsequent disruptions in the graphite electrodes market.

Revenue from operations fell 64% to Rs 602 crore during the quarter under review as against Rs 1,693 crore in the corresponding period of the previous fiscal.

Lower volumes and realization has impacted the company’s sales and margins on a year basis. Volumes improved in Q4 FY20 as compared to Q3 FY20, however sales were impacted due to lower realizations.

In Q4FY20, the company recorded a consolidated EBITDA of Rs 39 crore and an adjusted EBITDA (after eliminating the impact of fair value of inventory as per Ind AS) as compared to a EBIDTA of Rs 734 crs in Q4 last year

The EBITDA was also impacted due to fair value adjustment of inventory amounting to Rs 516 crore in FY2020. Nation-wide lockdown announced on 24 March 2020 to contain the outbreak of COVID-19 resulted in muted sales in the last week of March 2020.

For FY20 revenues have dropped sharply to Rs 3094 crs from Rs 7856 crs last year with a PAT of Rs 45 crs against a PAT of Rs 3373 crs. A large part of the profits at the bottomline have come from other income only which is not a good sign.

While the sales and profitability of the company for the quarter were impacted due to the Iockdown, it is not possible to ascertain the exact quantum thereof.

In the prevailing circumstances, Graphite India does not expect any impact of COVID 19 on its ability to continue as a going concern. The global and domestic demand for graphite electrode has been impacted due to partial closure of steel capacities, lower steel production and destocking of electrode inventory at customer end at a lower-pace than anticipated.

The company is operating its factories at a low capacity and will scale up its operation after carefully assessing the course of Covid-19 in the near term.

Graphite India is the largest Indian producer of graphite electrodes and one of the largest globally, by total capacity.

Despite the near term headwinds GIL has some key positives which includes having a gross debt of Rs. 416 Crores but being net cash positive (Net of Gross Debt) of Rs. 2,008 crs.

Covid-19 caused an unprecedented health and economic crisis around the globe with the global and domestic demand for graphite electrode impacted badly due to partial closure of steel capacities, lower steel production and destocking of electrode inventory at customer end at a slower pace than anticipated

According the company management, the recovery of economic activity around the world is generally expected to be slow and unpredictable. However, lower exports of steel from China to the rest of the world, especially to the regions having higher EAF capacities, will lead to an increase in domestic steel production and may result in higher demand for electrodes.

Furthermore, the Indian domestic steel industry is expected to normalize in the medium term, with the revival of key sectors such as infrastructure and construction under the renewed focus on Make in India initiatives.

On the other hand global steel industry is impacted due to complete or partial lockdown of countries, closure of manufacturing facilities and lower demand from key sectors such as Automobile, Construction and Infrastructure.

However, with easing of lockdown restrictions, the economic activity has started to rebound but is expected to be slow and its trajectory will depend on the severity and tenure of the Covid-19 in the near term

As per WSA, global steel demand is expected to decline by 6.4% to 1,654 Mt in 2020 due to the ongoing Covid-19 pandemic. In 2021, the global steel demand is expected to increase by 3.8% to 1,717 Mt. Chinese steel demand is expected to grow by 1.0% in 2020 whereas steel demand in developing economies excluding China is expected to decline by 11.6% in 2020 and recover by 9.2% in 2021

Net net we understand that prospects for FY21 for the company look completely washed out and a slow recovery can be expected from FY22 onwards only.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.