Graphite India, HEG share prices rise 6% : 3 factors keeping Jefferies cautiously positive on these stocks

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Graphite India and HEG share prices rose more than 6% in morning trades on Thursday. The share prices already have already risen 68-78% in a year as both stocks scaled 52-week highs in first week of the current month. Graphite India and HEG ltd though are seeing volume growth as was visible in their quarterly performance during December quarter, all eyes are on the improvement in operating performance that can lift their earnings.

Graphite India and HEG Ltd December quarter performance performance missed Jefferies Q3 earnings estimates. While volumes grew YoY due to better utilization, pricing pressure continued. The capacity utiisation was at 80-85%.

Global steel production was flattish YoY, but Indian production rose by around 14%YoY. Both pricing and margin pressure could stay for 2-3 quarters said analysts at Jefferies India Ltd in their result review report. The raw material prices are declining but benefits would flow with a lag.

Also HEG's graphite electrode inventory is 2 months of sales versus. normalized 1 month, highlighted analysts. In the backdrop of a miss in Q3 performance Jefferies has cut FY25-26 estimated Ebitda (Earnings before interest, tax, depreciation and amortisation) by 2-7% and expect FY24 to be muted, but they remain cautiously optimistic on FY25 macros.

Optimistic on 2024 Macro (FY25): Jefferies global metals team is cautiously optimistic for 2024, after a tough CY22-23. The expectations are of a potentially weaker dollar, lower bond yields, the US Federal reserve holding or cutting interest rates, some stability in China, a strong India demand,etc. Also read- Renuka Sugar to Balrampur Chini: Why sugar stocks in India are nosediving today? The steel cycle thereby may see some uptick.