The graphite electrode business in India is an oligopoly with Graphite India and HEG ruling roost. I already hold a position in Graphite India (which is down by almost 22% from my buy levels 3 months back). Now, it's time to recommend it's cousin, HEG Limited for a buy.
Fundamentally, this business seems to have a good future. The firm is one of the largest in India, well established and progressive. They were carrying some unprofitable loads such as their steel business, which is now gone. On the price-earning front, the stock trades at a 1 yr fwd P/E of 6.70 (similar to Graphite India) and a rising EBITDA margin (over 25% now). The FCF of the business is a healthy 8% of sales.
A report by Emkay also highlights that HEG holds a 40% stake in Bhilwara Energy Limited. Based on the previous two private placements with US funds, Emkay estimates HEG's share in Bhilwara at Rs. 98 per share. Therefore, at the current price of Rs. 259 per share, HEG's standalone business is valued at about Rs. 150 rupees per share which amounts to a m-cap/sales ratio of 0.78.
Wednesday, April 2, 2008
HEG Limited
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2 comments:
I too have a position in Graphite India.
I had compared HEG and Graphite and found both to be good stocks.
However went for Graphite 'cause
a) better dividend history
b) Conservative financing
Alok
I agree Alok .. both are at excellent valuations. I didnt know about the Bhiwara Energy Limited angle to HEG, so thats a probable IPO candidate in the future. Afterall, it makes sense being an energy stock, doesn't it?
Warm Regards
Shankar
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