Buy HEG Ltd for the Target Rs 750 by Emkay Global Financial Services Ltd
HEG reported a strong 1QFY27, with EBITDA at Rs1.5bn and margin at 22%, driven by higher graphite electrode realizations and resilient volumes despite Middle East related disruptions. Management reiterated its 90-95% utilization guidance, while GrafTech's highest utilization since CY22 (74%) and recent price hikes by GrafTech and Tokai Carbon reinforce improving industry fundamentals. We expect higher GE prices to flow through from 2HFY27 and believe that Indian players would follow suit, providing a key catalyst for earnings re-rating. Factoring in the impending demerger, we follow SOTP-based valuation and maintain our TP of Rs750 (assigning Rs503 for Graphite and Rs254 for Greentech), while reiterating BUY.
Higher GE prices and contained volume loss support
1Q HEG reported a strong set of 1QFY27 numbers, significantly beating our estimates, driven by a 13% qoq increase in revenue. The improvement was mainly led by higher GE realizations and ~4% increase in volume despite the negative market outlook owing to the West Asia conflict – this resulted in HEG diversifying its market and providing visibility on shipments ahead. Consequently, EBITDA recovered to Rs1.5bn, returning to the levels seen in 3QFY26. EBITDA margin also rebounded, to ~22%, in line with management guidance given during 3QFY26 results. PAT stood at Rs1.22bn (+203% qoq, +17% yoy), primarily driven by the sharp improvement in EBITDA. Earnings were further supported by higher other income, which increased to Rs436mn in 1QFY27 from Rs399mn in 4QFY26, along with a sequential increase in profit from associates.
Price hikes to materialize; earnings to strengthen from 2H
Despite geopolitical headwinds, HEG maintained strong utilization in 1Q and reiterated confidence in sustaining 90–95% utilization in the near term. This is corroborated by GrafTech, which reported its highest utilization since CY22 (at 74%), pointing to a gradual recovery in global graphite electrode demand. At the same time, recent price hikes by GrafTech and Tokai Carbon, improving EAF steel production outside China, tightening trade protection measures, and rising needle coke costs indicate that industry fundamentals are inflecting. With GrafTech already securing >90% of its 2026 volumes at prices averaging >15% above pre-hike levels, we believe the improving pricing environment increases the likelihood of Indian players emulating the same – this could emerge as the key catalyst for earnings re-rating, in our view
Maintain our positive stance; BUY
As HEG moves closer to its demerger, we decouple the Graphite business from the consolidated financials over FY27-29E; this results in a 16-27% cut to our consolidated EBITDA estimates for FY28-29. We value the company on SOTP basis, assigning 12x Jun27 EV/EBITDA to the Graphite business, 9x EV/EBITDA to BEL, and 20x FY30E PER to TACC (discounted to Jun-27); we maintain our TP of Rs750 (assigning Rs503 for Graphite and Rs254 for Greentech); reiterate BUY.
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