Graphite India Q3FY13 Results: Lacking Strength

Graphite India has disappointed on the topline as well as the bottomline front in the December 2012 quarter financial results, which dropped on a sequential as well as yearly basis.

Graphite India announced its December 2012 quarter financial results, wherein its topline and bottomline declined on a YoY basis. The topline and bottomline for the quarter stood at Rs 429.10 crore and Rs 34.51 crore as against Rs 437.08 crore and Rs 56.18 crore respectively in the December 2011 quarter. On a sequential basis too, the performance was not good as compared to the September 2012 quarter bottomline, which stood at Rs 46.45 crore. So, the net profit marked a decline not only on a YoY basis, but also QoQ.The main factors behind the company’s poor performance were the lower realisations and higher input costs. The sequential performance suffered as the company had enjoyed the benefits of favourable currency fluctuations in the September quarter of this fiscal.

The company operates in two major segments, i.e. graphite electrodes and power & steel. The graphite electrode segment is directly related to the production of steel, which was lower in the December quarter. India witnessed a marginal 5.7 per cent growth on a YoY basis in terms of steel production. On a sequential basis, this increased marginally by 3.4 per cent. Hence with lower demand, the price realisation was subdued. Though the company managed to put in better performance in the steel and power divisions, the contribution to the topline and bottomline has been quite lower.

The only positive factor that has emerged from the results is the company’s continuously increasing capacity utilisation. For the December 2012 quarter, the capacity utilisation stood at 96 per cent as compared to 89 per cent in June 2012 and 91 per cent in September 2012.

On the valuations front, the scrip is trading at 7x its trailing four quarter earnings. As the scenario in the industry is yet to improve, staying away from this counter will be a prudent strategy.