Multibagger stock: HEG skyrocketed over 105% in a year, up 365% in 4 years; should you still buy?

After experiencing a prolonged downward trend from October 2021 to March 2023, the company’s shares experienced a notable rebound in the subsequent month. Since then, they have consistently followed an upward trajectory, surging from ₹920.70 to the current trading price of ₹1,902. 

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This remarkable turnaround has rewarded its shareholders with an impressive return of 107%. From its March 2020 low of ₹409, the shares are currently trading with a gain of 365%. 

HEG is a prominent entity within the LNJ Bhilwara Group, which has a diverse portfolio spanning IT-enabled services, power generation, graphite electrodes, and textiles. It was established in 1977 and is one of the world’s leading producers of graphite electrode, specialising in sophisticated UHP (Ultra High Power) electrodes. 

It operates the world’s largest single-site graphite electrode plant under one roof with a capacity of 80,000 tons per year for a long time. Recently expanded to 100,000 tons, it now ranks as the third largest producer in the Western world.

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Domestic brokerage firm ICICI Direct Research has assigned a ‘buy’ rating to HEG on the back of structural demand drivers in place amid an ongoing global shift towards the EAF route of steelmaking, capacity expansion-led volume growth in the offering, and graphite anode business.

The brokerage assigned a target price of ₹2,420 apiece to HEG shares, which signalled an upside potential of 27.3% from the stock’s previous closing price. 

Global shift towards the EAF route

The brokerage has pointed out that global steel manufacturers are increasingly adopting the Electric Arc Furnace (EAF) route for steel production to reduce carbon emissions by approximately 75% compared to traditional methods like blast furnaces (BOF).

EAF’s share in global crude steel production (excluding China) has risen from around 44% in 2015 to approximately 50% in 2022, with projections indicating a further increase to about 55% in the coming years. 

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By 2030, it is anticipated that over 170 million tons of EAF capacity (excluding China) will be added, resulting in an additional demand for graphite electrodes, a crucial component in EAF, by approximately 200,000 tons compared to the current industry size of around 800,000 tons, as stated by the brokerage. 

Strong Positioning

The brokerage said that the company is positioned as one of the top five global graphite electrode producers and is poised to capitalise on this trend towards environmentally friendly steel production.

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With its largest single-site plant boasting a capacity of 100,000 tons, including a new capacity of 20,000 tons, the brokerage expects the company will benefit significantly from the growing demand for graphite electrodes. 

Promising prospects await in a new venture

Li-On batteries are the new sunrise sector catering to E-mobility space (Electric Vehicles) & stationary applications, with demand pegged at 150–160 GWh by 2030, resulting in 1.5 lakh tons of demand for graphite anode, a key component in lithium-ion cells. 

As the government aims to localise significant segments of battery components, HEG aims to seize this opportunity by venturing into the manufacturing of graphite anode. 

“HEG aims to seize this opportunity by venturing into the manufacturing of graphite anode. HEG is setting up a capacity of 20,000 tons of this material (catering to ~20 GWh of cell capacity) at a capex cost of ₹1,700–1,800 crore with expected commissioning in H2FY26 and an intended asset turnover of 1-1.1x, EBITDA margins of 25%+, and a RoCE of 20%,” said ICICI Direct Research. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 25 Mar 2024, 02:55 PM IST