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HEG Limited, one among the largest manufacturers of graphite electrodes, has been in the limelight due to major changes in the global demand for graphite. On December 5, HEG’s shares surged by 6.40% and touched ₹619.25 per share after a ₹172 crore block deal on the BSE.
Such a sentiment tallies with the global upheaval that China’s move to tighten export quota on graphite means, while promising more business for key suppliers such as HEG.
Today, as of writing, HEG Ltd is trading at ₹556, a 4.82% drop from yesterday’s rally.
China, the global leader in the supply of graphite, has recently imposed rigorous scrutiny to its exports of graphite especially to America. This has been done against the background of emerging geo-political risks and the attempts of the United States to control the necessary materials for military and electric cars’ industries.
Graphite, an important input in the production of batteries for EVs and steel, is now in high demand. HEG as a dominant exporter of India would obviously gain greatly as 70% of its revenues emanate from the international markets and 17% from the US market only.
Joining with this robust outlook, HEG has enhanced its production capability to 100000 tons, which would keep it in the competitive league in the world. Additionally, India’s ₹9,000 crore production-linked incentive (PLI) scheme in EV battery components and the firm’s possible entry to the graphite anode market places HEG in a strategic place within the rising vitality sector.
Looking at the daily chart of HEG below, it can be seen that the stock has only recently crossed a long term resistance zone around ₹400 after a strong impulse move. It resulted in a breakout that took the rally to a high of ₹619.50. But the current price means a correction is in order following the profit-taking action after the stocks have risen considerably.
RSI at 70 indicates oversold territory and hence we could see short term consolidation or more pull back. Yet, the stock remains well above its key support zones at ₹425 and ₹400, indicating that the overall bullish structure is intact.
Some of the things that investors must take note include, this year, HEG has provided its investor’s better YTD return of 48.27% than the S&P BSE SENSEX which has a return of 13.21%. Nonetheless, investors willing to hold the stock for a longer time frame can hold since its five-year return is at 229.68%.
Despite its strong market performance, HEG’s profitability metrics suggest room for improvement. With a profit margin of 8.06% and return on equity (ROE) at 4.14%, the company’s current valuation (PE ratio of 37.87) seems high.
However, its robust cash reserves of ₹4.61 billion and low debt-to-equity ratio (12.7%) provide financial stability and the ability to capitalize on growth opportunities in the graphite sector.
The global graphite supply chain disruption caused by China’s export restrictions presents a unique growth opportunity for HEG. The company is strategically positioned to meet the growing demand for graphite electrodes, essential in steel production and EV battery components. Coupled with the Indian government’s PLI schemes and HEG’s expanding production capacity, the long-term growth story remains compelling.
For investors, the recent pullback in HEG's share price may offer a better entry point. However, cautious investors may want to wait for RSI levels to cool down before making a move. With its strong technical setup and favorable global trends, HEG remains a stock worth watching closely.
