For 4QFY2011, Graphite India (GIL) reported a 10.5% yoy decline in its top line to `303cr (`339cr), below our estimates of `377cr, due to non-delivery of a large shipment and lower realisations. Accordingly, PAT declined by 19.9% yoy to `45cr (`56cr), owing to lower sales as well as margin contraction. On the positive side, however, annual volumes increased substantially by around 25%. Going ahead also, the scenario is positive, with steel production showing a strong rising trend. We maintain our Buy recommendation on the stock.
Disappointment on the sales front: On the consolidated basis as well, sales were below our estimates, as sales in German operations remained flat for the year. OPM for Indian operations fell to 19.4% due to lower sales. Going ahead, sales growth is expected to get back on track, resulting in an improvement in OPM.
Outlook and valuation: We remain positive on the prospects of GIL, owing to strong demand from steel manufacturers. Realisations are also set to increase, as global players have hiked their prices recently. However, we have reduced our sales estimates for FY2012E and FY2013E downwards by 7.7% and 7.8%, respectively, to reflect the below-expectation performance during the quarter and the performance of the German operations. PAT estimates have been revised downwards by 10.0% and 9.9% for FY2012E and FY2013E, respectively. Overall, we expect sales to post a 19.2% CAGR over FY2011–13E and PAT to increase at a 26.2% CAGR over the same period. At the CMP, the stock is trading at attractive valuations of 1.1x and 1.0x its FY2012E and FY2013E BV, respectively. We have valued the stock at 1.3x its FY2013E BV to arrive at a target price of `123. We maintain our Buy recommendation on the stock.
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