Indian Major Graphite India Once Again Posts Robust Results for Q2 FY19

Graphite India Limited (GIL) second quarter (Q2) numbers for the financial year 2018-19 are out and the company's sales have recorded a dramatic surge of 344% y-o-y basis at INR 2,345 crore against INR 528 crore in Q2 FY18. Also if we make a comparison against the previous quarter (Q1 FY19), the company's sales have increased by 19% from INR 1,965 crore.

In terms of profitability GIL's operating profits stood at INR 1,684 crore in Q2 FY19 against INR 164 crore in Q2 FY18. On Q-o-Q basis the same has surged by 15% from INR 1,466 crore.

According to company's Chairman Mr. K.K Bangur, the company's performance was driven by both higher capacity utilization levels of 93% and improved price realizations. However, Q2 FY19 quarter's profit margins suffered a bit (operating margin was 75% in Q1 FY19 and 72% in Q2 FY19), partly due to a higher cost of needle coke.

In Q2FY19, the company's capacity utilisation stood at 93% against 88% in Q1 FY19 and 81% in Q2 of previous fiscal year FY18. The needle coke industry is highly concentrated and petroleum needle coke demand is increasing due to its use in lithium-ion batteries used in electric vehicles. Hence, the timely availability of adequate needle coke at a reasonable price will determine the effective/profitable utilization of any meaningful addition to electrode capacity across the industry.

China's steel sector overview

According to customs data, Chinese steel exports from January to September totalled 53.5 MnT, or 5.94 MnT per month. The monthly average was a 5.8% decline from the 6.3 MnT per month last year. This has allowed increased steel production and higher utilization in the other EAF steel producing nations.

The closure of inefficient induction furnaces and highly polluting blast furnaces in China are being replaced by environment friendly electric arc furnaces (EAF's) which is supported by increased availability of scrap. Around 56 new EAF furnaces is expected to come online in 2018 with an aggregate capacity of 60-70 MnT. The share of steel manufacturing capacity using EAF has already risen to 9% in 2017 from 6% earlier.

The Chinese government has set a target of achieving 20% steel production through the EAF route by 2020. Additionally, the closure of 200,000 -300,000 tonnes of electrode capacity last year led to shortage of electrodes. These factors have resulted in an increased demand of graphite electrodes benefiting the graphite electrodes manufacturers across the globe.

India has removed anti-dumping duty on GE imports from China in the month of September 2018. As per the industry experts, there is likelihood that Chinese GE (especially small diameter) may once again start making their entry into the Indian market, thus posing a challenge to the Indian GE manufacturers.

GIL is India's one of the largest graphite electrode producers and one of the largest in the world by total capacity with an annual capacity of 98,000 tonnes. The company has four manufacturing plants at Durgapur (54,000 MT), Bangalore (13,000 MT), Nashik (13,000
MT) and Nurnberg in Germany (18,000 MT).