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Graphite India Ltd. Investor Presentation 2020
61160_rns_2020-06-09_9030f7ac-a6e6-4b81-82bb-bd837e3e4c12.pdf
Investor Presentation
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========~~I~===============G=.=&j=H'O=P=.=1'==:==IN=GH=~~=R=O=D'===KA=L=_=:==16==:=E=IN====== • PHONE:913340029600,22265755/4942/4943/5547/2334,22171145/1146 FAX:913322496420,E-mail:gilro@graphiteindia.com WEBSITE: www.graphiteindia.com. CIN: L10101WB1974PLC094602
GIL:SEC/SM/20-21/21 June 9, 2020
Bombay Stock Exchange Limited The Corporate Relationship Department 1st Floor, New Trading Ring, Rotunda Bldg., P.J.Towers, Dalal Street, Mumbai 400 001.
The Manager Listing Department National Stock Exchange Exchange Plaza,5th Floor, Plot No-CIl, G Block, Bandra-Kurla Complex, Bandra (E) Mumbai 400 051 Symbol- GRAPHITE
Scrip Code - 509488
Re :Earnings Presentation - Results for year ended March 2020
Dear Sir,
Earning Presentation in connection with the Company's Audited Financial results (Standalone and Consolidated) for the year ended 31st March, 2020 is enclosed for your information and records.
Thanking you,
Yours faithfully, F~J Graphite India Limited
/~~~
S. Marda Asst. Company Secretary
Encl : As above.
NSE: GRAPHITE, BSE: 509488
Q4 and Full Year FY2020 Earnings Presentation June 9th, 2020
Discussion Agenda
| Executive Summary_______________________________________ | 3-4 |
|---|---|
| Covid-19 Impact and Business Response______________________ | 5-6 |
| Chairman's Message______________________________________ | 7 |
| Steel Industry Overview___________________________________ | 8-9 |
| Graphite Electrode Industry Overview________________________ | 10 |
| Financial Performance_____________________________________ | 11-12 |
| Financial Performance Trends_______________________________ | 13-15 |
| Leverage Profile__________________________________________ | 16 |
| Segment Performance_____________________________________ | 17 |
| Graphite at a Glance______________________________________ | 18 |
Executive Summary - Consolidated
| Q4 and Full Year FY2020 Consolidated Financial Performance | |||
|---|---|---|---|
| FY2020Profit and Loss | oNet Sales of Rs. 3,094 Crores, a decline of 61% y-o-yoEBITDA of Rs. 95 Crores, Margin of 3.1%oAdjusted EBITDA1of Rs. 718 Crores; Margin of 23.2%oNet Profit of Rs. 45 CroresoEPS of Rs. 2.30 per share | Q4 FY2020Profit and Loss | oNet Sales of Rs. 602 Crores, a decline of 64% y-o-yoEBITDA Loss of Rs. 3 CroresoAdjusted EBITDA2Loss of Rs. 64 CroresoNet Loss of Rs. 7 CroresoEPS of Rs. (0.37) per share |
| Balance Sheet | oGross Debt of Rs. 416 CroresoCash (Net of Gross Debt) of Rs. 2,008 Crores | Dividend | oDividend paid of Rs. 2 per share for FY2020oDividend pay out ratio including DDT, was more than100% on the EPS |
| Notes: | oDue to steep fall in electrode prices, Inventory has been recognized on Net Realizable Valueas per Ind AS, resulting in a fair value adjustment of carrying inventory:oFY2020 –Rs. 584 Crores write downoQ4 FY2020 –in Q3 FY2020oIn Q3 FY2020 -The Company has recognized loss of Rs. 39 crores as per the InsolvencyResolution process, towards sales made to one of its customers in earlier period | Reversal of Rs. 61 Crores out of the write down of Rs. 490 Cores |
- Adjusted EBITDA for Q4 FY2020 is after eliminating the impact of Fair Value of Inventory as per Ind AS
| Q4 and Full Year FY2020 Standalone Financial Performance | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| FY2020Profit and Loss | oNet Sales of Rs. 2,875 Crores, a decline of 57% y-o-yoEBITDA of Rs. 62 Crores, Margin of 2.2%oAdjusted EBITDA1of Rs. 617 Crores; Margin of 21.5%oNet Profit of Rs. 31 CroresooEPS of Rs. 1.60 per shareDue to steep fall in electrode prices, Inventory has been recognized onNet Realizable Value as per Ind AS, resulting in a fair value adjustment of | ||||||||
| Q4 FY2020Profit and Loss | carrying inventory:oFY2020 –Rs. 516 Crores write downoNet Sales of Rs. 548 Crores, a decline of 61% y-o-yoQ4 FY2020 –Reversal of Rs. 129 Crores out of the writeoEBITDA of Rs. 39 Crores, Margin of 7.1%down of Rs. 490 Cores in Q3 FY2020oAdjusted EBITDA2Loss of Rs. 90 CroresoNet Profit of Rs. 25 CroresoIn Q3 FY2020 -The Company has recognized loss of Rs. 39 crores as peroEPS of Rs. 1.28 per sharethe Insolvency Resolution process, towards sales made to one of itscustomers in earlier period | ||||||||
| Balance Sheet | oGross Debt of Rs. 416 CroresoCash (Net of Gross Debt) of Rs. 1,519 Crores |
Notes:
-
Adjusted EBITDA is after eliminating the impact of Fair Value of Inventory as per Ind AS and one-time adjustment of loss from a customer as per Insolvency Resolution process
-
Adjusted EBITDA for Q4 FY2020 is after eliminating the impact of Fair Value of Inventory as per Ind AS
| Covid-19Industry Impact | •Covid-19 caused an unprecedented health and economic crisis around the globe•Complete or partial lockdown of countries disrupted global economic activities•Overall economy slowdown and lower manufacturing activity leading to production cuts and declining capitalinvestments around the globe•The global and domestic demand for graphite electrode is impacted due to partial closure of steel capacities, lowersteel production and destocking of electrode inventory at customer end at a slower pace than anticipated |
|---|---|
| Business Response | •Closure of factories and offices from 24th March 2020 till mid April•Allowed work from home to all employees and promoted audio-video conferencing for all internal and externalmeetings•The Company started partial operations from mid-April onwards and restarted its factories in the phase manner. Thecompany is engaging the permitted labour/manpower and took adequate safety measures to protect its workforce•Corporate offices were also opened at the end of May 2020 with permitted employee strength•The Company has been strictly following government health guidelines and taken various initiatives such asoperating at a lower capacity, temperature screening at regular intervals, social distancing, distributing sanitizersand masks |
| Covid-19Business Impact | •The immediate impact on the business due to closure of factories and offices coupled with transportationchallenges resulted in the muted sales in last week of March 2020•The company started partial operations from mid-April onwards, however due to prolonged lockdown andrestrictions on inter-state movement resulted in lower than budgeted Sales in the month of April and May, which inturn may adversely impact profitability•The demand for graphite electrode is expected to remain subdued in the near term due to partial closure of steelcapacities, lower steel production and destocking of electrode inventory at customer end at a lower-pace thananticipated•Lower exports of steel from China to the rest of the world, especially to the regions having higher EAF capacities,will lead to an increase in domestic steel production and may result in higher demand for electrodes•In the medium term, it is expected that increased government spending on Indian infrastructure development andrevival of key sectors such as construction, mining, capital goods and automobile will lead to increased demand forsteel in India•Potential change in international market dynamics may be beneficial for the company in due course |
|---|---|
| Position | •The Company has a strong balance sheet with net cash position of Rs. 2,008 Crores at the end of March 2020•Closely monitoring the impact of Covid-19 on the business and therefore operating at a lower capacity and will scaleup its operation after carefully assessing the course of pandemic in the near term |
Chairman's Message
Mr. K. K. Bangur Chairman
"During fiscal year FY2019-20, Graphite India registered a Net Sales of Rs. 3,094 Cr, EBITDA of 95 Cr and Net Profit of Rs. 45 Cr. The Net Profit was also adjusted for non-cash fair value adjustment of inventory at Net Realizable Value as per Ind AS, of Rs. 584 Cr in FY2020. The capacity utilization during the year was 55% as compared to 86% in FY2019. Our balance sheet remains robust with Net Cash balance of Rs. 2,008 Cr at the end of March 2020.
The Company's performance during the year was impacted due to the global economic slowdown and lower EAF steel production. In addition, the consumption of electrode inventory, that was built up by many customers last year, at a pace slower than expected also added to the downward pressure on electrode demand. These factors impacted the overall demand and supply balance resulting in lower sales volumes and price realizations.
The unfortunate outbreak of COVID-19 around the world and in India, has posed a serious threat to the health and safety of many and placed economic activity at risk. The nationwide lockdown in India brought all industrial and consumer demand to a halt impacting all sectors and regions. In these unprecedented times, safety and well being of our employees and other stakeholders remain our top priority. Graphite India has been actively following all the health and regulatory guidelines with an aim to mitigate operating risks. There is a high level of uncertainty about the severity and tenure of the COVID-19 crisis and therefore it is difficult to ascertain the full impact on our business.
Looking ahead, the recovery of economic activity around the world is generally expected to be slow and unpredictable. However, lower exports of steel from China to the rest of the world, especially to the regions having higher EAF capacities, will lead to an increase in domestic steel production and may result in higher demand for electrodes. Furthermore, the Indian domestic steel industry is expected to normalize in the medium term, with the revival of key sectors such as infrastructure and construction under the renewed focus on Make in India initiatives.
Graphite India is well positioned to maintain its leadership position underpinned by strong liquidity and well capitalized balance sheet, along with longstanding customer relationships. The Company remains fully confident of not only navigating successfully through these unprecedented times but also emerging stronger."
| Crude Steel Production | Three Months Ended | Year Ended | ||||||
|---|---|---|---|---|---|---|---|---|
| (million MT) | Mar-20 | Mar-19 | Y-o-Y (%) | Dec-19 | Q-o-Q (%) | Dec-19 | Dec-18 | Y-o-Y (%) |
| Asia | 315.2 | 316.0 | (0.3)% | 326.7 | (3.5)% | 1,327.9 | 1,254.5 | 5.9% |
| India | 27.5 | 29.1 | (5.3)% | 27.3 | 0.7% | 111.2 | 109.3 | 1.8% |
| China | 234.5 | 231.7 | 1.2% | 246.1 | (4.7)% | 996.3 | 920.0 | 8.3% |
| Others | 53.2 | 55.2 | (3.6)% | 53.3 | (0.2)% | 220.3 | 225.2 | (2.1)% |
| South America | 10.0 | 10.7 | (7.1)% | 9.9 | 1.1% | 41.2 | 44.9 | (8.4)% |
| North America | 29.5 | 30.7 | (4.0)% | 29.8 | (0.9)% | 120.0 | 120.9 | (0.8)% |
| European Union | 38.3 | 42.6 | (10.0)% | 37.5 | 2.2% | 159.4 | 167.7 | (4.9)% |
| Middle East | 10.2 | 9.5 | 7.7% | 9.8 | 4.3% | 42.9 | 35.6 | 20.5% |
| Others | 39.9 | 39.7 | 0.4% | 37.8 | 5.4% | 178.5 | 184.9 | (3.4)% |
| Total | 443.0 | 449.2 | (1.4)% | 451.4 | (1.9)% | 1,869.9 | 1,808.4 | 3.4% |
- World crude steel production was 443 Mt in Q1 CY2020, a decline of 1.4% as compared to Q1 CY2019
- The EU produced 38.3 Mt of crude steel in Q1 CY2020, a decline of 10% compared to Q1 CY2019. EU steel demand continues to be impacted due to decline in manufacturing activities where auto sector continues to remain worst hit
- Asia produced 315 Mt of crude steel in Q1 CY2020, a marginal decline of 0.3% compared to Q1 CY2019. China crude steel production for Q1 CY2020 was 234 Mt, representing a growth of 1.2% compared to Q1 CY2019
- India's crude steel production for Q1 CY2020 was 27.5 Mt, a decline of 5.3% from Q1 CY2019. India continues to remain the world's second largest steel producing country whereas Japan produced 24.3 Mt in Q1 CY2020 , down 2.4% compared to Q1 CY2019
- Crude steel production in North America was 29.5 Mt in Q1 CY2020, down 4.0% compared to Q1 CY2019
- The Middle East produced 10.2 Mt of crude steel in Q1 CY2020, an increase of 7.7% compared to Q1 CY2019
Steel Industry Outlook
- Global steel industry is impacted due to complete or partial lockdown of countries, closure of manufacturing facilities and lower demand from key sectors such as Automobile, Construction and Infrastructure. However, with easing of lockdown restrictions, the economic activity has started to rebound but is expected to be slow and its trajectory will depend on the severity and tenure of the Covid-19 in the near term
- As per WSA, global steel demand is expected to decline by 6.4% to 1,654 Mt in 2020 due to the ongoing Covid-19 pandemic. In 2021, the global steel demand is expected to increase by 3.8% to 1,717 Mt. Chinese steel demand is expected to grow by 1.0% in 2020 whereas steel demand in developing economies excluding China is expected to decline by 11.6% in 2020 and recover by 9.2% in 2021
- Since 2016 China has closed about 300 million tonnes of outdated and highly polluting steel production capacity but around 908 million tonnes still remain. Such closures are being replaced by environment friendly electric arc furnaces (EAF's) which is supported by increased availability of scrap
- China's EAF steel output is expected to increase to 87 million tonnes in 2020, 12% of its steel output from 53 million tonne which is 6% of the steel output in 2017. Further, China is expected to have graphite electrode capacity totaling 1.5 million tonnes by 2020, up 66.7% from 0.9 million tonnes in 2017 to support newly installed EAF capacities
- Electrode capacities have been ramped up in China. However, EAF capacities have not kept pace due to higher scrap cost and electricity cost thus creating an imbalance. Excess electrode volumes are being exported to other countries at cheaper rates
- Global slowdown in steel demand coupled with increased steel exports from China is expected to impact demand of electrodes
- India removed antidumping duties on graphite electrodes imported from China in September 2018 which has resulted in increased imports. Steel prices also continue to remain under pressure and combination of these factors have resulted in significant correction of electrode prices
- Due to COVID-19 crisis, destocking of electrode inventory at customer end is delayed and is at a slower-pace than anticipated
- Needle coke prices have softened however not yet fully realigned with the electrode prices
Consolidated Financial Performance
| Q4 | y-o-y | Q3 | q-o-q | Year Ended | y-o-y | ||||
|---|---|---|---|---|---|---|---|---|---|
| (Rs. Crore) | FY2020 | FY2019 | Growth(%) | FY2020 | Growth(%) | FY2020 | FY2019 | Growth(%) | Comments |
| Net Sales(Excluding Other Income)Other IncomeTotal IncomeOperating Profit (EBITDA)1 | 60223625(3) | 1,693701,763934 | (64%)(67%)(65%)(100%) | 64343686(445) | (6%)(47%)(9%)(99%) | 3,0941743,26895 | 7,8582108,0685,233 | (61%)(17%)(59%)(98%) | Lower volumes andrealization has impacted thesales and margins on a yearon year basis. |
| Margin (%)2InterestDepreciation | (0)%413 | 55%423 | -(43%) | (69)%412 | -8% | 3%1851 | 67%1262 | 50%(18%) | Volumes improved in Q4FY20 as compared to Q3FY20, however sales wereimpacted due to lower |
| Profit Before Tax (beforeExceptional items and Associates) | (20) | 907 | (102%) | (461) | (96%) | 26 | 5,159 | (99%) | realizations |
| Share of Profit/(loss) of an AssociateExceptional ItemsProfit Before Tax | (3)-(23) | (2)(55)850 | 50%(100%)(103%) | (2)-(463) | 50%-(95%) | (7)-19 | (3)(55)5,101 | 133%-(100%) | In addition, EBITDA wasimpacted due to fair valueadjustment of inventoryamounting Rs. 584 Cr inFY2020 |
| Net ProfitMargin (%)Earnings Per Share (Rs) | (7)(1)%(0.37) | 56233%28.74 | (101%)(101%) | (353)(55)%(18.08) | (98%)(98%) | 451%2.30 | 3,39643%173.80 | (99%)(99%) |
Notes:
-
Operating Profit includes Other Income
-
All margins calculated as a percentage of Net Sales (excluding Other Income)
-
* Amounts are below the rounding off norm adopted by the company
Standalone Financial Performance
| Q4 | y-o-y | Q3 | q-o-q | Year Ended | y-o-y | ||||
|---|---|---|---|---|---|---|---|---|---|
| (Rs. Crore) | FY2020 | FY2019 | Growth(%) | FY2020 | Growth(%) | FY2020 | FY2019 | Growth(%) | Comments |
| Net Sales(Excluding Other Income) | 548 | 1,390 | (61%) | 597 | (8%) | 2,875 | 6,737 | (57%) | Lower volumes and |
| Other Income | 18 | 63 | (71%) | 42 | (57%) | 157 | 197 | (20%) | realization has impacted the |
| Total Income | 566 | 1,453 | (61%) | 639 | (11%) | 3,032 | 6,934 | (56%) | sales and margins as |
| compared to same period | |||||||||
| Operating Profit (EBITDA)1 | 39 | 734 | (95%) | (451) | (109%) | 62 | 4,403 | (99%) | last year |
| Margin (%)2 | 7% | 53% | (76)% | 2% | 65% | ||||
| Volumes improved in Q4 | |||||||||
| Interest | 4 | 4 | - | 4 | - | 17 | 11 | 55% | FY20 as compared to Q3 |
| Depreciation | 11 | 22 | (50%) | 11 | 44 | 56 | (21%) | FY20, however sales were | |
| Profit Before Tax (before | 24 | 708 | (97%) | (466) | (105%) | 1 | 4,336 | (100%) | impacted due to lowerrealizations |
| Exceptional items and Associates) | |||||||||
| In addition, EBITDA was | |||||||||
| Exceptional Items | - | (55) | - | - | - | - | (55) | - | impacted due to fair value |
| Profit Before Tax | 24 | 653 | (96%) | (466) | (105%) | 1 | 4,281 | (100%) | adjustment of inventory |
| Net Profit | 25 | 427 | (94%) | (356) | (107%) | 31 | 2,806 | (99%) | amounting Rs. 516 Cr in |
| Margin (%) | 5% | 31% | (60)% | 1% | 42% | FY2020 | |||
| Earnings Per Share (Rs) | 1.28 | 21.85 | (94%) | (18.22) | (107%) | 1.60 | 143.61 | (99%) |
Notes:
-
Operating Profit includes Other Income
-
All margins calculated as a percentage of Net Sales (excluding Other Income)
-
* Amounts are below the rounding off norm adopted by the company
Annual Performance Trends
Margins%
13
Quarter Performance Trends
Standalone Operating Profit
Margins%
* All numbers in Crores unless specifically mentioned
Quarter Performance Trends
Consolidated Capacity Utilization
Standalone Net Profit
Standalone Capacity Utilization
Significant financial flexibility available for future organic / inorganic growth
| Consolidated Leverage Profile | Standalone Leverage Profile | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Rs. Crore) | Mar-20 | Dec-19 | Sep-19 | June-19 | Mar -19 | (Rs. Crore) | Mar-20 | Dec-19 | Sep-19 | June-19 | Mar -19 |
| Cash & CashEquivalents1 | 2,424 | 2,523 | 2,327 | 3,123 | 2,937 | Cash & CashEquivalents1 | 1,935 | 2,031 | 1,821 | 2,640 | 2,516 |
| Total Debt | (416) | (519) | (394) | (389) | (359) | Total Debt | (416) | (519) | (394) | (389) | (359) |
| NetCash | 2,008 | 2,004 | 1,934 | 2,734 | 2,577 | NetCash | 1,519 | 1,512 | 1,427 | 2,251 | 2,156 |
Consolidated Segment Performance
| Q4 | y-o-y | Q3 | q-o-q | ||
|---|---|---|---|---|---|
| (Rs. Crore) | FY2020 | FY2019 | Growth(%) | FY2020 | Growth(%) |
| Graphite and Carbon | 577 | 1,663 | (65)% | 625 | (8)% |
| Others | 25 | 32 | (22)% | 18 | 39% |
| Less: Inter SegmentSales | - | (2) | (100)% | - | - |
| Segment Revenue | 602 | 1,693 | (64)% | 643 | (6)% |
| Graphite and Carbon | (30) | 905 | (103)% | (490) | (94)% |
| Others | 9 | (1) | - | (4) | - |
| Profit before tax andinterest | (21) | 904 | (102)% | (494) | (96)% |
| Finance Cost | (4) | (4) | 0% | (4) | 0% |
| Unallocated Income /(expense) | 5 | 7 | (29)% | 37 | (86)% |
| Profit Before Tax(Before ExceptionalItems and Associates) | (20) | 907 | (102)% | (461) | (96)% |
| Share of Profit/Loss ofan Associate | (3) | (2) | 50% | (2) | 50% |
| Exceptional Items | - | (55) | (100)% | - | - |
| Profit Before Tax | (23) | 850 | (103)% | (463) | (95)% |
Standalone Segment Performance
| Q4 | y-o-y | Q3 | q-o-q | ||
|---|---|---|---|---|---|
| (Rs. Crore) | FY2020 | FY2019 | Growth(%) | FY2020 | Growth(%) |
| Graphite and Carbon | 527 | 1,359 | (61)% | 579 | (9)% |
| Others | 21 | 33 | (36)% | 18 | 17% |
| Less: Inter SegmentSales | - | (2) | (100)% | - | - |
| Segment Revenue | 548 | 1,390 | (61)% | 597 | (8)% |
| Graphite and Carbon | 22 | 704 | (97)% | (495) | (104)% |
| Others | 1 | 0 | - | (4) | (125)% |
| Profit before tax andinterest | 23 | 704 | (97)% | (499) | (105)% |
| Finance Cost | (4) | (4) | 0% | (4) | 0% |
| Unallocated Income/(expense) | 5 | 8 | (38)% | 37 | (86)% |
| Profit Before Tax(Before ExceptionalItems) | 24 | 708 | (97)% | (466) | (105)% |
| Exceptional Items | - | (55) | (100)% | - | - |
| Profit Before Tax | 24 | 653 | (96)% | (466) | (105)% |
* Amounts are below the rounding off norm adopted by the company
Company Background Industry
Graphite India is the largest Indian producer of graphite electrodes and one of the largest globally, by total capacity. Its manufacturing capacity of 98,000 tonnes per annum is spread over three plants at Durgapur and Nashik in India and Nurnberg in Germany. The Company has over 40 years of technical expertise in the industry. Exports account for approximately half of the total revenues. Graphite India manufactures the full range of graphite electrodes but stays focused on the higher margin, large diameter, ultra-high power ("UHP") electrodes.
Graphite India is well poised in the global graphite electrode industry through its quality, scale of operations and low cost production base. The Company's competitive edge was particularly evident during the last decade, when low prices for graphite electrodes resulted in many of the leading players generating losses, but Graphite India however remained consistently profitable and declared dividends. Graphite India currently has a conservative leverage profile with significant financial capacity for organic or inorganic expansion.
The Company's strategy is to become further vertically integrated, continue its penetration of new markets and clients as well as pursue value enhancing inorganic growth opportunities. Graphite India also manufactures Calcined Petroleum Coke ("CPC") for use in electrode manufacturing. It is enhancing its presence in value added graphite products for the auto, aerospace, chemical, pharmaceutical, metallurgical and machine tool industries.
The Company also has facilities designed for the manufacture of impervious graphite equipment and glass reinforced plastic pipes and tanks. It has an installed capacity of 19.5 MW of power generation through hydel route. Graphite India Limited, through its subsidiary has signed a definitive agreement to acquire 46% stake in General Graphene Corporation, a US based company which has developed a breakthrough proprietary technology which would allow them to produce large area, low cost graphene sheets in industrial volumes for commercial applications.
Graphite electrodes are used in electric arc furnace ("EAF") based steel mills and is a consumable item for the steel industry. The graphite electrode industry is highly consolidated with the top five major global players accounting for almost 75% of the high end UHP electrode capacity. Majority of this capacity however, is currently located in high cost regions like US, Europe and Japan. The manufacturing process for the high end UHP electrodes is technology intensive and is a constraint for the entry of new players.
Graphite India Limited (CIN: L10101WB1974PLC094602) 31 Chowringhee Road, Kolkata 700 016 Phone: +91 33 4002 9600 Fax: +91 33 4002 9676 www.graphiteindia.com
M.K. Chhajer Graphite India Limited
+91 33 40029622 [email protected]
Ravi Gothwal +91 22 6169 5988
Churchgate Partners [email protected]