HEG LIMITED BUYBACK 2018

HEG Ltd, a premier company of the LNJ Bhilwara group, is today India’s leading graphite electrode manufacturer. It has one of the largest integrated Graphite Electrode plants in the world, processing sophisticated UHP (Ultra High Power) Electrodes.

The company exports over 70% of its production to more than 30 countries of the world.

The position the company enjoys today in India and abroad is largely due to its commitment to constant up-gradation of its product quality to match international standards and to meet new challenges to win and excel in all situations.

In Graphite, their focus is on UHP grade electrodes, and they have expanded their product range and established the same on some of the toughest furnaces for their customers. Today, they have years of experience in supplying quality UHP grade electrodes all over the world.

The encouragement from their customers has led them to increase production capacity and become a significant global producer of quality UHP grade electrodes for EAF application. The ability to source the best raw material from sources worldwide and the skills of human resources has been the key to the growth of the company.

To maintain the competitiveness, they have set up a Captive Power Plant totaling more than 77 MW.

As a responsible graphite electrode manufacturer, they continue to invest in technology, development of new products environment and in the human resources.

Buy Back Offer Deal:

Buyback Type: Tender Offer
Buyback Offer Amount: ₹ 750 Cr
Date of Board Meeting approving the proposal: Nov 26 2018
Date of Public Announcement: Nov 26 2018
Buyback Offer Size: 3.41%
Buyback Number of Shares: 13,63,636
FV: 10
Buyback Price: ₹ 5500 Per Equity Share

Details of Buyback:

The Board of Directors of the Company at its meeting held on 26.11.2018 at 12:00 Noon and concluded at 2.30 P.M. has interalia approved a proposal to buy back up to 13,63,636 Equity Shares of the Company, being 3.41 % of the total paid up equity share capital of the Company, for an aggregate amount not exceeding Rs.750 Crores at Rs. 5,500 under the Tender offer route using the stock exchange mechanism.

Salient financial parameters:

Year Revenue(Cr) PAT(Cr) EBITDA Margins Profit Margins EPS
FY16 870 -7.55 16.28% -0.87% -1.92
FY17 859 -50.05 10.40% -5.83% -12.52
FY18 2,748 1081 62.00% 39.34% 270
6MFY19 3371 1658 76% 49.1% 414
Note- The company's fortunes change when China shut down Graphite Electrodes manufacturing in their country due to pollution issues. The Graphite Electrodes price skyrocketed and HEG Limited has immensely benefited. The Company has already made a profit of close to 1600 Cr in the first 2 Qtrs of FY19 which is 3x as compared to Annualized FY18, shows the demand for the electrodes. The company will easily clock the EPS of close to 700 in the year FY19. On that basis the company currently trading at a mouth-watering valuation of P/E of 6. The company is debt free on the basis of long-term borrowings.

How to Participate in buyback?

1. Firstly, to be eligible for the buyback the investor should have shares of HEG Limited Buyback offer 2018 in demat or physical form as on the record date [Not Announced Yet] 2. Once you have shares in demat, you can participate in the buyback process which is opening from [Not Announced Yet] by selling your shares through your broker on NSE or BSE. 3. Then on [Not Announced Yet], the payment will be given to you for accepted shares and unaccepted shares will be returned to your demat account.

Profit from the buyback on the bases of acceptance Ratio:

Buy 36 Shares at CMP of Rs. 4358 [2,00,000/5500=36)
Acceptance Ratio 33% 50% 75% 100%
Amount Invested in Buyback 1,56,888 1,56,888 1,56,888 1,56,888
No. of Shares buyback 12 18 27 36
BuyBack Profit 13704 20556 30834 41112
Profit 9% 13% 20% 26%

Recommendation:

Review and Recommendation of HEG Limited Buyback 2018 by IZ team is: 5/10 Fair: 1-5 Good:5-7 Excellent: 7-10

    Dont play only for buyback, as entitlement & acceptance ratio may not be favourable. (entitlement ratio may be below 10%)
    Keep close watch on stock prices with stop loss on holdings.
    Stock has run more than 30 times within 2 yrs.
    Year ———- High ———— Low
    2016 ———- 203.00 ——— 116.10
    2017 ———- 2336.35 ——- 147.05
    2018 ———- 4955.00 —– 2211.55

      Agree with P.M but fundamentally company is poised for more growth in the future. The Steel sector is doing good in India which is positive for the stock. HEG manufacture High Power electrodes which are used in the manufacturing of stell via EAF route. The demand for electrodes in European countries is huge.

      As per management, the only concern is rising prices of Raw material which is Needle Coke. Apart from graphite electrodes, needle coke is increasingly being used to make lithium-ion batteries, used in phones and electric cars, further tightening availability for the steel sector. If HEG able to transfer these rising cost to the suppliers than there would not be any pressure on OPM and NPM.

      I must say we will not able to see the kind of return stock has given in the last two years going forward due to poor sentiments of the market. However, if you buy this stock as an investment then this will not disappoint you.

      Still record date not announced, to eligible for buyback u have to hold shares till record date.
      Even shares bought two trading days before record date eligible for buyback.
      No. of shares matters for entitlement ratio (no of shares confirmly accepted)
      Even who holds only 1 share on record date also eligible for buyback (acceptance depends on total no of shares tendered)

    Monte Carlo is looking bullish on charts. Keep an eye board members

    Hi. This is my first buyback participation. I had 22 shares since last one month and i added 28 more on 28/11/18. Whether I am eligible for participation and if all my shares will be accepted by company? pls. enlighten me. thanks

      So you have total 50 shares of HEG. On Record Date( Which is not announced) , if suppose the share price is 4200, then you will not be considered under Retail Category but you can tender your share in General Category.

      Now next question, whether all your shares would be accepted?

      This will depend upon Acceptance Ratio.

        if record date is not announced can the company cancel buyback.
        I think it happened in case of PC Jewellers

        What if the market tanks and then they cancel the buyback.

        How to ascertain which company could cancel or which will be fair

          Don’t compare HEG with PC Jewelers. PC Jewelers do not have the cash to pay back interest properly to the banks and company was doing a buyback. In case of PC Jewelers , their lenders i.e. Banks have not allowed them to go for buyback at the final stage. Though ethically company never cancel buyback once Record date is announced. HEG is a cash-rich company with ultra positive business outlook plus their management is good.

            thanks for the answer wizard

            The shares almost tripled in 1 year. is there still any steam left in this
            Should we buy or wait till the record date is announced and almost everyone is saying that there is a high chance for market rout

            reasons which i could find
            1) OPEC meeting : almost certain that they will agree on production cut and that will boost prices
            2) Historically FII pull money out in december as it is festive month and spending increases(in western countries)
            3) Election results in 2-3 key states : prospects of BJP not very good, if congress comes to power market will tank(i believe)

      Vinay, the right answer to all your questions would be known in about 4 to 5 months. Till then everyone will speculate.

      You should have maximum 36 shares (200000÷5500) as on record date( to be declared) for retail investor, otherwise you have to be categorise in general category.

        Bro if the CMP on record date is less than 5500 which 99.9% it will be then shares held could be more.
        36 is the ideal case scenario(safest route) to be considered under retail category.

        Normally the calculation is No. of shares = 200000/Closed MP(Record date)

        if you have shares upto or equals this no you will be considered under retail category

    MONTECARLO Monte Carlo Fashions Ltd. RAJASTHAN GLOBAL SECURITIES PVT LTD BUY 1,11,837 373.73 – Tomorrow buyback announcement possible. They will cash the announcement momentum and exit…..Back door se buyback price pata ho gayi hongi…😃😃

      Please read this first. http://alphaideas.in/2018/11/28/heg-ltd-keh-ke-lunga/

      However, management of HEG Clarifies that 1200cr is large because it includes
      *Dedicated Graphite Electrode Nipple line for 1st time ever
      *Green Extrusion Process costs of 300cr+ for 1st time in 40 yrs

      Adds
      Unlikely to take debt for expansion
      Promoters intend 2participate in buyback.

        in the comments section it was mentioned that by mistake 1 got omitted, is that correct.
        if originally it was for 200 cr then 1200 cr is exorbitant even when we consider the technological improvements and all other factors(it is indeed bad planning on their part if that is the case)

        Don’t u think this smack of foul play by promoters

        Do you think we should participate in buyback and acceptance ratio will be how much as per your calculations
        >30 % or around or substantially less

    Let us see if this would be a trap like Mphasis where every large investor wanted to sell. Or euphoric like TCS where everyone wanted to buy before record date.

    The company is planning for expansion of Graphite Electrodes and related products capacity by 20,000 tonnes per annum (TPA).

    Macquarie has maintained outperform call on the stock with a target at Rs 5,823 per share.

    According to Research house, the announced capex of 1200 cr will increase the company’s growth visibility.

    It expects only a moderation of margin in FY20, while current upcycle is continuing. The high payback to investors should drive re-rating, it added.

    As per Annual Report see the snippet below:

    https://d2un9pqbzgw43g.cloudfront.net/main/shareholding-of-heg.pdf

    The no. of shares between 0-500 are close to 28,40,693 and no. of shareholders are 43,991.- As on 31st 2018

    The No. of shares reserved for Retail Shareholders is 2,04,545.

    So on that basis, the AR would be close to 7%. This is all the initial calculation. Things will change and evolve as we move.

    However, I feel downside in the share is very small from current market price due to cheap valuation. The sector outlook is good. Many brokerage houses have given a target of 6000. So no harm in buying HEG for an investment purpose and meanwhile whatever shares get tendered in buyback would be an icing on the cake.

      Hi, But as per share holding pattern for Sep 2018; The Individual share capital upto Rs. 2 Lacs is 44,91,393 shares, the percentage comes to 4.55%. Please let me know, if any thing needs to be considered. Thanks.

        Please understand this figure gives the total no. of shareholders who are holding shares between 0 to 20000(200000/10). However, for retail category calculations we want number of shareholders who are holding shares between 0 to 36.Hope u got the point.

      the data that you shared is for 0-500 but only investors having shares between 0-36 or 0-50 if we take CMP

      so i think the acceptance ratio would be considerably more than 7% maybe in range of 25% considering some investors will buy this for buyback purposes.

      can we have data like how many investors are there having shares between 0-50 and no of shares held by them, that will provide a more clearer picture

        You are 100% Correct. However, such data is not available anywhere except with the company. The Company provides this data via Letter of Offer which defines entitlement, till then the calculation of AR is somewhat not correct.

    HEG BUYBACK
    Sub: Outcome of Board Meeting
    Dear Sir,
    in continuation of our letter dated November 19, 2018 and in terms of Regulation 30 of the
    SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we wish to
    inform you that the Board of Directors of the Company at its meeting held today at 12:00
    Noon and concluded at 2.30 P.M. has interalia approved a proposal to buyback upto
    13,63,636 Equity Shares (Thirteen Lakh Sixty Three Thousand Six Hundred Thirty-Six) of
    the Company, being 3.41 % of the total paid up equity share capital of the Company, for an
    aggregate amount not exceeding Rs.750 Crores (Rupees Seven Hundred Fifty Crores only)
    (hereinafter referred to as the I’Buyback Size”) at Rs. 5,500/- (Rupees Five Thousand Five
    Hundred only) per Equity Share (hereinafter referred to as the “Buyback Price”).