Is HEG all set for a reversal?

After recording an all-time high of Rs 2629 in October 2021, this stock went on for a free fall. However, there is some interest showing up in this stock. Read on to find out more.

HEG Limited in the month of October 2021, had hit an all-time high of Rs 2,629. However, this was short-lived and soon the stock started its journey southwards by making a series of lower tops and lower bottoms and registered an all-time low of Rs 891 in June 2022, a fall of around 66% from its all-time high in matter of one year.

Having said that, we have seen interest is again developing in this stock as it makes a series of higher tops and higher bottoms post-hitting all-time lows. Although the Foreign Institutional Investors (FII) have been consistently reducing their stake, the Domestic Institutional Investors (DII) have been increasing stakes marginally in this company.

HEG Ltd is a leading manufacturer and exporter of graphite electrodes in India. It operates the largest single-site integrated graphite electrodes plant in the world. Looking at it fundamentally, the company recorded sales of Rs 2,201 in FY22, against Rs 1,254 in FY21 registering a growth of 76%.

Moreover, after a consistent Profit After Tax (PAT) degrowth since FY19 and a loss booked in FY21, the company recorded PAT of Rs 431 crore in FY22. Even if the debt-to-equity ratio has increased to 0.17 in FY22 from 0.09 in FY21, it is still well positioned.

The only thing that seems to be concerning is its negative cash flow from operations of Rs 141 crore. This was primarily due to the lower receivables and higher inventory. This can also be attributed to its elevated debtor and inventory days making its cash conversion cycle rise from 230 days in FY21 to 331 days in FY22.

In terms of returns to shareholders, its Returns on Equity (ROE) and Return of Capital Employed (ROCE) stood at 11% and 12.8%, respectively. The company has also recommended a final dividend of Rs 40% share ex-date of which is August 24, 2022.

The Relative Strength Index (RSI) is trading in the oversold zone at 79.35, while RSI’s 9-day moving average is at 62.82. Hence, there is a probability of a pullback from current levels. However, a positive crossover of the 20-Day Exponential Moving Average (EMA) and 50-Day EMA is observed suggesting bullishness in the near term.