This stock plummets over Rs 767 in 2 days; A storm before windfall, buy it now, will rise by over Rs 4,700

It was Black Tuesday on Dalal Street, with benchmark indices Sensex and Nifty 50 witnessing massive bloodbath. Interestingly, there was one stock which tumbled by over 10% on BSE touching an all-time low, making many investors poorer at certain level in one day. The stock price of HEG finished at Rs 1974.60 per piece down by Rs 219.40 or 10% on BSE.  Beating in HEG stocks can be attributed to voting which will take place today, in regards to approval of buyback of equity shares and any other investment. 

The announcement was made on Monday, and since then the stock price of HEG has been on hotbed as investors continue to make profit booking. 

Last week, HEG’s stock price stood near Rs 2,742-level, which means the company has lost its Rs 767 or 28% of market price in just 2 days. 

With this one should definitely ask themselves the question on whether HEG is a stock to add in your kitty.

Should you buy HEG?

Analysts at JM Financial said, “Assuming 5.68 lakh shares are tendered in buyback under retail category the acceptance ratio would be around 36%. The significant premium buy-back price over CMP may lead to retail investor buying and tendering more number of shares which could lower the acceptance ratio. However, lower number of shares tendered would result in a better acceptance ratio.”

HEG’s buyback plan involves 1.36 million equity shares which is the company’s 3.41% paid up share capital. The repurchase of equity shares is seen to be done at a premium of Rs 5,500. The buyback proposal must not exceed amount Rs 750 crore. There are 2.04 lakh shares kept reserved for retail category. 

In JM Financial view, “Investor holding stock value aggregating up to Rs 2,00,000 will be eligible to participate in buy-back under the retail category. Investor may hold maximum of 36 shares, however, to account for price volatility one may limit the number to 35 shares.”

With the buyback plan, one can definitely expect HEG’s share price to rise further. Hence, when they are performing at extensive lows, as an investor one might want to have this stock, because the company immense potential.

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In fact, earlier, Bank of America Merrill Lynch has given HEG a buy rating with price target of Rs 6,700. 

BofAML stated that, we initiate coverage of HEG with a Buy rating and PO of INR6,700 - an upside potential of 110%, plus an 8.5% forecast dividend yield. It has seen a significant rise in profitability over the last 12 months as graphite electrode (GE) prices have risen fivefold. Chinese limits on steel production and efforts to cut pollution are lifting steel output by Electric Arc Furnaces (EAF). 

According to BofAML, high entry barriers and limited needle coke supplies mean we see capacity staying tight and a multi-year period of high prices and profit. With 99% of revenue from electrodes, 2/3 as exports, HEG is the purest play on the global sector.

Analysts at BofAML said, “Debt free and generating operating cash flow of INR16-33bn p.a. HEG’s balance sheet is strengthening rapidly with net cash/book equity seen reaching 50% by FY21E. It has announced its intention to expand its plant (already the world’s largest outside China) from 80K tpa to 100K for a maximum INR7bn. We expect it to maintain its 30%-40% payout ratio implying an 8.5% dividend yield. Investing in related industries is possible, but we see limited options and instead look for further potential shareholder payouts.”

Hence, HEG is a stock to buy for getting rich in future course. If we take into consideration the current intraday low and BofAMLs target price, then the company is set to rise over Rs 4,700 ahead.