How should I look at the results of Graphite India as the stock has been fluctuating a lot in the last few months? Can I buy fresh positions in the stock?

You are correct in that the stock has corrected nearly 75% from the peak levels of August last year and that does not make you feel too comfortable. Graphite India supplies graphite for electrodes that are used in electric arc furnaces used extensively. The stock performed extremely when steel companies were investing heavily in expanding capacities as that meant great demand for art furnaces. However, there was soon a problem of over valuation and also of a slowdown in demand due to problems in China. That is the background of the stock. For the March quarter, the company reported 28% higher net sales at Rs.1693 crore but net profits was up by just 4% at Rs.562 crore. Even at these levels, the net margin of over 30% is very attractive for the stock.

The stock is down sharply mainly due to the downturn in the demand and the valuation concerns. However, after the correction, the stock is quite attractively valued. There is some overhang of debt and capital expenses which are not really too big. At the current price, the stock is valued at less than 3 times P/E, which largely negatives any changes of downside risk. This can be a good level to accumulate the stock.