The Tirupati Graphite (LSE:TPG) share price leapt last week after reports the firm had developed a revolutionary graphene-based substance. If expectations are realised, then the near doubling of the Tirupati Graphite stock price (from 90p to 152p) might be justified and then some. However, it is still very early days, so a sober look at the potential of this development is warranted. But I also want to investigate what else Tirupati Graphite offers should its new development not see the commercial light of day.
Graphite and Graphene
Tirupati Graphite is a young company. It was incorporated in 2017 and listed on the London Stock Exchange in December 2020. It mines flake graphite at two sites in Madagascar. High purity and specialised flake graphite processing facilities are being developed in India. There is also the Tirupati Graphene and Mintech Research Centre (TGMRC), again located in India,
Tirupati Graphite shipped 1,206 tons of flake graphite from Madagascar for £793,577 of revenue in 2020. With a cost of sales of £411,899, graphite mining returned a gross profit of £381,678 and a gross margin of 48% in 2020. Revenues have grown at an annual rate of 432% since 2018. Administrative expenses have grown at 46%. Assuming margins remain steady and sales continue to ramp up faster than administrative expenses, Tirupati should start turning an operating profit in the medium term.
The graphite and related products market is expected to grow significantly through this decade, both in volume and price. Tirupati Graphite plans to ramp up to 81,000 and 24,000 tpa of graphite flake and processed graphite, respectively, in the medium term. This sounds achievable, but getting there will require money. Tirupati raised £10m of equity in April 2021 and has tapped the debt markets. But, it’s burning through something like £1m to £3m of cash every year. So, unless it can generate some operational cash flows, further equity and debt raises will be required to fulfil its medium-term plans.
Tirupati Graphite share price rises
The Tirupati Graphite share price surge of last week followed a report in The Telegraph that TGMRC has developed a novel aluminium-graphene (Al-Gr) composite. Graphene has been called a wonder material. However, very few applications have followed its 2004 discovery. But its use in wiring has been explored, and this is what this Al-Gr composite is attracting attention for. So far, only about 200 grams of the stuff has been produced, but it’s said to be almost as conductive as copper, yet at least 3.2 times as dense and mechanically stronger.
Replacing copper wiring in aircraft and cars with Al-Gr would deliver substantial savings in weight. Better fuel efficiency could be one perk and loading more cargo on board would be another. Rolls-Royce, the FTSE 100 aerospace giant, is apparently already engaged in preliminary discussions. It’s talking about the material’s potential in wiring and other structural operations.
Tirupati Graphite’s Al-Gr composite could well be groundbreaking. But at the moment, so little is known. Can commercial volumes of Al-Gr be produced? Can it be formed into wires? How much will this cost? The Tirupati Graphite stock price was 145p at Tuesday’s close, up from 50.5p in December. But too many questions remain unanswered, and I need more clarity. The share price is too high for me, so I won’t be buying the company in my Stocks and Shares ISA right now.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.