Good day, ladies and gentlemen. Welcome to the HEG Limited Q1 FY 2025 results conference call organized by SKP Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Agrawal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director, and CEO, and Mr. Riju Jhunjhunwala, Vice Chairman, along with their colleagues, Mr. Manish Gulati, Executive Director, Mr. Om Prakash Ajmera, Group CFO, Mr. Puneet Anand, CSO, and Mr. Ravi Tripathi, GM Finance. We'll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Raviji.
Thank you, Naveen. Friends, good afternoon, and welcome to our financial results conference call for the Q1 fiscal year 2024, 2025. Global crude steel production for the first half of calendar year 2024 remains flat at about 955 million tons, which is more or less similar to last year, as reported by the World Steel Association. However, production trends varied significantly in this six months across the major steel-producing areas. U.S. saw a decline of 2.4%, Japan declined by 2.7%, South Korea 6.8%, and Russia 3.1%. In contrast, India's steel production grew by 6.9% to about 74 million tons, backed by very strong domestic demand for infrastructure, real estate, et cetera.
Germany and Turkey also grew by 4.3% and 30%, as high as 14.5% respectively. China produced about 531 million tons of steel in the first six months, reflecting a decline of about 1.1% over 2023. It is important to highlight here that China produces about 55.6% of the total world steel in the first half of current year, and as such, any substantial change in steel production in China does affect the rest of the world. Chinese steel exports increased significantly due to slowdown in their domestic demand. In the first half of 2024, China exported 53.4 million tons, while their full-year export in 2020 was exactly 53.7 million tons.
Meaning, what they exported in the whole year of 2020, they exported the same, same volume in the first six months. At this rate, China may end up exporting more than 100 million tons of steel in the full year 2024, which is very close to the highest-ever export of 112 million tons in 2015. Such large exports from China to rest of the world, it does affect other countries' own steel production due to cheap prices of Chinese exports of steel. This obviously has an impact, wherein the demand for graphite electrodes reduces as the rest of the world produces less steel under pressure from Chinese exports. And obviously, this results in putting pressure on the margins of electrodes. Now, coming to our quarterly performance. As you have seen from our results, our profit before tax was lower compared to past quarter.
Here, I would like to mention about one-time impact of one of our treasury-related investments in equity shares, where we have taken a mark-to-market loss due to fall in its stock price and booked it under the head of other expense. We are, however, bullish on this particular investment in the medium to long term, and we do not see any cause for concern at this stage. Operationally, our performance was more or less similar to past two quarters. Now, coming to the outlook. As you are aware, our expansion from 80 to 100 thousand tons is fully complete, and all the new facilities are running very smoothly.
This makes our plant by far the largest at a single location in the entire Western world, leading to certain cost advantages over all other large producers, majority of who are in the Western world having higher cost of production. Our capacity utilization for 2023 to 2024 was 82%, with the first three quarters on the basis of 80,000 tons capacity and the Q4 when our capacity became 100,000 tons. For Q1 2025, which means April, May, June, we were close to 80% capacity utilization, and we hope to be close to 75% for the full year, despite steel not doing it very well in the world. Our capacity utilization is the highest amongst all our peers in the world. The electrode pricing continues to remain under pressure due to reduced demand.
The needle coke prices kept correcting through the past year due to difficult market conditions, but the spread between electrode prices and needle coke prices did narrow down, bringing pressure on margins, as is evident when you look at our margins for the last six, seven quarters. Our finished goods, work in process and raw material inventory are at very normal levels, and we do not have any inventory overhang of higher costs. While we are currently facing some near-term margin pressures. But we are very positive about our industry in the mid to long term, in the, in the mid to long term. Decarbonization has now become an irreversible process. We are constantly tracking more and more announcements of the new greenfield electric arc furnaces from different parts of the world.
As we speak, more than 100 million tons of new greenfield capacities have already been announced, which will be in operation between now and 2030, out of which about 64 million tons is likely to be in operation by as early as 2027, and we keep seeing more and more such announcements on a regular basis. As we have been exporting about 65% to 70%, 70% of our production to more than 25 to 30 countries for a very long time, we are in a good position to meet this increasing demand for our products all over the world. In this backdrop, our expanded capacity of 120,000 tons per annum has come at a good time when the electrode market is likely to expand at a rapid pace around the world.
Friends, about the recent restructuring and demerger announcement that we made last quarter, the update is that the scheme of arrangement is progressing well and is currently with the SEBI and stock exchanges, pending approval. After the stock exchange approval, the scheme will also require approval from the NCLT, National Company Law Tribunal. We expect the process to be completed by middle of next year. In conclusion, our Q1 results may not have been satisfactory, given the current tough market conditions, but operationally we have still done well compared to our peers in the industry. HEG remains one of the most competitive plants due to our large capacity at a single location.
The next few quarters may see margins remaining under pressure, but we are hoping that the demand would come back sometime from twenty 2025 onwards, and we are fully equipped to take advantage of that through our expanded capacity. We have all the technological capabilities, operational efficiencies and market reach to take our company forward and to succeed and thrive in all emerging situations to create long-term value for all our shareholders. With this, I'll now pass on the floor to our General Manager of Finance, Ravikripa Tripathi, who will take us through the financial figures. Following that, our Vice Chairman, Riju, our Executive Director, Manish, and our Chief Strategy Officer, Puneet, and I will be delighted to address any inquiries or queries that you may have regarding electrodes and the demerger announcement. Now over to Ravikripa Tripathi.
Thank you, sir.
Thank you.
Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the quarter ended June 30, 2024. For the quarter ended June 30, 2024, HEG recorded revenue from operations of INR 571 crores, as against INR 671 crores in the corresponding quarter of the previous financial year. During the quarter ended June 30, 2024, the company delivered EBITDA of INR 59 crores, as against INR 178 crores in the corresponding quarter of the previous year. The company, on a standalone basis, recorded a net profit after tax of INR 3 crores in Q1 FY 2025, as against INR 98 crores in the corresponding quarter of the previous year.
On a consolidated basis, the net profit after tax was INR 23 crores in Q1 FY25, as against INR 139 crores in the corresponding quarter of the previous financial year. The company is long-term debt free and had a treasury size of nearly INR 917 crores as on June 30, 2024. The detailed presentation has been uploaded on the company's website on the stock exchange. Now, we would like to address any any questions or queries you have. Thank you.
Thank you very much.
Over to Naveen.
Thank you very much, sir. We will now begin the Q&A session. Anyone who wishes to ask questions may press star and one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question and limit themselves to two questions. You may join the queue again, and time permitting, we will take your follow-up questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pritesh from Lucky Investment Managers. Please go ahead.
Yes, sir, first on the green anode plant, what is the CapEx spent so far on the green anode plant? And what is the cash balance that we have in HEG's balance sheet? Then with respect to Malana Power, post the restructuring, what is the holding that HEG Greentech would have in Malana, the percentage ownership? And what is the PNL of Malana Power, basically this 300 megawatt hydro pump power plant in FY 2024, what was the utilization, EBITDA and PAT for this plant?
So I'll ask Riju to answer that, but you talked about Malana 300 megawatt. There are actually two projects. One is called Malana, one is called AD Power, which is Allain Duhangan, and which is the location. Malana is 100, the other one is 200. The total. In total, there is 300 megawatts, but there are two different projects. Now I'll ask Riju to take up.
On the green anode, part of it, the total CapEx that the company has done till now is around INR 60 crores, out of which between 30 to 35 is purely on account of the land. And then the balance into leveling of the land and the boundary walls and environmental approvals and the pre-operative expenses. Total expense till now is around 60-odd crores. The exact cash balance in HEG's books, I think Ravi Tripathi would be in a better position to answer that question specifically.
In HEG Greentech, today, HEG owns 49% of Bhilwara Energy, and promoters directly hold 51% of the company. So when this merger happens of Bhilwara Energy with HEG Greentech, the exact percentage which will evolve will depend on the exact valuation of Bhilwara Energy, which will be exactly the same for the promoters and for the HEG shareholders. But to answer your question, I think. And on the profitability of Malana Power, I think Mr. Mehra is here. He will exactly explain to you about the profitability of Malana and the cash balance. I think, Ravi Tripathi, if you can just give the exact cash balance on HEG books right now.
Yeah. Cash balance is for the period to 30 June 2024, the cash balance is lying around 10 crores in the books of HEG.
No, the including treasury, if you could give us, sir.
Yes, sir. Yes.
Including treasury, what it is?
It is, yes, it is INR 10 crores including treasury.
10 crores, including treasury? No, no, I think, Ravi Ji, you've got the question wrong. The total investments, including treasury in the-
Uh.
as the cash balance of HEG today,
Yes.
Later on, what will be transferred to the green energy, HEG Greentech. Right now, the total would be around between INR 800 crores or something. That is what my estimate would be. But you will have the exact figures with you, I think, Ravi.
Yeah. Yes, sir. Sir, the exact figure is INR 917 crores treasury is there.
Okay. Now, why do you think in INR 8 crores, Ravi?
With respect to the EBITDA of Malana and AD combined, the Malana consolidated is about INR 350 crores for FY 2023-24.
Okay, so just one clarification on this hydropower plant. Eventually, the HEG Greentech, which would be the new company on demerger and the merger of Bhilwara into that company, how much holding HEG Greentech will have in these hydropower plant?
I'll take this question. Today, when the entire restructuring will be completed, HEG Greentech will hold 51% of Malana Power. 49% is held by the Statkraft. And then there's a 100% company underneath the Malana Power, which is AD Hydro. In totality, HEG Greentech will be holding the 51% of the entire hydro asset.
Okay, okay.
Like today, there's no change in the asset of Hydro, Malana or hydros.
And sir, lastly, one clarification on the green anode plant. Your targeted date for production is FY 2026, and you have spent only 60. So is it that the machinery orders have been placed for, or is there any changes in the timeline for commercializing this asset?
So I'll tell you very briefly on this particular thing. We've kind of pushed forward our commissioning target for this particular plant. That's only on account of two things, and we are absolutely ready with all the machinery that has to be placed in terms of the orders. We are completely ready with all the civil design, and we are completely clear with all the, you know, detailed engineering drawings which has been done by Mott MacDonald.
So tomorrow morning, as of now, if we actually give the go-ahead, then the plant construction can start fully on. The only reason why we have pushed it slightly back by maybe like one or two quarters is for two reasons: firstly, the plants that were coming up in India, their plans have also been kind of delayed, and this is on account of, you know, just purely the last 8 to 12 months of a complete drop in lithium ion battery prices from around $85 to 90 per kWh to around $55 per kWh.
Now, we are just studying this particular thing as to whether it is temporary or permanent, but after getting into all details, I mean, we believe this is the bare minimum that the prices can actually go to because of the overcapacity in China, and like you all would have seen in other companies as well, the overall ecosystem of the EV in auto use globally has not gone as per the expectation, but this is just a demand supply kind of a mismatch temporarily, and obviously, because of this, we are trying to renegotiate with the state government and different other state governments in India on the power prices, because power constitutes around 30% to 35% of the variable cost in this particular project.
So while the demand for anode is absolutely one way, which is upwards, the prices at which Chinese companies are selling today is below their variable cost as of date, because of the large overcapacity that they have created. But ultimately, our aim is to sell to the Indian market and try to export whatever balance to the export markets. We are in complete touch with all the possible Indian consumers, and we are trying to match our plant commissioning along with them. So we are absolutely ready from our side, but obviously, I mean, every day is a new kind of a day in these new technology businesses, and we are trying our best to try and renegotiate the kind of power prices, because they will ultimately determine the final price for this product.
So while Madhya Pradesh is still the most preferred option for us, we are trying to look at couple of processes in this particular plant, if we can shift it to some other state where the prices of power might be lower. So everything is absolutely ready. There is absolutely no confusion on the company's part to put the project up. There is no confusion on the demand. The only temporary confusion that has come about is in the last 8 to 10 months, with the battery prices crashing. And obviously, anode being a part of that, how to make sure that our margins are protected, in which power plays the most important role.
We are trying to renegotiate with the Madhya Pradesh government that they should allow us to buy power from third parties or captive without putting any kind of surcharge or different states like Odisha, et cetera, which are offering power at a much cheaper rate. It is just that process that we are involved in. Everything else remains absolutely unchanged. This INR 60 crores of CapEx that I spoke about, regardless of whenever the plant comes up, is something that has to be invested because of the land and because of the environmental clearances and clearing of the land and the boundary, et cetera. It is not like a sunk cost, or it is not like a cost which has been just done as it is.
It's something that we would have to do in any case, regardless of one or two quarters of actually spending the money. So like, Ravi Tripathi mentioned, the INR 910 crore sitting in the balance sheet of HEG, which continues to grow, it will just be, you know, that decision on when to start spending that kind of money physically on the ground. That is something, the decision that we've just purposely kind of delayed by a couple of months or quarters, depending on how well we can negotiate with the state government.
So it's pushed to FY 2027 as of now?
I mean, FY 2026, 2027, most definitely the plant would come up, because that is the time when the battery companies would have started. So, I mean, to be honest, on ground, except for Exide, no other company has started physical groundbreaking and physical production of batteries as of today. So we are working very, very closely with all of them because the whole kind of accreditation process with all these companies will take between 15 to 18 months in any case to produce from a pilot plant, so that process is fully on. So there is no change in the project, there is no change in the thought process for the project. The only thing we need to work is how to further lower the OpEx costs
which primarily being, the power prices for which we are fighting with the different state governments and trying to, you know, get the best price possible, from there. So there's no change in the project, just that, you know, I mean, we are looking at couple of quarters and, which will also coincide with the, ultimate battery producers. That's the only change.
Okay. I'll come back if I have more questions. Thank you very much.
Sure, John. Thank you.
Thank you. The next question is from the line of Vipra Shrivastava from InCred Capital. Please go ahead.
Hi. I'm audible, right?
Yes, sir, you're audible. Please proceed.
Right. First question was on the investment in GrafTech, which we have done in U.S. So that stock is getting notification from the exchange for delisting, potential delisting, because stock price has come below one dollar. So in that event, what happens to your investment, and how do you plan to mitigate that strategy?
Hi, Puneet on this side. The exchange has given them the timeline for six months, and I believe, basis our understanding, they have different ways of getting it, keeping it in the exchange itself, because we understand they are looking for an investment, and they are looking for some more fund flow. Plus, a normal way, like I can give you an example, like HEG today is doing a split of shares. They can also do a reverse split, and the price will go again, go above $1. So there are ways to mitigate these kind of delisting things. We don't oversee any kind of challenge today with our investment with GrafTech.
Right. Fine. Fair enough, fair enough. Second question, sir. A few quarters before, the management said that HEG power cost is competitive with China. I mean, the figure which I remember was around INR 5.5 per kilowatt hour. So, how has that changed? At what price does HEG plans to procure the power now? Is it below 5.5? Because in China, Inner Mongolia, power cost is around INR 5-INR 6 only per kilowatt hour. So I don't see much of a difference there, but what is HEG's management view on that?
I'll take the question again, I mean, since this is more related to the green power. HEG's current cost of between INR 5 to INR 5.5 is on the basis of HEG shutting off its thermal power plant. When HEG shuts off its thermal power plant, in lieu of that, the government has given a subsidy and giving power at INR 5 to INR 5.5. But that is limited to the HEG site, where the HEG current site is limited, is there. It does not mean that if we are putting up the anode project in Madhya Pradesh at a separate location, then the same subsidy would apply to that.
But then why do you have to move to a separate location if you can get power at INR 5.5 in your current location?
No, because that location we cannot put., w e are, you know, still trying to evaluate, because that particular location, after our expansion of graphite from eighty thousand to hundred thousand, there is literally no space in that particular plant to kind of put up a new project over there.
Sure, sir.
We are still looking at ways and means on how we can do a little bit of mix and match if there is some possibility of doing that. When I mentioned that we are, you know, trying to reduce the cost of power, just to give you an idea, I mean, in producing one ton of anode powder, there is one particular process that involves eleven thousand units of power.
Right.
Now, even if you can save INR 1 over there or INR 2 over there, we are talking about potential savings of INR 20,000 per ton as far as, you know, this is concerned. When you're talking about a long-term project of 15, 20 years for this particular kind of thing, I think a couple of quarters of delay in trying to make sure that, you know, we at least get the power at the cheapest rate possible wherever we put that particular process, is something that, you know, we are working day and night on. And if we can manage to achieve that, that will make us definitely much more competitive. And China, like you spoke, I mean, though, they already have the ton cost.
These projects have been, you know, producing over there for more than five to eight years because, you know, China has been big on EV for the last 10 years.
Right.
I mean, they only have the variable cost to look at.
Correct.
So today, the product is selling at X price. They have no other option than to produce that product over there at whatever price of power they're getting. But we, when we are connecting a greenfield project and going from it right from the start, then even that one or two rupees of difference in the power price can make a huge difference over a ten-year period of the product. So which is the reason why we are, you know, kind of, looking at that.
Sir, I mean, if any state can give you power as low as INR 5 or INR 5.5, you can do a project there. That's... Is my understanding correct, right?
Yes, we can actually split the whole project into two parts, and actually, the main part, which is the graphitizing part, that consumes the maximum amount of power-
Right.
which actually we have the competitive advantage because of us knowing the graphitizing process very well because of the electrode business in the last fifty years.
Right.
There's absolutely no problem in looking at any state in India or outside India also to kind of, you know, do this particular process at a particular place, because it will make a huge difference per ton of between, you know, around INR 20,000 per ton in the overall scheme of things. So if you're talking about a 20,000 tons per annum, and two rupees difference of power, that makes it around INR 40 crores a year.
Right.
So which is, you know, something that, you know, a couple of quarters of trying to negotiate with different governments.
Yeah.
For that kind of thing, I think it's something that we should be looking at.
Thank you.
And that's what we are doing.
Yeah. Thank you a lot, sir. Thanks a lot. Thank you.
Just to add something here, there was a time, I think six, seven, eight years ago, when we were operating 70 megawatts of thermal, in addition to the 15 to 20 megawatts of hydro that we had, which is still operating, but we were also operating 65 to 70 megawatts of thermal. At that time, the Madhya Pradesh government was surplus in power. They more or less gave a discounted price of power for a certain number of years to some industries which were among the largest power consumers in the state. In that backdrop, we closed down our thermal plant, which is still there.
I mean, we can start it the day we want, but obviously at current prices of coal, it is much more interesting to buy it from the grid than operate that plant. But that plant is still standing there.
Right. Okay. Thank you, sir.
We'll take the next question from the line of Gaurav Paul from Texcellence Financial Services. Please go ahead.
Good afternoon, sir. Am I audible?
Yeah, yeah, you are.
Yeah. So my first question is on the anode powder business. So, given the prices of the lithium-ion battery, which have fallen, as you also mentioned in the call, what is, what was the fall in the prices of the graphite anode powder prices? And, the battery prices fell, so what was the percentage of fall in the prices of the anode? And also, since now the BESS is becoming very attractive, I mean, there are multiple tenders which are coming out, and, as the prices of the battery energy storages become cheaper, there might be more demand for those, for grid level or utility level battery storage. So please give your thoughts on that.
Yeah. So the battery prices have actually fallen in the last 12 months from, let's say, $85 to 100 per kWh, to around $50 to 60 per kWh. Now, when we do all the calculations backwards, I think below 50 is just a dream. That is something that is not going to happen according to us, because, below that, you go below the variable cost for everything. Anode is between 10%-14% of the battery prices. So let's say when the battery prices were $85 to 100, the anode was being sold at between $10,000 to 12,000. Today, that, when the prices have gone down, for the batteries up to $50 to 60 per kWh, the price of anode too, today you are getting between $6,000 to 7,000 per kWh, depending from application to application.
Now, very correctly, you spoke about the BESS thing. There, the grade of battery that you need, for that you can sell anode at $5,000 to 6,000 per ton. But for the easy applications, you still need a higher grade of anode, which will need around $7,000 to 8,000. So at $8,000 or $7,000 per kWh per ton of anode, the project is still very, very viable and excellent IRRs on that particular range. It's when you go below that range of around $7,000, that we have to start seeing the cost of electricity, et cetera, which will make us more and more competitive.
And the good news for a company like ours, which is like the new company, which will be made, the HEG Greentech, there we are already present in the BESS business, in which we are already doing projects in India and outside of India. There, our raw material is the battery itself. So there, we are seeing the tenders that are now coming up with SECI, et cetera, in which the prices are for 20 years. They are selling prices between a hybrid of solar, wind, and BESS system at INR 3.40 for 20 years. So the cost of BESS systems, which used to be INR 2.5 crores per megawatt, has come down to around INR 1.25 crores per megawatt.
So you will see a huge demand in BESS system coming up in India in the next few years, for which we already have our company, which is totally held by Bhilwara Energy, and which will be part of the new HEG Greentech, which will be, w hich is Re Plus. And there the business development that we are seeing, both India and outside of India, is very, very strong. So that too should be contributing good value to the overall this new green tech business that we are trying to get into. But to answer your question, anode is between 10% to 14% of the lithium-ion battery prices, and there is always room for better grade anode that we wish to produce, which will be used more for
Not for stationary application, but more for the moving application, where the requirement would be for higher grade, which is what we are targeting at. But regardless of that, power consumption is the same, so we'd rather, you know, try to look at some cheaper sources of power to make ourselves more and more competitive in that.
Understood, sir. Thank you. My second question is: How sticky is the anode powder product? So, for example, say, Exide makes a product or a certain battery, and they I mean, can they switch between, say, an HEG or Himadri or Epsilon, or is it like a powder grade which is chosen based on the size?
No, I'll answer that because we also are here in the last one year, we are in the process of understanding this business much better. So let's say an Exide has to produce the lithium-ion battery. They have around 42 raw materials that they have to purchase in order to run the line efficiently. Anode is only, graphite anode is only one of the 42 products. So once they select between an HEG or an Epsilon or a particular or Himadri or any other company that they want to buy the anode from, then it is very difficult, or I would rather say, more, not worth their while, to try and consider a change, because then that will mean a change in their entire process, a change in their entire chemistry.
Which is why I think our decision to put up our power plant, sorry, pilot plant way in advance, so that we are already talking to companies like Exide and all to start using our anode. So yes, technically, they can change from our anode to some other company, but once it is set, it is not going to be something that, you know, that they would like to change immediately. These would then be kind of, you know, two or three or four years kind of order, depending on price, but this will be not something that will be discussed on a monthly to monthly basis.
Okay.
So it's quite sticky that way.
Right. Sir, and also, last year, actually, we, there were some notification or news about China blocking exports of anode powder. How is that progressing? I mean, is that still going on, or are they loosening on that?
No. So the U.S. actually imposed the ban on Chinese products for lithium-ion batteries, but they realized that, you know, the cost of setting up an anode plant in the U.S. is almost double that of India. We are talking about $12,000 per ton as the CapEx. They are talking about 20,000 tons as their CapEx. So U.S. also relaxed their norms, and they have said that in 2027, they will allow Chinese imports into the country. Now, China has put a 13% duty on export of graphite material, because it, it's just cross-border bullying happening on both the sides. Because they want to export their product at a higher price, and they want most of the product to be consumed within China.
They've not banned it, but they've put like a 13% duty on the export of this raw material from China. The ban, I think, was more on synthetic, on natural graphite products from China, not the finished synthetic raw material.
Okay, sir. Thank you so much. I'll get back to you.
Thank you. Participants, you may press star and one to ask questions. The next question is from the line of Gauri Malik from Despelado Advisory. Please go ahead.
Thank you for taking up my question. I would like to ask that, as said earlier, the medium to long-term optimistic outlook for the graphite electrode demand due to the decarbonization effort. So could you please provide more details on your strategic plan to capitalize on this anticipated demand, which is likely to increase, especially with the potential for 200,000 tons of additional demand by 2030?
See, as I spoke about, 100 million tons of new electric arc furnace capacities have been announced all over the world, minus China. We are talking the Western world. I believe, in simple terms, a million tons of electric arc furnace today costs about $1 billion. So $100 billion of new steel capacities investments have been committed, and it is all over the world. America is amongst the largest, because unlike the rest of the world, which produces about 40% to 42% of steel through electric arc furnace without China, America has always been at 70%. So they've been producing 70% of their steel through electric arc furnace, whereas the rest of the world is in the range of 40% to 42%.
America was taking the lead earlier also because they were more focused on the carboniza- decarbonization and environment and all. Now it is happening all over the world. Between Europe, U.S., Middle East, and a little bit of South America and Africa, about 100 million tons of new capacities are already announced, and they are all coming before 2013 , out of which we have some fair data, knowledge about 65 million tons, which is going to be operational between now and 2027 . That is likely to give a boost to electrode demand, to the extent of 100,000 tons to 125,000 tons in the next three years or so.
As you may have followed other graphite producers of the world, at least three or four European, American and Japanese plants have been closed, all in the last 12 to 18 months. They have announced closures of those plants because of current situation and all that, and while we have expanded, of course you cannot time the expansion perfectly, but we are not disappointed that we expanded and we spent INR 1,200 crores. It could have been delayed by one year, but nobody can time it exactly, so it's a matter of two, three, four quarters. Nobody, again, I cannot pinpoint when, but it is going to be. T he demand is likely to increase substantially.
As I said in my opening remarks, I mean, we are the lowest cost producer, and since we have been exporting about 65% to 70%, not in the last two, three, five years, but for the last 25, 30, 35 years. So we have a fairly good reach in most of the countries which produce steel through electric arc furnaces, where in most of the cases we are selling to them, and these are the people who are either expanding their capacities or some new steel plants are coming. So we are fairly confident that as soon as this market changes, I hope, as early as 2025, we are the only ones who will have extra capacity of 20,000 tons to sell.
Okay. Thank you so much.
Thank you. The next question is from the line of Pritesh from Lucky Investment Managers. Please go ahead.
Sir, just one question with respect to this anode facility. So in India, based on whatever capacities have been announced by Exide or Ola's factory or whatever is announced today by them and what is getting implemented on ground, what is the amount of graphite anode, green graphite anode, that these companies will need or the demand from India?
I mean, if you look at all the things, my source of saying this to you is only NITI Aayog. I'm not getting into what the BCG, McKinsey and all are kind of projecting, but the NITI Aayog clearly says that by 2030, we will have a minimum of 80 gigawatt hour to a maximum of 130 gigawatt hour of battery production in India. That would mean one gigawatt hour would mean 10,000 tons of anode requirement. You are looking at anywhere between 80,000 tons to 130,000 tons. And like my dad said about the graphite electrode business in the last question, the exact timing of that cannot be
You know, I mean, neither I can tell you, neither NITI Aayog can tell you, but we are talking about a range of between 80,000 tons to 130,000 tons of demand by 2030.
So now-
When we extrapolate this graph from 2030 to 2040, which is a long time ahead, it increases even further drastically. But you've already had, like, this one, your Exide, which is on the verge of starting 5 GWh factory. Ola, I believe, already has 3 GWh to 4 GWh factory.
No, it's one and a half.
One and a half. Yeah. So, these, you know, this will keep changing from time to time.
This six and a half, which is there, let's say between Exide and Ola, this 6.5 gigawatt hour means how much anode requirement? 10%.
That, that would be 6,500 tons, let's say.
6,500.
6 gigawatt would be 6,000 tons. So right now their only source is from import. I mean, right now they would be importing this from China or any other company. I mean, obviously China is 90% of the anode manufacturing around the world. So all this would be from China today, but ultimately every company will have to move towards localization. And that's why they are, you know, doing very large, pilot projects with companies like us, that whenever our plant is up and running, they can change it from the current source to Indian sources.
Okay. Thank you very much.
Yeah.
Thank you. We'll take the next question from the line of Shashank Kanoria from ICICI Securities. Please go ahead.
Yeah. Thank you, sir. Just wanted to check, sir, on your basic graphite electrode business. So almost yourself and all your competitors are bleeding to death, right? So, and all your numbers are in the red as well. So, like, where's the bleeding? So what
Sorry, sir, your v oice is breaking. Would request you to kindly use your handset. Sir, it's still breaking.
Yeah. Hi. So just wanted to check on your base, graphite electrode business. So you, you yourself and your peers are getting to the throat, and, you know, since peers are listed, so even your end customers are aware of the numbers. So what prevents such as the industry of taking a price hike, in the consumption of the product of GrafTech?
Hi, we are unable to understand your question. Can you be more clear, please?
Just, repeat the last sentence that you spoke about.
So what prevents us to take a price hike in the ? So right now, I think you might be telling your graphite electrode is $15,500 per ton. So as an industry benchmark, can we scale up to $5,000 per ton across peers?
No, it is. We are not. We are one of the five, six players in the industry, so arbitrarily we cannot sell at a higher price compared to what our peers are selling. And our peers are, as you know, they are sitting in Europe, America, and Japan. So obviously, in a competitive world, I mean, you have to sell at the same price at which others are selling.
Even those guys are bidding badly, right? Their cost of production even higher than ours. So as an industry practice, all of us, all the players profile in there, can we take a, you know, collective price hike?
How can we, how can we have a collective price hike? It's a competitive industry.
I mean, that would mean going to jail. I mean, if you are looking at something like carbonization, that is something that, you know, actually, as a company, we've never engaged in.
Your competitors are bidding to a better level, right? So these numbers are there in the public domain for everyone to see.
Yeah, yeah. These, I mean, that's exactly what I was saying, that we are the lowest cost producer, and we have expanded. So as soon as the market just slowly shows some sign of improvement, which it is, it is bound to, because in the last 40 years to 50 years, we have not seen even 20 million to 30 million tons of new electric arc furnaces being established in the world. And currently, we are talking about 100 million tons. And it has everything to do with the carbonization and the decarbonization, because as you probably know, the same steel produced through the electric arc furnace versus blast furnace, the carbon emission is about 6 times more in the blast furnace. So all that is happening in the last 2 to 3 years is on account of the realization of decarbonization and pollution and environment.
Which is a very good sign for our industry. As I said, and as you rightly said, we are the lowest cost producer, and that is why we are still operating at 75% to 80%. I mean, even in a bad market, despite our expansion, we just said that we will be able to maintain a level of 75%, as compared to anybody else. I mean, I don't want to quote their numbers. They're all in the public domain. We are by far in capacity utilization, as well as in terms of operating margins and profits and everything, we are by far ahead of them.
Definitely, there's been logic when, you know, making, putting investment in GrafTech. So doesn't that put all the eggs in one basket?
I mean, we have so much of investment. I mean, we have invested 1,200 crores only recently in expanding our plant. And so it's a very well thought out investment that we have done, because this is the only company. GrafTech is the only company in the world, in the world of graphite, which is backward integrated. And we know all. Everybody knows what happened five years ago when the electrode prices went up by 5x, 6x, 7x , and also the needle coke prices went up.
So they are in a very unique position that to take double advantage of whenever the electrode prices hot up and the electrode demand goes up. They are in a very unique position that they have their own coke, and that is where they made a lot of money five years ago. We are I mean, yes, I mean, you can never time the market. I mean, you people know this much more than I know. But we are very, very bullish about it, and we don't see any problem. I mean, whatever it is, it's a temporary reduction in the price. It's a matter of two, three, four quarters. I mean, it will come back.
When it comes back, I should not be talking about my competitor, but we think that their prices will shoot up much more than our share prices will shoot up, just because they have the handle on their raw material.
What is the level of write-off you have taken in other expenses for this quarter on your investment?
Can you repeat again?
The quantum of write-off that you've taken in other expenses for the investment outflow.
It will be between INR 30 to INR 31 crores.
Wouldn't it be more prudent, sir, to take it as an exception item? Because at which stage you never see an impairment when it is taken to other-
So this is as per the Ind AS and as per the auditor suggestion.
So if you take the, if you analyze our last quarter report . P&L, and if you take out this loss on the investment of the share, and then compare it with all the other three, four companies, they are all in the public domain. Then you will realize that our margins are still very healthy compared to all others.
But normal practice to take that part as a special item or maybe debit to other income.
No, no, you cannot, you cannot. I mean, this is the only way.
Maybe. Maybe. Thank you, sir.
Thank you. We'll take the next question from the line of Saurabh Jain from Sunidhi Securities. Please go ahead.
Hello. Yeah, thanks for the opportunity, sir. So on anode prices, earlier we were guiding for around INR 10,000, and now, with the recent developments, we are guiding for INR 7,000 to INR 8,000. So how does it affect our EBITDA margins?
Right now, I mean, it's just a temporary blip right now, which, if you saw at 10,000, our EBITDA margin was coming to around 30% to 35%. If the same prices go down to 7,000, the EBITDA margins go down to around 20%. But then again, if we can make a move on our power prices and try and reduce them further, which is what we are trying to aim at right now, then even at 7,000, you make a healthy 25% to 26% EBITDA margin kind of a thing. That's why, I mean, we've taken a little bit of time to cool off while everything is ready, but just trying to manage the single most important factor of the power prices.
And if we can manage to convince the government not to implement cross-subsidy surcharge, and we can go in for trying to get green power directly to our plant, then we are talking about some serious reduction in the power prices. So right now, that's what we are trying to aim at while continuing our efforts on product development, et cetera.
Okay. And just a small clarification on one-off and other expenses was 31 CR, right?
Yes.
Okay. Sir, one last question on this show cause notice from GST for INR 282 crores. So what is your take on the same?
We are currently evaluating it, and our legal team will be responding to the authorities. Prima facie, with the demand which has been provided and asked by the authority is not correct. We have already done a one level of scrutiny about it, and we are filing our reply to the authorities shortly. We'll keep posted on the exchange for any developments on this front.
Okay. That's all from my side. Thank you so much, sir. All the best.
Thank you, sir. Ladies and gentlemen, we will be taking last two questions for the day now. The next question is from the line of Aryan Sharma from B&K Securities. Please go ahead.
Hi, sir. Good afternoon. Just one question. Could you guide us about your future outlook on the spread?
Future outlook on?
On the spread between needle coke prices and realization.
You said needle coke prices and?
The realization. Revenue generator.
That is anybody's guess. I mean, it's we are in the open market, competitive market. Needle Coke prices are always connected to the electrode prices. If electrode prices go down, Needle Coke goes down, and vice versa. So it's very difficult to give a number to that.
Okay, sir. Thank you for clarifying that. No more questions.
Thank you. The next question is from the line of Gaurav Paul from D'Excellence Financial Services. Please go ahead.
Hello, sir. Am I audible?
Yeah. Yeah, you are.
Sir, I also wanted to ask regarding the pumped hydro. I remember in the last conference call, there was some mention of it, that you are also working in that area as well. So could you just throw some light, what is the status and what is the market that we can see in this area?
I think Mr. Ajmera is on the call, he'll be the best person to answer this. Ajmera ji, are you on the line?
Yes, sir, I am on the line. And with respect to the pumped hydro, last time when we discussed with that, we were thinking of having some pumped hydro scheme on our own project, Malana and AD. But somehow the government of Madhya Pradesh is now lagging behind to implement the scheme. So that scheme itself has gone into the back burner, so now we are holding this division.
So are there some sort of, I mean, regulation that blocks these sort of implementations? I mean, are there some environmental challenges and all? I just wanted to know if there is-
See, there are two kinds of pumped hydro. One is the independent pumped hydro project, which can be done anywhere where you can. You just have to have a water body. And the pumped hydro we are talking about only at our own plant, where we are generating hydropower on a run-of-the-river scheme, where we had a plan based on the scheme released by the government of Madhya Pradesh to aid the generation and to have a pumped hydro scheme there, which we were planning to do as per the government of Madhya Pradesh scheme. But somehow, with the new regime there, they are not interested to carry forward this scheme anymore.
So our application has been there, and now we believe that this has been there. There is no such possibility now with the new regime being there. So the viability of that project is no more, no longer is there.
I'll tell you frankly what is happening.
Also, one second, if I can just add to that on the pumped hydro thing. I mean, energy storage and going forward in the next 10 years is going to be one of the major challenges for India. And there you have these two possibilities: either the BESS, which is the lithium-ion battery storage, or the pumped hydro storage. Now, till last year, the capital cost for the lithium-ion battery storage used to be INR 2.5 crores per megawatt, which has come down to INR 1.3 crores per megawatt. So a lot of projects in which the BESS was financially not viable have suddenly become very viable for a company like AD Hydro Power, which comes under Bhilwara Energy. So going forward, of course, we have all the experience in hydro.
We have all the experience in design development of pumped hydro projects, if need be, and Adi Plus also being in the battery storage system, so if we have any opportunity going forward to kind of bid for a particular product or project which involves pumped hydro and the energy storage system both, we will be in a very comfortable position to do that, and that is why the added focus on HEG Greentech Limited, where we'll be able to, in the future, play a part both in the battery side as well as the pumped hydro side, whether as an EPC contractor or as a consultant or whatever.
I mean, today, both these things have become very, very attractive going forward, and any project that SECI is coming up with, which is requiring either pump or hydro or the battery assisted solutions.
I'll tell you what is coming in the way in Himachal Pradesh. I mean, we can easily put the certain megawatts of pumped hydro at both our locations. We have. As I said, we have two locations in Himachal: one is 100 megawatts, another one is 200 megawatts. But in the process of generating power at these two locations, we are already paying 15% to 20% as free power for using the water to the state, to let's say, the Himachal Electricity Board. So Himachal Electricity Board wants another 15% to 20% free power out of this added generation of pumped storage. So after giving back 15% to 20% a second time, it doesn't remain viable.
Yes.
So that is what we are fighting with the Himachal government: that they can't charge for the same water two times 20%.
Understood, sir. That's, that's very insightful. Thank you so much.
Yeah.
Thank you. Ladies and gentlemen, that was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Jhunjhunwala for closing comments. Over to you, sir.
Thank you, friends, for very insightful details and very, very thought-provoking questions that some of you asked, both on the electrode side and the battery side, and I look forward to continuing to speak to you in the next quarter. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.