Ladies and gentlemen, good day, and welcome to the HEG Limited Q4 FY 2024 and FY 2024 earnings 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 presentation concludes. 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. Navin Agarwal, 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. Gulshan Kumar Sakhuja, CFO, and Mr. Puneet Anand, CSO. We'll have the opening remarks from Mr. Ravi Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Ravi Jhunjhunwala.
Thank you, Navin Agarwal, and friends, good afternoon, and welcome to our financial results conference call for the Q4 fiscal year 2023-2024, and also the full year 2023-2024. As per World Steel Association's recent short-range outlook, global steel demand is set to rebound with an increase of about 1.7% in 2024, reaching about 1,795 million tons and a further growth of 1.2%-2.5% in 2025, reaching about 1,815 million tons. This is in contrast to the negative growth of 1.1% in 2023, which totaled to about 1,763 million tons.
In China, steel demand this year is expected to remain at the same level as 2023, while for 2025, they expect a 1% decline due to expected decline in demand from real estate. Outside of China and rest of the world, steel demand is projected to grow faster by 3.5% annually in 2024 and also 2025. In that, India is a key driver with an impressive 8% growth expected in steel demand, spurred by significant infrastructure investments. By 2025, Indian steel demand is expected to be nearly 70 million tons, higher compared to 2020. Other emerging markets, particularly the Middle East and ASEAN regions, are expected to see accelerated steel demand growth after the slowdown in the recent past.
In the developed world, a gradual recovery is anticipated, with steel demand growth of 1.3% in 2024 and 2.7% in 2025. The E.U., despite significant challenges, is expected to see a meaningful recovery in steel demand, with a forecasted growth of about 5.3% by calendar year 2025. U.S. demand is also expected to grow at 1.8% in 2024 and by another 2% in 2025 due to robust investment activity and a housing market recovery. Coming to our Q4 2024 and full year financial year 2023-2024 performance, as you can see from our results, electrode pricing remained under pressure. Our expansion from 80,000 tons to 100,000 tons is now fully complete, and all the new facilities are running smoothly.
With this, HEG now runs the largest graphite electrode plant under one roof in the Western world. We declared the full start of our expansion in November 2023. However, due to our long production cycle, the additional capacity came into effect in the last quarter of our financial year 2024. During first three quarters of financial year 2024, while our capacity was 85% on the basis of 80,000 ton capacity, and for the last quarter, 2024, it was 75% on the basis of 100,000 ton capacity. The needle coke prices kept correcting through the past year due to difficult market conditions and due to long production cycle in our product, there's always a lag time between needle coke procurement and sale of finished electrodes.
Our finished goods, our finished goods work in process and raw material inventory levels are now normal, and we do not have any inventory overhang. We hope to see marginal improvement in steel production towards second half of 2024, which should result in increase in demand of electrodes. The positive for in, for our industry is that the decarbonization has now become an irreversible process, with more and more electric car manufacturers being announced every month. Till date, as per our information, more than 90 million tons of greenfield capacities have already been announced, and we keep seeing such such announcements regularly.
Out of this, about nine million tons is already in operation, and another 30 million tons is expected to be in operation between now and end of 2025. Some of the well-known international consultants, like BCG, and one of the largest companies in the world, which manufactures electric arc furnaces and other related equipment, a company called SMS from Germany, have recently come out with their reports confirming these projections in their, which are now in public domain. This gives us confidence to project that the demand of our products is set to increase sharply over the years.
As we have said in our earlier calls, we expect graphite demand to increase gradually by around 150-200 thousand tons by 2033, 2030, which is a significant increase over current demand of about 500-550 thousand tons, excluding China. Other than HEG, no new capacity has yet been announced in the Western world. It takes at least four-five years to build a new greenfield capacity and about two to three years to expand an existing brownfield plant, and we are well placed to take a minuscule share of this increasing world demand, world market for our products.
You are aware that HEG has been exporting more than 2/3 of its production to some 30+ countries for a very long time, and we have a very diverse and established customer base, and we are working hard not only to get a larger piece of their requirements, but we also keep adding new customers regularly in most of the countries we are exporting to. In this backdrop, our expanded capacity of 20,000 tons per annum has come at a good time, when the electrode market is likely to expand at a fast pace around all around the world. Again, as you must have seen from the public records, in the entire field of graphite electrodes, between five and six companies in the world, our capacity utilization in the last six-eight quarters has always been the highest.
Friends, with this, I would now ask Riju Jhunjhunwala and Puneet Anand to take over and explain to you in details about the recent restructuring and demerger announcement that we made last week. So over to Riju Jhunjhunwala and Puneet Anand.
Puneet Anand, you can just go through the document. Thank you.
Sure. Good afternoon, everyone. As you may have seen, we have announced the restructuring of HEG. We plan to demerge HEG into two new companies, HEG Graphite Limited and HEG Greentech Limited. We know there might be questions, so let us explain why we are making this move. HEG currently has diversified businesses, including HEG graphite business, 44% in Bhilwara Energy, a power company, and 100% subsidiary of TACC Limited. Bhilwara Energy Limited has the following assets: 14 MW of the wind power, 51% of the Malana Power Company Limited. It's a joint venture between Statkraft and the promoters, which owns 86 MW of hydro assets in Himachal Pradesh. Malana Power also holds investment in wholly owned subsidiary, which is AD Hydro Limited, which owns 192 MW of hydro assets in Himachal Pradesh.
Also, 74% of Re Plus is owned by BEL, which has the battery energy solutions. It already has one GWh plant in Pune, and it will be expanding to 5 GWh plants by end of 2025. These businesses have different growth priorities, risk profile, and investor base compared to our graphite business. By creating two separate companies, we can unlock shareholder value and allow each business to focus on its core strength. The rationale behind this structuring is to unleash the business potential, demonstrating the true value of our businesses, providing investors with a clear focus, offering distinct access to various lines of businesses, sharpening the focus on each business and increasing the shareholder value. Simplifying the future capital infusion, facilitating future capital investments for both HEG Graphite Limited and HEG Greentech Limited independently.
Concentrating on core competencies, prioritizing our core business strength, establishing an independent brand entity, building specific core competence of new age businesses, enhancing self-reliance in the TACC business, and lastly, creating a platform for future merger and acquisition for HEG Graphite business and HEG Greentech business. As a shareholder, you won't lose anything. For every share of HEG you currently hold, you will receive one share in both new companies. This process will take around 16-18 months, as it requires approval from shareholders, lenders, creditor, NCLT, and others. HEG Graphite Limited will retain our graphite business, and HEG Greentech Limited will hold hydro, wind, through merged BEL, energy storage solutions through RePlus, advanced carbon business through TACC, and other opportunities which the management is currently evaluating, such as pump hydro and battery recycling. A new age, HEG Greentech Limited, will focus on green technologies.
This move is expected to be highly beneficial for all the shareholders. By splitting into two end companies, we create a clear strategic focus on each. HEG Graphite will house the world's largest single graphite plant and its associated profits, while HEG Greentech will focus on green energy solutions. This split should enhance value of shareholders... In conclusion, this demerger followed by merger allow us to pursue focused growth strategies and maximum value for our shareholders. Both companies will be more, agile and competitive, each with a sharper strategic focus. Shareholders will benefit from owning shares of both entities with significant potential of long-term value creation. We believe this restructuring is the right decision for our company, our employees, and our shareholders. We are excited about the future possibility of both business and look forward to share this journey with you. Thank you for your continued support.
In conclusion, our Q4 and full year 2023-2024 results have been satisfactory, given the tough market conditions. We have done better than most of our industry peers in all aspects. The next two-three quarters may see margin remaining under some pressure, but we are hoping that the demand will come back sometime in second half of 2024 onwards, and we're now fully equipped to take advantage of our expanded capacity. We have all the technology capabilities, operational efficiencies, and market reach to take our company forward and to succeed and thrive in all emerging situations and to create long-term value for our shareholders. I will now pass the floor to our CFO, Gulshan Kumar Sakhuja, who will take us through the financial figures.
Following that, our CEO and MD will invite you and address the queries of the shareholders individually.
Thanks, Puneet Anand. Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the year ended 31st March, 2024 . For the year ended 31st March, 2024 , HEG recorded revenue from operations of INR 2,395 crores as against INR 2,467 crores in the previous financial year. The revenue for the Q4 of FY 2024 was INR 547 crore as against 617 crore in the corresponding quarter of the previous year. During the year ended 31st March, 2024 , the company delivered an EBITDA of INR 526 crores as against 729 crores in the previous financial year.
The company, on a standalone basis, recorded a net profit after tax of INR 232 crore in FY 2024, as against INR 456 crore in the previous financial year. On a consolidated basis, the net profit after tax is INR 312 crore in FY 2024, as against INR 532 crore in FY 2023. The company is long-term debt free and has a treasury of approximately INR 980 crore as on 31st March 2024. The board of directors have recommended a 225%- 225% final dividend, that is, INR 22.50 per equity share of the face value of INR 10 each for the financial year 2024, subject to the approval of the shareholders at the ensuing AGM.
To take up more questions from the participants, the detailed presentations have been uploaded on the company's website and on the stock exchange. We would now like to address any questions or queries you have in your mind. Thank you.
Thank you very much.
Over to Navin Agarwal.
We will now begin the Q&A session. Anyone who wishes to ask questions may press star and one on the touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Deep Mehta from Bank of India Mutual Fund. Please go ahead.
Hi, team. Thank you for the opportunity. Couple of questions. First question is regarding our graphite electrode business. I would like to understand the supply/demand scenario of graphite electrode business. From what we have read, looks like some of the capacities in developed markets have shut down. So, A, is this correct? And how much market share we would have gained because of, you know, our high utilization as well as competitors' lower utilization?
You see, as I said, if you look at the last six-seven quarters' results closely and compare ours with most of the other peers, including European, American, Japanese, our capacity utilization has been by far the largest in every quarter. So obviously, in a shrinking market, because of demand constraints, if our capacity utilization is the highest, obviously we are gaining market share, and this is more or less in maybe more than 15-20 countries. We are very well diversified in terms of our export reach. As I said in my opening remarks, we've been exporting about 2/3 of our production for more than 25-30 years.
So we have a good grip of this market, and so unfortunately, the steel industry is not doing well worldwide, so we are affected to that extent. But the future looks pretty promising, and up to now, most of the consultants were talking about it, but now, in the last two-three months, we've got the official domain, a report from BCG and another report from SMS. And SMS-
... probably knows the most about this industry because they are suppliers of most of the electric arc furnace and all the related equipment. So they are all projecting a very bright future for electric arc furnace simply because, with the carbon emission. The carbon emission through electric arc furnace steel is practically 20%-25% of, the same steel which is produced in blast furnace. So that is gathering steam in the rest of the world. India is still behind that because, we are still not, our commitment to zero carbon is very far away. But, rest of the world has taken note of this carbon emission, and as I said, about 90 million tons of steel capacity, new green steel plant capacities have already been announced all over the world.
All the expectation is that it will be about 200 million tons additional capacity by 2030. So, with our expansion and our highest capacity utilization that I spoke about, so we are very well placed to take advantage of that as soon as there's a small tick in the market.
Thank you, sir. That is very helpful. If I have to take a slightly shorter- term view, like you have said, that there is a lead and lag between, you know, needle coke in our books as well as current price and which creates margin volatility. So going ahead, what is the, is the difference between the inventory in our books and the current price of needle coke still very high? And how should we see the raw material volatility going out?
No. See, currently there is no shortage, there is no problem at all. As the electrode prices have dropped in the last six, seven quarters, so have the needle coke prices dropped. So if you are talking about the margin being the difference of the selling price of electrode versus the buying price of needle coke, it hasn't changed much. It has kept pace with the drop in the electrode prices. And this is true in the past also. And fortunately, our buying has been pretty decent. And unlike most of the other peers in the industry, who have taken fairly large NRV hits in their balance sheet over the last three, four quarters, we haven't taken any hits.
So our inventory overhang of high price needle coke has not affected our results.
Hmm. Very clear, sir. Now coming to other businesses, now we are merging a couple of business and, you know, separating two listed companies. So if you can talk about other businesses for which our margins might be slightly lower, specifically like your storage business as well as power business. What are the current numbers and how should the future look like for this newer businesses?
Riju Jhunjhunwala, Riju Jhunjhunwala or Puneet Anand, one of you?
Yes, yeah. I think I can take that one up, and, you know, I can just, give a slightly longish answer. So that the other queries are also answered as well. So as you guys, as everyone must be already aware, HEG holds 49% in a company, Bhilwara Energy Limited, which is owned 51% by the promoters directly and 49% by HEG. Bhilwara Energy in turn holds 51% in a 300 MW hydroelectric power venture. Both these hydro plants are run-of-the-river plants and merchant power plants. One has been operational since 2002, and the other one has been operational since 2011.
Now, under Bhilwara Energy Limited, we have started a business of RePlus, which is into providing energy solutions and energy storage solutions, both for stationary applications of solar and wind power energy storage, as well as for even some well-known like electric cars, et cetera, et cetera, for manufacturing the battery packs for the electric vehicles. So this, so Bhilwara Energy owns 72% in this, and the balance is with the promoters who have started that venture. TACC, which is the large graphite anode manufacturing project that HEG had undertaken and conceptualized around two years back. That is taking good shape on ground.
We had decided, and we have spoken about it in the last meeting also, that we are setting up 20,000 tons per annum of graphite anode, high-grade graphite anode powder, which will be used for the lithium-ion battery manufacturing on the anode side. And, obviously, India today does not have any cell manufacturer, so this product will actually go there. Now, think of having a platform which has both hydro active, hydroelectric power, active business in the energy storage space, which is, in my personal opinion, I think in the right. Now, the next five years, that should see a lot of traction. And also this new project, TACC, which although we are still on track, absolutely, on putting up the 20,000 ton of per year capacity-...
It will obviously come in terms of the capacity utilization, the way we had explained earlier also. It will not be something which is a plug-in, in and out kind of a thing. We'll have to work very closely with the battery manufacturers, both in India as well as abroad. So our plan for putting up this project will have to match with the timelines of their cell manufacturing, and that's what we are trying to do, and in the meanwhile, we are shuffling around with the technology. So as a conscious decision, we took up this exercise around six months back internally, which was made public in this board meeting, that you know, the resulting structure will have two clearly defined companies.
One will be the HEG Graphite company, which will have, the HEG Limited, which is the 100,000-ton graphite plant and the captive, 20 MW h, hydroelectric power unit, and enough cash in its balance sheet to fund, the dividends of its year and the leftovers from the expansion, and some kind of safety capital, as you might, call it. The leftover company would be renamed, to, let's say, HEG Greentech Limited, obviously subject to all the clearances, et cetera, and, will take 15-18 months. That company would have, a absolutely mirror shareholding of HEG Limited, and that will have Bhilwara Energy's, 49% stake, of HEG, 100% stake of TACC, and Bhilwara Energy's stake of RePlus Engitech Private Limited.
So clearly three different businesses, but all three related to the new age economy businesses and also to do with renewable energy and kind of then the lithium-ion battery infrastructure. In Bhilwara Energy, we already have a very safe kind of a, it's a debt-free company, the parent company, the parent group companies. So you have a safe cash flow inside Bhilwara Energy of between INR 100-150 crores worth of dividend, which will come in every year. So subsequent to stage one of this demerger process, the promoters, who own 51% of Bhilwara Energy, will merge their shareholding of Bhilwara Energy into the main company.
In lieu of giving that 51% shares that the promoters will be giving for, for Bhilwara Energy, as per the true and fair, valuation, which has been done by PwC and also supported by ICICI Securities, the resultant, company will, have an increased, shareholding later on, where the promoter shareholding goes up from 56% to around 70%. But that additional, shareholding that is going up in the new company is purely because the promoters are putting in 49% of their equity that they today hold in Bhilwara Energy. So then we have two clearly separately listed verticals, mirror shareholdings of, both the companies, and HEG focuses on the graphite electrode business completely, and this new energy businesses, focuses on these two projects to begin with.
Like Puneet Anand said in the introduction, I mean, technology is ever evolving in these new areas. We are looking at, you know, whatever kind of other projects possible, like battery recycling, et cetera, et cetera, as and when it comes under this particular umbrella. So it gives us, and also the shareholders, two very clear, distinct identities, both which are listed with existing cash flows to focus on different businesses. One is the graphite business and one, one is the new age economy business. So I hope I've been able to kind of, you know, explain it properly in terms of what the resultant structure where we are aiming at. And everything has been done absolutely at arm's length.
PwC is has done the entire valuation in which they've taken the existing valuation of- [audio distortion] .
Yes, sir, you go ahead, please.
No, no, I'm saying, so, all the valuations of all these independent companies have been done by PwC, absolutely, and which has been valued by ICICI Securities as well.
[audio distortion]
Bhilwara Energy, Bhilwara Energy has been valued at around INR 2,000 crore in total. So HEG share of Bhilwara Energy becomes INR 750 crore. Promoter share of that 51% become around-
The person you are speaking with has put your call on hold. Please-
Yes, Riju Jhunjhunwala sir, go ahead, please.
Yeah. And, the, the TACC valuation is exactly as per the last business plan that we have done in terms of, you know, the 20,000 tons and, 1,800 crore of CapEx coming up in the middle of 2025, operating at 30%, 50%, 75%, and then 90% of capacity utilization in year four. And based on that and the 16% weighted average cost of capital for the new project, the valuation, HEG today has invested around INR 80 crores of, money in TACC, but we've already valued it at, INR 280 crore rupees as part of the demerger plan, so that it is actually fair and square for all the minority shareholders as well as promoters.
And then the culture of both the companies, the manpower requirement of both the companies, the kind of, you know, infrastructure for both the companies, we can manage accordingly. So that is the rationale behind the demerger, and we hope that in the, you know, coming few years, it should be and then the medium term also, it should give all the HEG shareholders huge benefit to take advantage of both these businesses, the graphite and the Bhilwara Energy business. So that's all from my side, but I'll be happy to take whatever other questions anyone on my side specifically.
Very clear. Just one clarification. There was some noise disturbance, so-
I'm sorry to interrupt, sir. May I request you to rejoin the queue for the follow-up.
Just one clarification.
Okay.
Bhilwara Energy valuation is around INR 3,000 crore. Am I understanding correct?
No . So, that stands corrected. The overall valuation of the hydro business is at INR 3,000 crore, of which Bhilwara Energy holds 51%. So the valuation of Bhilwara Energy, 51% in the hydro company, stands at around INR 1,500 crore. Now, HEG holds 49% of Bhilwara Energy, and promoters hold 51% of Bhilwara Energy, so that is around INR 750 crore and INR 750 crore each. So for the purpose of valuation, Bhilwara Energy's total valuation for the de-merger and the subsequent merger has been taken at around INR 1,500 crore.
Very clear. That's all, sir. Thank you.
Thank you.
Ravi Jhunjhunwala call is dropped. Is someone connected in?
Connected, sir, connected.
All right.
Yeah, yeah, I'm connected. I'm connected.
Yeah. A reminder to all participants, you may press star and one to ask a question. The next question is from the line of Saurabh Jain from Sunidhi Securities. Please go ahead.
Hello. Yeah, thanks for the opportunity, sir.
I'm sorry to interrupt, sir. There is some disturbance from your side.
Is it better now?
Yeah, now it's better.
Okay. Thanks for the opportunity. Just needed one information on the graphite electrodes business. So based on capacity utilization numbers on the previous con calls, I guess the volumes have broadly remained little under 70,000, maybe around 69,200-69,500 during the last three fiscals. That's FY 2022- FY 2024. Am I right?
Yes. You are, you are almost there. You are very close.
Okay. Sir, my humble request to the management to start providing utilization or volume numbers in our quarterly presentations, just like our competitors do. That would be really helpful.
We can do that. We'll start over.
Okay. So my next question on this demerger thing. What would have been the FY 2024 revenue, EBITDA and net profit of the existing businesses of HEG Greentech Limited, which include Malana, RePlus, and AD Hydro Power, if it is possible right now?
So Malana. So BEL's overall value inside Bhilwara Energy as a company specific, there is only 20 MW of wind power which is being operated. So the overall revenue is only around INR 17-18 crore of the entire Bhilwara Energy. The main value of Bhilwara Energy will come in the form of dividends, that it will start receiving from this year onward from Malana Power Company Limited, which in our estimation should be very safely, depending on the selling rates of power every year, should be in the region of between INR 100 crore- INR 150 crore for Bhilwara Energy as a whole. Half of it would obviously flow to the, flow to HEG, half of it which will, which will flow to the promoters directly.
Now, for the purpose of valuation, we have taken a very rough estimate of around INR 6 per unit of selling price for electricity for the next 20 years on the average generation, whatever the plants have been achieving for the last 10 years as the generation triggers for that. So in terms of the real valuation, real revenue, if you ask me, the overall revenue is only between 5%-6% of the entire company that is being done by from the Greentech. But in terms of future valuation, yes, of course, I mean, TACC will start commercial production by middle of next year, when depending on the kind of capacity ramp up over there, that will as part are being assumed within revenue.
RePlus, we are very confident, which will then become a 100% subsidiary of the Greentech business, that we are hoping that this year we should, in the year 2024-2025, on a very conservative basis, we should be able to do revenues of between around INR 250 crore-INR 400 crore rupees, which are a decent EBITDA kind of margin, which can only keep growing through the next few years because of the, you know, kind of growth that we are seeing in the sector. So going forward, I mean, obviously next one or two years is more about investment, more about everything in the Greentech business, but we have a very steady source of revenue in Bhilwara Energy, which will come in the form of dividends, and RePlus itself will start generating cash flow very soon.
ESS will take another couple of years before it starts generating very significant revenues.
Okay. Sir, I missed out on RePlus EBITDA. You had mentioned something.
So RePlus, let me tell you, I mean, RePlus is in the business of, you know, energy storage solutions. We have a factory which is a 1 GWh, our factory which is put up in Pune, which is 100% up and running. Where basically you are importing the cells today from China and making these battery packs, both for the energy storage business and for the vehicle kind of business. So that business is less on CapEx, because, you know, these are mostly you're talking about assembly lines which have been set up. So the CapEx involved in the total RePlus till now is roughly around INR 70 crore-INR 80 crore only.
But more of the money that goes into the particular project, let's say, if you get a large tender from the government tomorrow to give 200 MWh of energy, a large portion of that will have to be supported by a strong balance sheet of the, your delivery clauses, your performance guarantees, et cetera, et cetera, which Bhilwara Energy will be in a position to provide. 100% of Bhilwara Energy is under the new Greentech group. And that also alienates the existing HEG Graphite business from providing any kind of guarantees or any kind of, you know, performance bank guarantees, late delivery clauses, et cetera, et cetera, for any of the new businesses. And, and a growing steady state, we expect RePlus to easily give an EBITDA margin of between 10%-15%.
Again, this is all dependent on product to product. Every day you see a massive change in lithium-ion battery prices. They literally halved in the last one year. Where they stabilize, what kind of rates we get the project bid at, this will all you know kind of play in the next two or three years. But a 10%-15% will be EBITDA margin, and this year we are very confident of ending the year 2024, 2025, given the order book that we have, at between INR 250 crores- INR 400 crores. And I am giving such a big kind of margin of between INR 250 crores and INR 400 crores, is because these are large government projects which we know better than the...
I mean, we are hoping that the, it closes very fast, but they can be delayed because of elections, because of whatever reason, by about a couple of months here or there. So on a conservative basis, INR 250 crores, and on an aggressive basis, around INR 400 crores, is what our target is for this year. And this company will be 100% subsidiary of the new HEG Greentech company.
Thanks, sir. That, that was really helpful. Sir, my last question: What would be the CapEx number look like for FY 2025 and 2026 for graphite electrodes?
No, graphite electrodes-
Sorry, anode .
So for the anode project, the overall, CapEx for the project that we are proposing is between INR 1,600 crores and INR 1,800 crores. Depending on the final selection of technology, et cetera, how much power we need to take, how much, you know, how much, we are still kind of contemplating between a 48 km, 250 KVA line, or whether we can make do with a 133 KVA line. That changes the entire dynamics. But between INR 1,600 crores- INR 1,800 crores over the next 18 months is the CapEx plan that we have for two years. And around INR 750 crores of this CapEx would be clearly funded by the cash flows, which will be left behind by the HEG Graphite Company, which the HEG Graphite Company was anyways committed to investing it back.
The balance will be from the dividends of Bhilwara Energy and a combination of some debt that we take on its balance sheet later, once the deal of the project is complete.
Okay. That's all from my side, sir. I wish you all the best.
Thank you. A reminder to all participants, you may press star then one to ask questions. The next question is from the line of Pradeep Rawat from Yogya Capital. Please go ahead.
Hi, good afternoon, sir, and thank you for the opportunity. My first question is regarding our margin. Last year we had margin in the range of 25%-30%, and now in this quarter it's around 8%. Any specific reason for that?
Yeah. This is on account of only that reduction in the selling price quarter-on-quarter basis, nothing more than that.
Yeah. And what's the reason driving the reduction in selling price?
Yeah, there's no. That is the degrowth of steel production between 2022 and 2023, which is, I mean, resulting in slowdown of demand and all our peer group not being fully utilized. So that is why, I mean, all our competition takes its toll, and all everybody needs an extra ton of order.
... Yeah. My next question is regarding our revenue split. Can you provide a number, like how much revenue do we generate from Ultra High Power graphite electrodes?
We, if you, in the proportion of our business, it's roughly, I would say 70%-75% of UHP and, balance of, HP grade, electrodes. I mean, non-UHP electrodes.
Okay . Thank you.
Thank you.
Thank you. The next question is from the line of Vandana Soni, from SBI Mutual Fund. Please go ahead.
Yeah, thanks for the opportunity. Just wanted to understand the merger valuation. You said hydro business is valued at INR 3,000 crore. So just wanted to confirm whether this include Malana Power plus AD Hydro Power both, or just Malana Hydro Power? And second thing, wanted to understand the valuation which we have given for TACC Limited. So you said, eighty crores has been invested till now, and we have given two eighty crores as a part of demerger to HEG, which implies the total valuation for TACC is INR 950 crores. So is that correct?
No, I think there's some confusion. As the hydro structure is very clear, so we have Malana Power Company Limited, which owns Malana Power Company, which is around 90 MW of hydro power, and which owns almost 100% of AD Hydro, which is 200 MW. So let's review Malana Power Company as a 300 MW hydro company, in which Bhilwara Energy owns 51%, 49% is held by our Norwegian partners. Now, neither are we planning to buy the Norwegian partners out, neither would they plan to buy us out, and neither are we planning to demerge in that company. So the valuation of the entire hydro business is at around INR 3,000 crore, out of which Bhilwara Energy's valuation comes to be around INR 1,500 crore.
Out of this INR 1,500 crore, it is evenly split between the promoters and HEG, 49%-51% at around INR 750 crore each. TACC Limited is a 100% subsidiary of HEG Limited, in which HEG Limited has invested around INR 80 crore today, and that has been valued at INR 280 crore. That INR 80 crore has been valued at INR 280 crore. TACC as a company, has nothing to do with Bhilwara Energy today or with RePlus or with any other company. It's a 100% subsidiary of HEG, where INR 80 crore has been infused as equity, which has been valued at INR 280 crore, based on the numbers that we've always been discussing, and a 15% weighted average cost of capital there.
Sure.
These are the valuations. Yeah.
So what will be the total valuation for TACC? I understood, the HEG part is valued at INR 280 crores, and post-demerger, HEG will hold, 29.46% of, this TACC. So, this implies INR 950 crores of TACC valuation. Is that correct?
No, Vandana Soni, I'll take this thing. That's...
Vandana Soni, I'll take this thing. So, the demerged entity, post the graphite business being demerged, it comprises of three main things. One is 100% subsidiary, TACC Limited, where the infusion is INR 80 crore. We have 49% of BEL shares, which is today at a book value of INR 300 crore, and some investments, which will be roughly for INR 700 crore. The total assets in the demerged entity is roughly 1,100 crore. The fair valuation of this 1,100 crore is 2,200 crore. So 100% TACC, which today we have infused INR 80 crore, it is being valued at INR 300 crore, INR 292 crore, to be very precise. The BEL equity of 49%, which demerged HEG hold, it is valued at 1,050 crore.
Oh.
The investments are being valued at INR 776 crore. When you are merging the BEL, so 49% of the equity of HEG Limited will be canceled, and the promoters, plus another listed company, RSWM, will be issued new shares. The merger valuation is INR 2,134 crore, sorry, INR 2,134 crore. Out of that, INR 1,045 crore is of HEG and remaining is for promoters. So these are the numbers.
Understood.
TACC value will be around INR 292 crore, as Puneet Anand said.
Correct.
For INR 80 crore of money that HEG has put in today. It's a 100% subsidiary of HEG, and the new Greentech company will own 100% of TACC. It will not be 29%, it will be 100%-
Uh.
of TACC, the new Greentech company.
Once the merger is done, the 29.8% equity is being issued, is with the public shareholders, not with the HEG, because the demerged entity is held by the public shareholders. So HEG is not holding anything in HEG Greentech Limited.
Sure. Got it.
It's a mere shareholder. It's a mere...
I don't know what it is today.
... Thanks. That was all from my end.
Thank you. The next question is from the line of Bhavik Shah from MK Ventures. Please go ahead.
Yeah. Hello, sir. Just wanted to understand, like, the investment which currently HEG holds, out of it, INR 1,050 crores will be transferred to HEG Greentech. Is that right?
Yes, correct. It will remain with the current company, while the HEG Graphite Limited will become like a new company. So in terms of share structure, the graphite, HEG Graphite Limited will be moved to a new co, and all the existing businesses, including INR 770 crore of cash, will remain in the current HEG Limited, which will be renamed HEG Greentech Limited later on.
Okay. The borrowings will shift to the graphite company or will remain in this company?
As per the borrowings which we have in HEG Limited is mainly for the working capital. This will be part of the HEG Graphite Limited. But we are also adding-
Okay.
- INR 300 crore of cash kitty in that, for the future. The... any profits which is coming from, April 2024, onwards, is also of HEG Graphite Limited.
Okay, sir. I also just wanted to understand the revenue per ton and EBITDA per ton, which you are making right now. What is that number?
We cannot speak specific about the numbers, the data per ton, but that can easily be calculated from the numbers that is available in that, in the market, in the public.
Can you just guide me through the Q4 volumes, like what were your volumes for the quarter?
The volume is around 90%, based on that, 80,000 capacity.
Okay. And. Okay, sir. So any guidance for 25% for-
[guess] , just to clarify, as I just said in the beginning, on the basis of, we cannot keep talking about 80,000 tons anymore. I mean, we are now fully equipped to produce 100,000 tons. So as I said in my opening remarks, the capacity utilization this year, based on 100,000 tons, we expect it to be in the region of 75%.
Okay, sir. So this number for 25% would, 75% would be like 80%. Correct to assume that? Like, we can target that?
Yeah, in the region of 75%. More like 75%. It could go to 80% if the market picks up a little bit, but at this moment, I'll probably say 75%.
Okay, sir. Also in the Greentech business which we have, so, what kind of return ratios are we seeing in the anode business? If we are saying we are going to invest INR 1,600 crore-INR 1,800 crore, what kind of return ratios do we expect to generate?
So in the long- run, let's say, let's say fourth year onwards, when we are assuming like a steady state of revenue at 20,000 tons capacity, at 90% capacity utilization, year three or year four onwards, it should give us a steady state of between INR 400 crore and INR 425 crores of EBITDA. That should be the kind of, the, that, that's the kind of number that has been taken for the purpose of valuations, and also at the beginning of the conceptualization of this project itself, three years back.
So if I, like I heard your opening remarks, currently in RePlus we are expanding from 1 GW to 5 GW, right?
That's the very long-term plan. That's the long-term plan. The area that we've acquired is good enough to go from 1 GW to around 3 GW. But when I say 1 GW, this is of battery assembly. I mean, let's make one thing very clear: this is not 1 GW of lithium-ion cell manufacturing, because that's a whole different business altogether, with like, a billion dollar plus per gigawatt hour of CapEx. We are purely in the business of battery assemblies-
Okay.
and battery pack manufacturing. So we have a, we have manufacturing capacity of 1 GWh, based on three shifts of operation today, for different kind of battery chemistries and making battery solutions out of it. So our raw material for that is the lithium-ion battery cells, which we are importing currently from China, and these are the same companies that tomorrow, hopefully, will become our clients once HEG is functional and making its graphite anode powder.
Okay.
So the buyers of HEG will be the suppliers for RePlus, if you want to put it that way.
Okay. So, this INR 200 crore-INR 400 crore is also a peak revenue potential. This is only for FY 2025, right?
Yes, because this has unlimited revenue potential. I mean, the way the whole ESS business is growing in India, almost every tender that you are seeing from SECI, almost every tender that you are seeing from any private company today, is for round-the-clock power. And obviously, with the renewable energy exceeding its targets today in India, for the solar and for the wind power project, the peak power can only be provided by a backup of energy storage solutions. Now, so in the long run, you know, there, there's going to be a huge demand, not only in India. I mean, we are already in the company, we've already finished the project, if you've heard of the NEOM city in Saudi Arabia, which is being built.
Mm-hmm.
It's not a big large project. It's a INR 45 crore project for RePlus, but we've already handed over that project with to the NEOM City. So that is also in the business of providing solutions to export customers, not just in India.
Mm-hmm.
But, you know, over a five year period, this can really grow into a huge trend and a very good kind of sustainable kind of a business.
Right. So current capacity of, say, 1 GW, INR 400 crore could be a maximum potential of revenue if, but we can already always expand.
Yes. Yes and no. I mean, I would not say INR 400 crore is the maximum, because, you know, a lot of these projects, you know, a lot of projects will be where you have to assemble the complete battery pack, you know?
Okay.
A lot of projects will be the projects in which, you know, the customer buys the cells and delivers it to you, and you just have to provide him the solution overall.
Okay.
Revenue is really not the key over here.
Okay.
The same INR 400 crore of revenue could be INR 1,000 crore of revenue if, you know, all the cells were to be bought by us instead of being supplied by the clients.
Right.
So this has to be seen more by a EBITDA basis, but we are very, confident that I think, you know, now the business is established. It's a year, the factory has been running for around six months, and we are seeing very encouraging results. We just signed a MOU, which is in the public domain, with EKA buses, the Pinnacle buses that they are coming up with. We've already supplied 100 battery packs to them, and we are in the process of supplying 2,000 more battery packs to that company. In the long- run, we see a good potential, both from storage and moving applications for this particular business.
Right. And so if I squeeze in one last question, this TACC will be the plant will be operational from in September 2026, right?
No, the TACC plant will be in operation from around middle of, let's say June or July of 2025.
Okay, 2025.
2025, yeah. Plant will start commercial production. But I said to achieve, let's say, the first year of revenue would be around 30% of capacity utilizations. Because there's a lot of, you know, work that we need to do along with the battery companies, along with the end user, to kind of, you know, match the exact, profile of the batch. But by September 2026, we can easily see a 75% kind of a capacity utilization for the 20,000-ton plant.
Right . Okay, sir. Thank you so much.
Thank you. The next question is from the line of Pradeep Rawat from Yogya Capital. Please go ahead.
Yeah, thank you for the opportunity again. So, we import battery cells from Chinese players, and we will supply them lithium-ion anode to the cell manufacturer, right?
I mean, yes, and yes and no, because today India does not have any lithium-ion battery manufacturers. But you have a lot of companies, Reliance, Ola, Exide, Amara Raja, Rajesh Exports, other companies, Genpact, which have signed a lot of, you know, the MOUs with the government to put up large capacities for at least 50 GWh of battery manufacturing in India by the year 2026. Now, that 50,000 ton, 50 GWh of battery manufacturing, cell manufacturing, would turn into a demand of 50,000 tons of graphite powder. And in India really today, there are no real manufacturers of graphite powder. Apart from us, there is a company called Epsilon, which you all must have heard of. There's Himadri Chemicals. Everyone's working on pilot scale plant.
We also have our own 100 tons per year of pilot plant, which is already operational, where we are working with 24-25 different grades of raw material along with the customers to provide them with the solution. But today, when we have to buy cells for RePlus, the only option is to either buy from China, or if the customer wants a non-Chinese product, then it's probably 1.5 x higher, and we have to import from countries like Japan and South Korea, et cetera. Because the cost of manufacturing of these cells in China is far lower than anywhere else. So we are importing these cells and converting them into battery packs and racks.
And then a very important portion of that is the battery management system, the energy management system, everything which is designed as per the particular client's application. So that's what the business RePlus is in.
Yeah. So once our plant is operational, so we will be seeing a demand from Indian players also for our graphite anode powder?
Correct. So the rationale behind putting the plant, if you ask me in one line, the rationale and core rationale behind putting the plant is obviously in the long run to cater to the Indian suppliers... But you know, I mean, that this demand and supply cannot be exactly matched time to time. You know, you don't know if their plant gets delayed by two years, if they start importing anode powder. So we have already started working with all the larger, the larger companies, whether they are based in China, whether they are based in Europe, whether they are based in Japan or Korea. We've already started trials of our graphite anode powder, that in the initial few years, even if we have to export the graphite anode powder, it should be a very profitable venture then also.
So the core philosophy behind the project is to cater to the domestic demand in the long run. But in the short and medium run, if the domestic demand does not come up as anticipated because of whatever delays in their plans of putting up the cell plants, our plant can easily cater to the export market also to do business. So we are not changing our manufacturing plan as far as we see it ourselves.
Yeah. Yeah, understood. Thank you.
Thank you. The next question is from the line of Pranay Khandelwal from Alpha Invesco. Please go ahead.
Hi, thanks for the opportunity. I just wanted to understand and clarify one thing. TACC, the graphite anode business, that stays with the HEG Greentech business, right?
Right .
Right. And, we have, it's INR 16 crore- INR 18 crore, INR 1,800 crore kind of CapEx. I just wanted to understand that you, how will it be funded?
Like, we mentioned earlier, around INR 80 crore of it has already been funded by HEG in terms of the land and the basic civil works that have started. There's around INR 750 crore, which will be left in the balance sheet of the HEG Greentech company, which will be used for funding this. We will have a dividend in Bhilwara Energy of easily close to around INR 200 crore or INR 300 crore of distributable dividend in the next 18 months, which will be used for this. And the balance, INR 400 crore or INR 500 crore rupees, can easily be funded by debt.
I mean, budget even, I mean, we are being very conservative when we are talking about this, because if we are investing INR 1,500 crore of equity into this business, even if I were to consider 1:1 debt equity ratio, one only needs to put in around, eight hundred crore of investment, for which the funds are already tied up. We want to maintain a 50/50 debt equity ratio. One can easily take a INR 750 crore debt and complete this project. But as we go along, depending on the cash availability of Bhilwara Energy, what kind of, requirements we have, whether it is 12 months, whether it is 18 months, steps which we getting matched, and I think, it can be a good mix of equity and debt.
For the first phase, I think we'll try to go for maximizing whatever equity we can put into the business. And for the subsequent steps of growing that particular business in the next two, five years, that will always be a very welcome option over there. But today, funding 20,000 tons of INR 1,600 crores should not be a problem at all. With the INR 750 crores of cash in the resulting Green Tech balance sheet, INR 80 crores that has already been invested by HEG, and around INR 250 crores-INR 300 crores of money that Bhilwara Energy can contribute with. And the balance INR 400 crores will be our debt portion. So we'll be able to complete the project absolutely without any problem, in terms of raising any more money for this particular business, for phase I.
Later on, any, any kind of options are open for kind of, you know, building that business, including getting any strategic partner, getting any kind of, you know, private equity or control for that particular business. But that's at a later stage, once it's established and the plant is up and running, and we have good proof of concept of what I'm actually talking about right now.
Hello, Mr. Pranay Khandelwal?
Yeah, I think my call dropped in the middle, so I didn't know. But yeah, I think that answers my question. Thank you.
Okay, thank you. The next question is from the line of Deep Mehta from Bank of India Mutual Fund. Please go ahead.
Thank you again. Just one clarification. After all the transactions and once Bhilwara Energy becomes 100% part of HEG Greentech, we expect roughly INR 200 crores- INR 300 crores of dividend from cumulatively in the listed company, correct?
Yes. So this will be like, let's say, three years of dividend or two and 1/2 years of dividend, because, that is, some of, some money is already there. We've already announced, one round of energy, dividend into Bhilwara Energy, and the plan is to keep the money over there in Bhilwara Energy Limited, as part of the dividend to be, invested as part of HEG.
... Okay, no. So basically-
The number can range, the number will range anywhere between INR 100 crores-INR 150 crores a year, depending on the selling prices of that particular year.
Okay. Annualized dividend will be somewhere between INR 100 crore-INR 150 crore?
Correct. And I think just to, just to clarify, see, these were the two hydro projects that the group put in the last 15, 20 years. And, these, these were the first two projects in the country, in the private sector, and we took the risk of not signing a long-term PPA. So at that time, there was a lot of debates in the banks and financial institutions, and a couple of institutions, backed out, of their commitment of loan. But we were convinced that by signing a PPA, long-term PPA, we will only lose, by, by signing a PPA, because we, we were of the opinion that the open market selling price will always be higher than a fixed price PPA. And that fortunately turned, right for us.
So consistently, this number that we are now talking about, the dividend number that we expect to get every year, is based on the last three, four, five years of actuals. And as Riju Jhunjhunwala explained, this particular company is owned 51% by us and 49% by a Norwegian partner, which is the largest hydro company in Norway. So we have seen the selling prices of power in the open market to be at least 50%, 60%, 70% higher than what we would have got had we signed a long-term PPA. So that was a very critical decision that we took. That was a big risk that we took about 15 years ago.
Because we were convinced that in India, the power prices will keep going up, and hydro is the most competitive power, as we all know. And fortunately, both these projects got put up at a fairly reasonable price, and so within four, five years of commissioning of the projects, we made enough money to repay all the debt. So for the last about six, seven, 10 years, probably, we have been a debt-free company. And in hydro, as you know, there is very small cost of running the plant. So interest is normally between 70% and 75% of the revenue, I mean, of the cost in the first five, 10 years till you carry the debt. So we didn't carry that debt for a very long time.
Within four, five years of the operation, we were able to repay the entire debt, which would have been more or less in the region of INR 1,000 crore-INR 1,400 crore. So this is, this is a very reasonable number that we are talking about, a 51% dividend of about INR 100 crore-INR 200 crore in between that. So selling prices of power are very, are very attractive. And then, and in hydro, as you know, we can cater to what you call peak demand. So in the last six months of the wintertime, October to March, when the generation goes down to 15%, 20%, 30% of capacity, that it gets compensated by very, very high price of the selling number, selling price, because of the peak times. We generate all the power in four-five hours, where the peak prices apply.
So that figure of INR 100 crore- INR 150 crores being 51% of our dividends is very, easy. I mean, it's not an exaggerated number that we are talking about. We've seen this in the last four, five years.
Very clear.
Just to add here, one more thing. This BEL also, through AD Hydro, owns 170 km of transmission line. There some relief is given by CERC, and we may, we may receive INR 400 crore of transmission income in next one or two years. That will also increase and contribute to the profits.
Okay, sir. That's all from me. Thank you.
Thank you. As that was the last question in the queue, as there are no further questions, I would now like to hand the conference over to Mr. Ravi Jhunjhunwala for closing remarks. Over to you, sir.
Thank you, friends, for a very insightful discussion we have had today. In the last two, three weeks, ever since we announced this demerger in the public domain, there have been lots of speculation, so it's good that we all spoke about it, and we spoke about it very freely. I believe you would have got all the answers that you were looking for. If somebody didn't get a chance and or somebody did not or we were not able to satisfy somebody on the numbers, we'll be very happy, happy to have a one-on-one call with anyone just to take care of all those speculations which were going on for the last 10-20 days. Thank you very much, and look forward to speaking to you again.
Thank you very much. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.