Good day, ladies and gentlemen. Welcome to the HEG Limited Q3 FY 2023 earnings conference call organized by SKP Securities Limited. As a reminder, all participant lines will be in the listen-only mode. There is 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. Navin Agarwal , Head, Institutional Equities at SKP Securities Limited. Thank you. 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, and Mr. Gulshan Kumar Sakhuja, CFO. We'll have the opening remarks from Mr. Jhunjhunwala followed by a Q&A session. Thank you, and over to you, Raviji.
Thank you, Navin. Friends, good afternoon, and welcome to our Q3 financial results call for the current year. Geopolitical situation continues to be worrisome, with no immediate end in sight, resulting in dragging down most of the rich economies around the world. Countries like EU, Japan seem to be the hardest hit, with soaring electricity and energy prices leading to high inflation, high interest rates, et cetera. Steel production being directly related to the GDP of any country saw a decline of 4.4% in calendar year 22 versus 2021. If we exclude China, this fall was even more steep at about 7%. Meanwhile, the developed as well as developing world continues its efforts to decarbonize and reduce greenhouse emissions and has pledged large sums of money to be carbon neutral in the next 25-30 years.
As most of you are aware, steel produced through electric arc furnace emits three times less carbon than similar steel produced by blast furnaces. This is giving a lift to many new electric arc furnace plants being announced in several parts of the world. More than 20 million tons of greenfield electric arc furnace capacity have been announced by the U.S. alone, out of which 7 million tons have already started production in the last 12 months, while another about 14 million tons would be in operation in the next 12-24 months, adding to large electric demand. Similarly, many large steel producers like ArcelorMittal and many others have also announced replacement of about 16-18 million tons of electric arc furnace capacity in Europe.
As per electric arc furnace steel growth, excluding China, has grown at a 4% CAGR between 2015 to 2022.
I'm sorry to interrupt. There's some disturbance coming from the line, sir.
As per World Steel Association, electric arc furnace, excluding China, has grown at a 4% CAGR for the period 2015 to 2022 and now accounts for 49% of total steel production, up from 47% about two years ago. China, although lagging behind in this effort and producing only 12% through electric arc furnace, is also on the path to increase its EAF share of steel making to about 20% in the next three-five years as they also make efforts to control carbon emission. We believe electric arc furnace steel production growth in the region to be in the 4% CAGR. In the next decade, which could see an increase of about 200,000 tons of additional electric demand. In the short term, the outlook for the steel industry appears to be bearish.
Steel demand is still being impacted by the fear of a global recession, but the medium to long-term growth path for EAF is very clear. Our expansion is almost nearing completion, with four different processes already commissioned and starting to produce. One shop, the last shop, is running three months behind schedule due to delays in arrival of some imported parts and equipment from various overseas suppliers, which have already arrived as we speak at the plant. We expect to complete the full expansion by mid-April, and with a brief period of trials and stabilization, it will also come on stream. Our capacity would then be 100,000 tons, making it the most modern and the largest state-of-the-art plant anywhere in the world.
As our industry is very consolidated, this technology in the hands of just five companies and China, although having large electrode manufacturing capacity, but not a very major competitor to us in the UHP ultra-high power space. We believe that our expansion of 20,000 tons is fairly well timed and will be quickly absorbed by the market. Friends, now coming on to number three. We operated at 60% of our capacity, which was the lowest in this year, and in the current quarter, January, March, we have in stock to about 70%. We've been able to maintain our product pricing in the past three quarters. This quarter's performance was reasonably good compared to past two quarters, despite lower sales of graphite electrodes, due to benefit of rupee depreciation and better profits from our hydropower generation facilities in Himachal.
As is very normal in any business, when capacity utilizations are low, the price does come under pressure, which is what we are seeing as we book orders for Q1 next year. The needle coke procurement prices for the past three quarters have been flattish, and we now see some softening in the prices of the needle coke. As we are booking electrode orders for the next three to six months, needle coke procurement is also being done on a quarterly basis. The movement of needle coke prices cannot be forecasted accurately. Our expectation is that they may soften a bit due to lower demand from electrode industry and abundant availability of coke due to slowing down of offtake by all the major graphite producers. All in all, we remain highly positive and confident about the medium to long-term growth for electrode industry and more so for HEG.
We being one of the most competitive producers in terms of quality and cost, have a wide outreach to global markets, which we have developed over the last 25 years and continuously exporting about 2/3 of our production to more than 35 countries. Meanwhile, as you are aware, we are diversifying into graphite anode for lithium-ion cells, which form the battery for electrical vehicles and energy storage systems. Given that it's the first such plant coming in our country, we see a huge opportunity here in the long term. We have incorporated a wholly-owned subsidiary of HEG in the name of TACC Limited for this new business, and our board has approved a budget of INR 1,000 crores for setting up manufacturing facility of 10,000 tons of anodes per annum in phase one, which should be in operation by Q2 of calendar year 2025.
At present, cells and battery packs are all imported into India, and soon there will be huge domestic demand for graphite anode as cell manufacturing shifts to India. We see tremendous potential for this business in the next three to five years as more and more EVs get manufactured in India. With this, friends, I would now hand over the floor to our CFO, Gulshan, to take you through the financial numbers. Then along with Manish, our ED, we'll be very happy to answer any queries that you have on electrodes. Vijay Chandolia also being present on the call can answer all the queries in pertaining to anode powder. Thank you. Over to Gulshan.
Thank you, sir. Good afternoon, friends. I will now briefly take you through company's operating and financial performance for the quarter ended 31st December 2022. For the quarter and 9 months ended 31st December 2022, HEG recorded revenue from operations of INR 530 crores as against INR 598 crores in the previous quarter and INR 597 crores in the corresponding quarter of the previous year. Revenue for the quarter saw a decrease of 11% as compared to the previous quarter and on QOQ basis as well. During the quarter ended 31st December 2022, the company delivered EBITDA including other income of INR 170 crores as against INR 198 crores in the previous quarter and INR 171 crore in the corresponding quarter of the previous financial year.
The company on a standalone basis recorded a net profit after tax of 103 crores in the first quarter of FY 2023, as against 130 crore in the previous quarter and INR 109 crore in the corresponding quarter of the previous financial year. The company is long-term debt free and has a treasury size of nearly INR 1,015 crores as on 31st December 2022. To take up more questions from the participants, the detailed presentation has 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. Over to Manish.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use 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. First question from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Thank you for the opportunity. Sir, I missed the number of capacity utilization for you from the December quarter.
I said your October-December quarter was about 60%.
Right.
In January-March, we had inched up to about 70%.
Right. What was the number a year back in the same quarter, that's Q3 FY 2022?
In quarter three, 2021/2022, that capacity utilization was in the range around 85%.
Understand. Sir, you did address in your opening remarks the reasons for lower demand, citing that travel, that's on the expectation of a global recession. Could you elaborate more as to which countries particularly you are looking at this dip in steel production? Considering that you are exporting almost 65%-70% of your overall sales, if you could help us with the split of exports as well as which countries are the main pain point right now.
Manish, would you answer that? Sonali. As we have talked in the last call also, we received pushback of orders from mainly our European customers and about 10% of our total sales were there. It's not much, but still 10% is gets postponed, it does impact. Also, some people in some customers in the U.S. started to cut their energy levels seeing gloomy outlook. That is one market. Also from Turkey, we received some slowdown of demand. U.S. did keep going strong, but these are some major countries where we export due to which our sales have dipped up to a 60% capacity utilization level.
Right. Of your overall split, which would be your key markets, and how much would Europe plus Turkey be?
Europe plus, Turkey would be, if we take our, total sales, it is about, 14%, 15%. 14% I would say, Europe and Turkey combined.
Understand. U.S. and Middle East will also... Southeast Asia will be your other key markets.
Yeah, that's right.
Understood. Sir, what are the in-current inventory levels in the channel? You did mention that some correction in inventory going on. Just keen to understand what is the level of inventory.
See right now our finished goods inventory are close to two months. one month is very, very normal for any plant, like us because we make so many sizes, so many variants that to totally put together is usually one month of inventory. At present we have two. That doesn't really bother us much.
Understand. Also on the pricing, you did mention in your starting remarks that you were able to maintain the pricing. Are we saying that quarter-on-quarter there has been absolute stability in pricing and no dip in terms of electrode realizations?
The pricing, I think very close actually. Very marginal changes, QOQ. Last quarter seemed stable up till now.
Are you expecting similar stability in pricing going forward, or are you fathoming some weakness?
From Q1 next year, as we are booking now, we are facing some pressure on that. That pressure is not like any big fall or any big dip. It is just that everybody's trying to sell that extra ton and makes puts pressure on the pricing. That's not. We're not expecting a major change in that. Yes, if we are looking at 70% today, of course we also try to sell that extra ton. It will maybe be slightly under pressure it seems for Q1. Q1 next year.
Understand. Sir, in the CapEx bit, you have deferred it to the commissioning to April 2023. Sir, if I may understand, of your INR 12 billion of CapEx, how much has been spent and how much you are expecting to spend in the coming quarter?
See, almost INR 1,000 crore has already been spent on that INR 1,200 crore. We are just, I mean, we have to spend about INR 200 crores more on that. We didn't defer the expansion as such. It is just that, as Chairman said that, four of our shops are already up and running, actually. There's one more complicated shop where there's such a variety of equipment coming from here and Europe. They have got delayed due to their own supply chain issues, and they have also now fortunately, even everything has been arrived at plant. Now the last remaining shop is getting completed. Let's say four shops out of five are already commissioned for production. It is waiting for the fifth one to start in April.
Right. Sir, just a last question from my side regarding your new business that's graphite anode for lithium-ion. You did mention that you're expecting 10 gigawatt capacity by FY 2025. What would be the total addressable market for this? Just trying to understand how much are you expecting to cater to?
Yeah, we will, I can take that question. What we are, gonna produce in our first phase is 10,000 tons of the graphite anode. Now this 10,000 tons of graphite anode would be able to cater to 10 gigawatt hour of cell manufacturing. By 2025 we expect the Indian battery demand to be around 50 gigawatt hour, which turns into 50,000 tons of graphite requirement by 2025 in India. Out of which we plan to produce 10,000 to start with in phase one.
Obviously this demand is supposed to go up exponentially from 50 gigawatt hour to 260 gigawatt hour in 2030, which means by 2030 there could be a graphite anode demand of 260,000 tons.
Understanding. Have we entered into any technical expertise for this? Just keen to understand how we are going to develop this and what will be the key raw material as well.
The technical expertise largely resides within HEG itself. Lot of the processes that are involved in converting carbon into graphite, which is what our USP is in HEG, because not too many people can do that. That is the single most challenging factor in this anode thing as well. Other processes are fairly, I mean, simple in terms of coating, crushing, milling, et cetera. Most of the development that we see technology-wise are happening on the cell side. Whether they want to mix little bit of silicon in it, whether they want to mix other things inside the anode. That is not at our end. Our end, the whole thing is what micron, what size of anode to really produce.
Yeah, we are taking help from lot of global experts, individuals, but no real technical tie-ups with any particular company we started. I mean, we have taken lot of help from couple of companies in Austria on trying to make sure that we streamline our process, et cetera. Lot of this thing that comes in from China. Overall, I think, largely the capacity exists within HEG to do this properly.
On the value chain, does needle coke remain as the key raw material for this segment as well?
No. That's the thing. In this, we can really play around with the raw material for which we have already started our this pilot plant we've already installed in our existing graphite plant, which can produce around 100 tons of graphite powder per year. With this, we'll start working with all the, you know, cell companies in what kind of product they need. Depending on the kind of end use of the product, raw material could vary from needle coke or very good or very high-end material to your regular Indian coke or imported, Chinese coke as well. Today you must understand 90% of this material is being made in China by Chinese coke. That's a proven raw material. Raw materials we can play around with as per the customer's requirement.
Got it. Got it. Just squeezing in one last thing. Just wanted to confirm if I got the numbers right. In your opening remarks, you did mention that 7 million metric tons of EAF have commissioned in the last 12 months, and over the next 12-24 months we are expecting 14 million metric tons to be commissioned. Yes. Sir, I actually seem to miss out on your opening remarks a little bit. 7 million metric tons of EAF commissioned in the last 12 months and 14 million metric tons to be commissioned in the next 12-24 months. Is that right?
Yeah, you're right. This is only in U.S. I mean, these are the specific number that I gave you was 7 million already commissioned.
Mm-hmm.
Another 14, 15 million being commissioned between now and 2024, 2025.
Okay.
Let's say middle of 25. There is another set of 20-25 million tons which is coming up in Europe, which is a couple of years behind the U.S. You see the backdrop is U.S. produces more than 72% of its steel through electric arc furnace. They understand the advantages of electric arc furnaces much more than the Europeans or rest of the world knows. Because typically, as you know, electric arc furnace is close to 49% now, minus China, but U.S. has always been 70%+. They have taken the lead in terms of adding more and more electric arc furnaces because of carbon emissions.
Understood. This 2025 in Europe will be commissioned over the next three-four years. Is that right?
I mean, they are talking from 2024, 2025 to 2028, 2029, 2030.
This is fresh or conversion from BOF to EAF?
Both of them. I mean, they'll be closing down some of the blast furnaces and replacing them by electric arc furnace or in new cases they're also adding electric arc furnace.
Perfect, sir. This is very helpful.
As I also mentioned in the last three, four years, according to the WSA, the World Steel Association, the growth of electric arc furnace has been about 4% CAGR, which has led to the total steel production minus China through electric arc furnace, which used to be 47%, now being 49%. They do expect this trend to not just continue at three and a half, 4%, but move it further north. As more and more electric arc furnaces are being established and operating, one can visibly see the drop in the carbon emissions.
That's the backdrop in which we said that if we do have a 4-4.5% CAGR on electric arc furnace steel production, which is currently close to 50%, let's say 49%. Doing that max in the next four-five years would lead to an additional demand of close to anywhere in the region of 200,000 tons, which is a very, very huge number. I mean, we haven't seen this kind of growth in the demand of electrodes in the last 20-30 years.
Got it. Sir, thank you. This was very helpful, and all the best.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. We have our next question from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Namaskar, sir, and thank you for this opportunity. Sir, last time during the call you did mention about the Graphite issue and how their needle coke issue pertaining to which they won't be able to proceed with the production. Where are they in terms of the issue and how is that going to affect the electrode market going ahead?
I mean, we can only talk about whatever we have read or heard from the marketplace.
Yes, sir. Yes, sir.
Graphite has very clearly come out with an explanation that, I think the Mexican plant was closed for about two and a half months. Apart from the capacity lost due to that closure, the bigger problem in their case was that the entire nipples from that company has four, five different plants in four, five different continents. 100% of the nipple production used to happen at the Mexican plant. As you know, electrodes are of no use without nipples. They used to air freight all the nipples to the other 4 plants as far as Europe and America and everywhere else. That has led to a lot of mismatch in their nipple availability because of that two months of delay.
Probably that is one of the reasons in their recent phone call they have, they have also given a figure, I forget that number, but they have clearly said that their sales in the first half of this year is going to be substantially lower, not only because of the demand slowdown, but more because there has been nipple mismatch. Just to continue to explain, the nipple takes anywhere between four-six months to produce. For different sizes of electrodes, you need different sizes of nipples. As you go more and more towards the high value added or the larger diameter electrodes, the timing goes from four months to like six months. Obviously, a two-month stoppage in that process for the entire capacity of 200,000 tons obviously leads to a lot of issues for the next six months.
Just to keep this story apart, had this not been the case, then the sentiment in the market would have been more pessimistic because their capacity is off the table as of now. They are not feeding the market. Then also we are at 65.
No, they are feeding the market. I mean, that's what I'm saying, sir. I think I forget the number, but they have given a number of the tonnage which is going to be sold in the market, which is practically 40%, 50% of what their normal sales would be.
This particular nipple product, we are doing it ourselves. We are not dependent on other manufacturer. We are not sourcing it from there as.
No, no, no. No, no company, no company does this. I mean, everybody produces electrodes and nipples. In our, in our case or let's say in case of Graphite India, since there is only one plant or in case of Graphite India now there are two plants, nipples are all produced by everybody.
Sir, when we look at Turkey being also a very important client of ours, how has this catastrophe affected their demand and their deliverables? Going ahead, what kind of deliverables are scheduled for Turkey as for going ahead for this quarter?
Manish?
Sir, I would like to put it this way. Graphite, what they told in a public statement, that their ability to survey some orders will be impacted because of this problem which they had last year, I think more than a month. So there has been interruption to that extent from their side. But additionally, they have said that in their European plants they will be working at one-third of the production capacity for 2023. But they didn't comment on what reason is that, whether it's demand, it is whatever, but they did publicly state in the U.S. that their ability to service some orders in Q1 will be impacted from their end.
No, I think his specific question was about Turkey, the problem of Turkey.
Yes, sir.
Yes.
If I may put it in a way, sir. What were the quantities for Turkey for December quarter, and how were the deliverables being scheduled for the March quarter? That would give us some mota mota, and you may also add more to it.
See, every year, in tonnage terms, I mean, we supply about 12, 11% or 12% in Turkey. That was now down to, let's say, I would put it this way, 6% or 7% in Turkey. We're just talking about the Q1.
The schedule for March is half the tonnage what we have done for December.
Yeah, you can say that. Whatever we were selling in there, which is over the year is being done. That's totally a done. It's probably going to be half of that.
Correct, sir. You know that you did mention that the near-term outlook still sounds bearish. If you could elaborate more, is it totally aligned to the lower utilization levels for the steel industry? How are you seeing this dynamic changing ahead barring the shift towards the EF route? Other than that, what factors would you think that would need to reverse that? When you are telling that lower utilization levels for March and even on for the first quarter. If you could throw some more light on the same?
Manish, continue.
Yeah. I would like to say that this 70% capacity utilization, which we are talking about January to March, is likely to continue for at least two more quarters. The major reason for this lower capacity utilization is the drop in steel demand, drop in steel consumption. That we expect to continue for at least two more quarters than what we can foresee. Eventually, of course this, the New Year and everything coming to give effect would try to reverse this slowdown in, I mean the demand. I mean the total steel production made from the EAF route. That is our expectation. We should be in 70% till March. I think we should be at 70% level for the first half.
As our other industry players are also saying that we expect a turnaround by the second half. Obviously people may not say so, but everybody agrees this war will someday get over and, you know, everything back on track.
Correct. I joined a few of them.
One thing probably-
Yeah, yeah.
As I said, America is the only country which produces more than 75% of its steel through electric arc furnace. America probably is the largest steel producer after China and India, and maybe Japan and America more or less are in the same range. 70% of that is steel, electric arc furnace, and that is where they are adding another 20-25 million tons. For a very long time, America has been a fairly large customer base for us. We had started exports to America more than 25-30 years ago, and we have been able to nurture America fairly well over the last five, seven, 10 years. We continue to add more and more customers every year. Not only more and more customers, we are selling more and more tonnages also in America.
This is just incidental that we have been in America for a very long time, and that is where the largest growth of electric arc furnace is happening.
Right. Sir, just to conclude, you also mentioned about the needle coke pricing to be on a quarterly basis. Were you hinting toward that because the line got disrupted at that time? What is the current? Yeah, yeah.
It is quarterly. You're right.
Currently how it is done, sir? As of for this financial year, are we doing the long term contract or contract sizes, the period is greater than one quarter?
In the last three, four quarters, it has been quarterly.
Okay. Sir, taking that into account and the RM basket, I think the needle coke is the largest component. How should we expect the margins to be going ahead? A ballpark understanding.
Manish, would you answer?
Yeah. How we look at it is we look at the spread between what price of electrode we can get from our customers and what we have to pay to our needle coke producers. What the trend which is there is that, yes, there is slowdown in demand. Like if we are at 70% today, other players are also around that level. I just saw that, I think, one of the major competitors also around 68%. That will result in more than enough availability of needle coke in the market. Therefore, we expect some respite from needle coke people also to adjust their pricing a bit.
If we, if we lose a few dollars on the electrode price and we gain that same on the, on needle coke price. That way our margins, what you have seen this quarter, should remain that way. Maybe the numbers slightly here and there, I cannot say really, because we don't know what needle coke suppliers will come up with, what kind of pricing they will come up with. We are more concerned about the spread. If there's a depression in electrode price, consequently we get some respite from needle coke people, so we are able to maintain margins.
Correct. On the power and fuel part, sir, I think so we have 70%-80% captive. How is the power and fuel line item shaping up? How much dependent is on the external source?
See, our power comes from the State Electricity Board, and that prices are good, which we have. They've been stable for some time and likely to be stable in near future also. We have those two coal-based power plants which we are not running at present.
What is the cost per unit, sir, currently?
Mr. Kapoor, I request you to join.
Yes, ma'am. Yes, ma'am. Manish, sir could answer the call.
Yeah. I would like to say it on this call. After this call, certainly I can call and share what kind of pricing of electricity is.
It's.
Not at this forum.
It's a fixed price kind of a contract for a certain number of years. Right, sir. I'll join the queue, sir, again. Couple of questions, but I'll join.
Thank you. A reminder to participants to press star and 1 to ask a question. We have our next question from the line of Amol Rao from Kitara Capital. Please go ahead.
Good afternoon, sir. Thanks for the for the possibility. Sir, I just would like to know that, last quarter we built up our FG inventory of around INR 400 crores, and this quarter we seem to have done something similar. Considering that, I mean, we're noticing some softness in the offtake of electrodes, what would be the rationale for building up inventory? We're not really the sort to take balance sheet heavy kind of business in our practices, you know. Why are we building up this finished goods inventory, if I may, if I could get some clarity on that?
Yes. I'll tell you there's a very simple logic. I mean, if you look at our cost structure, needle coke is one of the very large component of our total costs.
Mm-hmm.
Our cost of conversion is not very high.
Got it.
Either you keep coke, which we have already purchased, which we have already ordered in October, November, December, not knowing the slowdown will continue for so long.
Mm-hmm.
Given that one has already got the needle coke stock lying at the plant, it doesn't take too much effort or too much cost to convert them into electrodes. On the assumption that more and more new electric arc furnaces are being commissioned, especially in America, as I said, and another 15-17 million tons are going to be commissioned between now and end of next year, we decided to keep converting the coke that we have. In case of a sudden requirement, in case of a sudden change in the situation, overall global situation, we don't want to be facing that situation that when the demand comes up, we are not yet ready. We are just keeping the finished product rather than keeping the coke.
Got it, sir. That's very helpful. Sir, would it be right to assume that between now and, say, the next 12 months, this inventory should be run down gradually?
Now we have not bought any needle coke, let's say, in the last three, four months. I think our last shipment would have been more than four months ago.
Okay, sir. The Finished Goods inventory should be run down gradually over the next four quarters. That's.
Yeah.
That was my question.
Yes. Yes.
Got it. Got it. Okay. Sir, I think the gentleman before me asked this question about Turkey. What we know from reading is that Turkey it imports a lot of scrap steel and manufactures a lot through the year. As per your market intelligence, your trade dealings, is this capacity out for quite some time, or do you think that this comes back on track sometime in the next five, six months?
No. Let me clarify this. See, there's no plant in Turkey which has got closed. See, Turkey is one market which is the quickest to respond either way. You have very rightly said they import a lot of scrap. They have all used those scrap in the electric arc furnaces. The Turkish steel industry is the quickest to adjust to the demand for steel. There's no shutdown of steel company or a steel plant as such. They just decide to run at 50%, 40%. That's what they do. The moment they see the rising stock of rebars or any kind of steel they make, they quickly.
Got it.
-turn it down. So it's what-
Got it.
No closure as such. They're very much there.
They balance out the supply. That's what we are hinting at.
No. Yeah. Yeah.
They don't want to flood the market. Okay.
Yeah, yeah. Yeah, yeah. True.
Sir, I know this is very difficult for you all to answer, predictable or easy. I mean, whenever this war ends, given the amount of reconstruction that is expected, the demand for TMT bars, that. Where would that be met from, sir? Because if someone is taking the steel capacity in Ukraine is pretty much being bombed out of existence.
Yeah.
I mean, where does it get met from as per, I mean, whatever your clients say, it gets met from mainland Europe, Turkey, and those kind of places, or they import it from somewhere else?
I think so. See, these markets like Ukraine will definitely be served by the countries like Turkey, even India. Why not India?
Okay.
all over the world, wherever they will have this extra TMT. Yes, huge demand will come in once the war gets over. That's correct.
All right, sir. That's it from my end, sir. Thank you and wish you all the best.
Thank you. We have our next question from the line of Punit Malde from Centrum Advisors LLP. Please go ahead.
Yeah. Thank you for having me. I wanted to understand, from my calculation, our CapEx per ton comes around INR six lakhs. I want to understand what is the target ROCE that we are aiming at?
ROCE. Gulshan. Gulshan, will you answer?
Yeah. Hello?
Yeah.
Yeah. We are expecting if we talk about this INR 1,200 crore and additional tonnage of 20,000, it comes to around INR 8,000 per ton. That's $8,000 per ton. We are expecting that EBITDA margin from this business would more or less remain the same.
Okay. Okay. As we know, there has been no real expansion in the electrode manufacturing all over the world. We are expanding to another 2,000 tons 20,000 tons. What are the peak utilizations that we are aiming at right now?
If you see, we are the forerunner in this expansion. No one other, our competitor internationally and domestic has announced any sort of CapEx announcement. We are expecting that we will be able to capture this market once the demand comes into the play, into the picture in future.
Okay. The needle coke demand. The needle coke is also being used for batteries. Do we see a shortage in supply of needle coke for graphite electrodes because of its usage in other things as well?
Needle coke is used very marginally. Sorry. Sorry.
It's a very difficult question to answer. Basically, we've been talking about it for the last five, six, seven years. There are at least 10, 12, 15 different raw materials going into the battery manufacturing. Needle coke is one of them. For us, needle coke is like the main raw material. So whenever we have seen the electrode prices going up, leading to more demand of needle coke, we've seen that the graphite industry has not suffered because the price that the graphite industry can pay for the needle coke is not what the battery producer can pay, because he has an option to either use needle coke or replace needle coke by let's say 10 other raw materials that we already use currently. That is a simple answer, basically.
Okay. It will not hamper the prices for us at least.
Yeah. You see, it's very simple. If needle coke prices go up, the electrode prices will go up. I mean, basically, they are, as Manish was trying to explain in one of the questions, we are looking at this trend. What had happened three, four years ago was quite natural. If the needle coke prices went up, electrode prices went up. It's basically the demand for electrode.
Right. Right. Thank you. I wanted to ask one more question on the new business segment of anodes. How are we going to finance this new segment? Because we see that we need an additional CapEx of INR 2,000 crores in tranches. How are we financing that?
Look, for the time being, it's fully internally financed. I mean, our cash flows will allow it, but obviously we'll see the cost of financing from outside, the cost of finance from our internal accruals. It would partly be bank finance, partly our internal funds.
This 2,000 crores is divided into two phases. phase one, 1,000 cr for phase one, and after that we are going to spend 1,000 crores for phase two. So it depends with that earnings and the equity ratio. The board would be formed at the HEG side from, in the form of equity and through internal accruals.
Mm-hmm. Okay. I think that's it from my side. Thank you so much.
Thank you.
Thank you very much, ladies and gentlemen. As there are no further questions, I'd now like to hand over the conference back to Raviji for his closing remarks.
Thank you, friends, for joining us on this call today. Then, just to repeat what I have said in one or two sentences. Looking at the growth of electric arc furnace in the last 12 months and what is likely to happen in the next two years, then follow up in Europe, we are pretty confident about the optimistic note that we are talking about. Because at least for these 30-35 million tons that we are talking about between Europe and America, we have the details, we have the names, we have the locations of all the new EV plants coming up. We are fairly well equipped to meet all their demand.
Especially since there is more new capacity coming up, we are pretty confident that it may be matter of one quarter, two quarters or three quarters, but we should be able to sell whatever we produce because we have been in those countries. We have been exporting to all these customers in the past. We are qualified at most of these new locations which are, which are now establishing more and more new capacities. We are pretty reasonably confident about our being able to meet the demand wherever it comes. With that optimistic note, I'd like to thank you once again, and I look forward to talking to you after three months once again. Thank you.
Thank you. On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.
The conference is now.