Ladies and gentlemen, good day, and welcome to HEG Limited Q3 FY 2022 earnings conference call. 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 and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, Mr. Agrawal.
Good afternoon, ladies and gentlemen. It is 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, along with his 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. Over to you, Mr. Jhunjhunwala.
Good afternoon, friends, and welcome to our Q3 2021-2022 con call. In line with the first two quarters, our third quarter performance continued to be strong, supported by improving worldwide steel market conditions, consequently resulting into strong electrode demand. According to the WSA, the World Steel Association data, global crude steel production for the calendar year showed a 3.7% increase over 2020. What is more important and positive for us is that the steel production, excluding China, increased by a whopping 13.1%, while China reduced by 3%. This gives us a double impetus to the graphite electrode industry. While the world outside of China produces about 47% of its steel through electric arc furnaces, resulting into higher electrode demand and a reduced growth of steel in China, obviously reduces steel exports from there to the rest of the world.
Friends, as steel decarbonization gathers speed all around the world, many projects for converting existing blast furnaces into electric arc furnaces, along with some new greenfield capacities, have been announced in very recent past across the world, mainly in countries like the U.S., Canada, and Europe. American steel companies alone have announced a new capacity of electric arc furnaces to the tune of 20 million tonnes. All of these are likely to be in production between 2023 and 2025. Similarly, European steel industry has also announced replacing their existing blast furnaces to electric arc furnaces to the tune of 16 million tonnes, of which about 12 million tonnes is from ArcelorMittal alone. They should also start going into operation from 2025 onwards.
This kind of a 36 million tonnes of additional EAF capacity, which is now going to go into operation straight away in the next couple of years, ending in 2027, 2028. We haven't seen this kind of new capacities of electric arc furnaces being created anytime in the past. This will have a significant impact on demand of electrodes of about 50,000 tonnes per annum. Most of these would be large electric arc furnaces using ultra-high power electrodes for which we are fully equipped. In China, the government's efforts to replace polluting steel capacities continue, and they are on track to reach 20% production of steel through EAF in the next three to four years.
They've already doubled the share of electric arc furnace from about 6% in 2016 to 12% in 2020, and they keep building new electric arc furnaces to reach their capacity of about 20%. Indian crude steel production increased last year by a significant 17.8%, highest growth anywhere in the world. The Indian steel industry is in good shape, supported by strong demand from domestic as well as export consumption. Following that, United States, the world's top user of graphite electrodes, also saw a significant increase of more or less the same size as in India, around 17%-18%. After India, U.S. happens to be our second largest market for electrodes.
The electrode prices for both UHP and non-UHP grade improved in Q3 versus Q2, and we see this trend continuing in the next quarter, in the current quarter as well as the remaining two, three quarters of current calendar year. We expect the prices to remain fairly strong during the entire 2022. We continue to work at 90% capacity utilization since past three quarters. Needle coke prices are also rising in line with electrode prices. We are still contracting for orders quarter on quarter as needle coke prices are also being negotiated quarter on quarter. We are bolstered by the new EAF capacities announced and EAF's long-term growth. Our announced expansion of capacity from 80,000 tonnes to 100,000 tonnes seems very timely.
As I said, with around 30 million-40 million tonnes of new electric arc furnaces on an annual in the next few years, and with no new capacity of electrode announced by any other company than us, we don't foresee any problem in finding market for the additional 20,000 tonnes from next calendar year. Again, friends, at the cost of repeating, carbon emission through every tonne of steel produced through electric arc furnace is 1/4 of the same steel produced through blast furnace. As the carbon emission and the carbon credit gathers steam, it augurs well as far as the graphite industry is concerned. Our expansion continues at full swing, and we expect to complete it by end of 2022 and be ready for commercial production in early 2023.
This will increase our capacity under one roof to 100,000 tonnes, which is about 30%-35% larger than the second next largest plant in the Western world. In 2022-2023, we expect our sales to be higher by about 5,000-6,000 tonnes versus current year, part of which would be some technology innovations achieved by our technical team from the existing facilities, and part of that will also be from the new expanded facility, which should start production from early 2023. Overall speaking, we hold a fairly positive outlook for our industry as a whole and even more for HEG with our timely expansion. On this note, I would like to pass on the floor to our CFO, Gulshan, who will walk us through the financial numbers.
Between me, our Executive Director, Manish, and our CFO, Gulshan, we'll be very happy to answer all your questions. Over to Gulshan.
Thank you, sir. Good afternoon, friends. I will now briefly take you through our company's operating and financial performance for the quarter ended 31 December 2021. For the quarter ended December 2021, HEG recorded revenue from operations of INR 598 crore as against INR 518 crore in the previous quarter and INR 320 crore in the corresponding quarter of the last financial year. Revenue for the quarter saw an increase of 15% on QoQ basis, while it witnessed an increase of 87% compared to the corresponding quarter of the last financial year. The multidimensional growth in volume and price have led to the growth in the revenue from operations.
During the quarter ended 31 December 2021, the company has delivered EBITDA including other income of INR 171 crore in the quarter, as against INR 167 crore in the previous quarter, and INR 24 crore in the corresponding quarter of the previous financial year. The EBITDA in the quarter ended 31 December 2021 was slightly pulled down due to the higher expenses pertaining to power and fuel on account of increasing LNG prices and settlement of one old power case, increasing consumption of stores and spares, and higher logistic costs, which has been included under the head other expenses.
Further, in accordance with the provisions laid down under Section 135, during the quarter ended 30th September, the company has incurred expenditure on account of CSR amounting to INR 5.4 crore during the quarter in comparison to 0.08 crore during the quarter ended 30th September 2021, which has been included under the head other expenses. Further, during the quarter ended 30th September 2021, the rates and other guidelines have been notified under the Remission of Duties and Taxes on Exported Products, that is called RoDTEP scheme, by notification dated 17th August 2021.
Accordingly, the company has accrued the benefits amounting to INR 4.85 crore during the quarter ended 30th September 2021 under the aforesaid scheme on the eligible export sales for the period from January 1st, 2021 to September 30th, 2021, out of which INR 3.24 crore pertains to the eligible export sales for the period from January 1, 2021 to June 30th, 2021. The company recorded a net profit after tax of INR 108 crore in the quarter, as against INR 113 crore in the previous quarter and INR 5 crore in the corresponding quarter of the previous financial year. The company is long-term debt-free and has a treasury size of nearly about INR 1,470 crore as on 31st December 2021, yielding an average return of approximately 5%.
We would now like to address any questions or queries you have in your mind. Thank you. Now over to Navin. Hello.
Thank you very much. We're now in the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Anandha Padmanabhan from PGIM India Mutual Fund. Please go ahead.
Recently there was some news flow about the Chinese government postponing the decarbonization of Chinese steel industry from 2025 to 2030. If as a result of this, if any, how do you see the impact of the same on it?
Manish, would you like to answer that?
There's some rumors and this talk about China postponing that. As late as yesterday, as in the news which is coming out of China, they are very much on this path of converting their BoF to EAF. I really don't think there is a change in the stance in China's stance. They might slow down the speed or gear up on speed, but you have seen them coming from 6%-12%. What they're saying, 20% another three to four years, maybe it get extended by a year. There is no reversal as such from anything we have heard of.
How are you seeing the pricing situation for outright ports?
See, as an industry, we are working, and not only us, if you look at our peer group, which comprises the world majors of the Western producers, all of us are working today at the rate of 90%, and we are able to see growth in demand. Pricing continues to be strong. Like between Q3 to Q2, there was possibly an increase of 8% or 10%. Again, that 8% or 10% is again there between Q4 and Q3. That's another point, that needle coke also continues to rise. But otherwise the pricing continues to be strong. You must have seen the results and outlook presented by our peers, and during the course of 2022, they're likely to remain strong. That's what we think.
How should we look at the overall margins percent? Because in one of your events you have commented that the margins will remain in the current range. Just wanted.
The closest word which can describe this is similar. Similar margins because needle coke is also rising quarter by quarter. If the electrode prices are rising quarter by quarter, then needle coke pricing and some other inputs are also rising.
Okay. Is there any issues with availability of inputs for this?
Sorry.
Is there any issues or in the availability of inputs, whether you or its suppliers are able to get those inputs? Is there an issue only with the pricing of the input needle coke or-
Yeah. It's only a question of just prices. There's no problem of availability as such. We have enough. If not more than enough, we have enough.
Okay. I'll get back into the queue .
Thank you. The next question is from the line of Dhaval Doshi from Pinpoint Asset Management. Please go ahead.
Hello, sir. I would just want to understand the overall supply situation in the developed markets, especially in Europe and the U.S. Given the rising cost of electricity out over there, are we seeing any supply closures happening in the electrode segment and that could, in effect, have a positive impact on the graphite electrode pricing? Secondly, if the closures are not happening, but there will be significant cost pressures on account of electricity, so that should further inch up the electrode prices. Is the understanding correct?
Partly, yes. You see, as far as our consumer sector is concerned, for them, pricing of electricity is as important as it is for graphite.
Okay.
Both of them go hand in hand. More important is that, as we just said, in the U.S., out of the 20 million tonnes new greenfield capacities which are coming in the next two to three years, the very first capacity is going to be available as early as next year, early next year. You can imagine a 20 million tonne increase and all into electric arc furnace only in the next two to three years. That itself adds at least 30,000 tonnes-35,000 tonnes of demand for our products.
I am not denying this point, sir. I very well take in your long term demand argument. What I was just trying to understand is in the short to medium term, as in while the overall electricity price scenario in Europe is going from bad to worse, are we seeing any supply squeeze happening in the graphite electrode market or we have not yet seen that?
No, we haven't seen that. As I said, cost of power for our graphite industry and for steel industry, power remains one of the large cost elements. If there's a reduction in the electrode production due to cost pressures because of power, it will be more or less offset by a little less production of steel. They are both complementary to each other. At the end of the day, power is still not as significant a cost for our electric arc producer as the scrap prices are.
No, that I understand. Power is still definitely a decent cost contributor for.
Yes, it is.
An electrode manufacturer.
Yeah, you are right, of course. As I said, it goes hand in hand. If it becomes unviable for the steel company, it becomes unviable for the graphite industry. Both will go up or go down at the same time.
Is it fair to assume that the players operating in Europe and U.S. are seeing a significant squeeze on margins, which probably can come to some benefit as far as we are concerned?
Manish, I mean, would you like to answer that?
Yeah.
How do we compare in our margins compared to the American and the Japanese producers?
In Europe, certainly they have pressure on this price of electricity. In U.S. it is not. Europe, I'm sure our peer group there is facing more cost pressure, which they have to try and pass it on to the customer by way of increasing prices. The one point you should have asked, that is there any supply closure or something? No. It is not to that level as long as the cost can be passed on. Certainly they are facing, they must be facing cost pressures on account of the surge in electricity prices in Europe. It has not translated to reduction of production of our peers, I mean, who are operating there.
Sir, what kind of upside pressure can it create on the electrode prices? What I'm more interested is, let's say if I were to look at the margins for the graphite players in Europe, electrode prices minus the Needle coke prices, are they trying to maintain those margins by further reducing the electrode prices because of the power cost?
See, quarter-on-quarter the electrode prices are increasing. Of course, they will try their best to pass on these costs to the electrode price and then to the steel industry. So far that is going on. I mean, it's not that they have to absorb all this additional electricity costs onto themselves, and we have not seen margin reduction to that effect from European plants. The issue is when these results, we cannot. This electricity problem is happening only in Europe. When we see the results, we see them in total, all their plants combined worldwide. Sooner or later, the European results should also be available. We'll have to, I mean, we can only comment after we have a look at that once they are in public.
Okay. As of now you're saying that has not really had any major impact as far as the availability as well as the pricing is concerned?
Yeah.
Okay. Thanks. Thanks a lot, sir.
Thank you. Participants, you may press star and one to ask a question. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Sonali from Jefferies India. Please go ahead.
Thank you for the opportunity, sir. My first question is if you could help us understand just the quantum of price hikes that we took in Q3. If not actually just the quantum.
Okay. We can say between 8%-10%.
Right. How much do we think we will be able to increase in the coming quarters?
I think should be 7%-8%.
Understand, sir.
Yes.
Sir, my second question is regarding the Chinese supply. We talked about how China is growing their EAF capacities to about 12% right now as of 2020. Could you give us with an update on what is the situation about with the excess electrode supply in China?
I mean, I'll just repeat if I've understood correctly. You're talking about the electrode supply from China?
Right. I mean, do we foresee any risk that they would start or increase their exports again, which could, you know, disrupt the pricing of electrodes for ex-Chinese players?
They are exporting almost in excess of 300,000 tonnes of electrodes to 200 countries, and this is not something new. They have been doing it for a while. The grades which they are supplying are the regular power, the high power. We do not see real competition in the segment in which we operate, where we are making big size electrodes, supplying mostly to the Western world. There is a lot of demand from the lower side. There are foundry, small foundries, where even regular power are used. There are other applications. When you look at volume terms, they continue to be at that level. It has not disturbed our market because they are working in a different space and we are working in a different space. There might be slight overlap.
They will call USP . Somewhere you will hear they succeeded, somewhere not. I think so it's still a lot of time away from when we, I mean, when a lot of customers actually start banking on them by buying 30%-40% of their requirement. That is, that we have not seen so far.
Understand. Lastly, some bookkeeping questions. In this quarter, our other non-operating income is notably lower year on year, and our depreciation and interest expense are higher year on year. How do we, you know, look at it in the coming quarter?
Yeah, I think Gulshan will answer this question.
Yeah. If I talk about this quarter at the other income of INR 14.7 crore versus INR 25 crore, this is on account. If you see, three or four years back when the company had a bumper EBITDA margin, at that time the company had invested in long-term funds, treasury funds at a rate of 8%+. All these Treasury funds have been matured in the start of the financial year. This is one of the reasons which has led to that reduction of this other income. Second, as you know that with our expansion from 80K to 100K is funded through internal accruals. We need the funds as-and-when basis.
That's why we are placing our treasury and the funds on a short-term basis rather than going for a long-term. Both these factors has resulted into the reduction of that other income. Going forward, we mean it would remain in the same range.
Right. About depreciation and interest expense, is it also on account of the CapEx?
Yeah. I'm coming to that finance cost. Earlier, if you see there was some interest subvention scheme from the RBI, and that was 3%. There's no notification for further extension, and that was till 30th September. That's why if you see on quarter-on-quarter, the interest cost has increased from INR 1.15 crore to INR 4.17 crore. This is on account of that withdrawal of subvention, or there is no clarification from that RBI, whether it would be further extended or not. That's why we have charged that interest at a normal rate in our books of accounts. The third part is of depreciation. In this quarter we have capitalized one of our deferred finance. So that has led to the increase in depreciation.
These costs we should expect at similar levels going forward in the coming quarters as well?
Ma'am, in case if that notification comes, still means there is no clarity. In case if the notification comes about interest subvention, definitely our interest cost would come down. In case if it does not, it would be in a range, in the same range, depending upon that working capital requirement. That depreciation more or less it would remain same for the next financial year also.
Understood. The last question of the CapEx, what is our total CapEx for the 20,000 metric tonnes, and how much of that has been already spent? That's it from my side.
Yeah. Manish?
Yeah. Total, I mean, out of this, total spend till date is about INR 700 crore out of the INR 1,200 crore we talked about. Till date.
Understand. Got it, sir.
Yeah.
Participants, you may press star and one to ask the question. The next question is from the line of Veeral Gandhi from Ninety One. Please go ahead.
Hi. Yeah. Just a question on, I saw that on page 12 of your presentation, there is a -INR 60.64 million crore change in inventory of finished goods, work in progress and stock in trade for the quarter. INR 60.64 million crore. Can you tell me what resulted in that?
Yeah. If you see this change in inventory, you have to see as a total. Means that cost of material consumed plus change in inventory. That has led to that raw material consumption during the quarter. Plus INR 274 crore minus INR 60 crore. We have to see in that way, sir.
Oh, okay. I see. Okay. Brilliant. Thank you. The second question was, so, you know, I could see your share price has come under some pressure recently. Do you have any views on what's resulted in that move downwards in the share price from September last year?
Sir, as far as share price is concerned, we are not that concerned. How that depends upon the market, how the market behaves, how the market perceives all those things. If you see the global concerns of Russia-Ukraine that is going on. We are, I mean, as far as the share price and market is concerned, sir, we will not comment on that. It's industry product.
Okay. Right. The last question is, so you've built up quite a lot of net cash. Given your share price has fallen, would you be interested in doing some buyback?
The question which is subject to that approval of the Board. If you see the past history of our HEG, you see that our payout ratio always remains in the range of 30%-35%. We hope that we will continue with this payout. That is subject to the approval of the Board.
Okay. Thank you.
Thank you. Participants, you may press star and one to ask the question. The next question is from the line of Dewang Sanghavi from ICICI Securities. Please go ahead.
Thank you for the opportunity and, congrats on a good set of numbers. My first question is regarding the industry dynamics. Currently around 25% of the steel produced through the EAF route. With the upcoming capacities in U.S. and Europe and China again talking to go to 20%, can we expect the same to go to 30, 32% in next three, four years? Or do you perceive any headwinds in this regard?
You see, we'll have to split this question into two. I mean, it's very confusing to mix China and not mix China.
Right.
China, until five years ago, was producing only 6%, whereas the rest of the world produced about 47-48% through electric arc furnace. Because China produces more than 52-53% of the world's steel, the total average comes down to 25-26%, as you correctly said. Given the path of decarbonization that every country is pursuing, China announced their plan to go from 6% to 20%. It is huge. I mean, three times more electric arc furnace production in a given period of six to eight years, and they are on the path. Let's segregate China for a minute because we are neither competing with China in India, nor we are competing with China in our export markets.
As Manish has explained, we are not exactly in the same segment of the market. We produce 60%, 70%, 80% of our production of ultra-high power electrodes where China is not our competitor. It is easy to explain and discuss the world of steel without China, which is the other part of the world minus China, where electric arc furnace. That part is increasing. As I just said, in U.S. alone, there is 20 million tonnes of new electric arc furnace capacities, which are already on the ground. Some of them are already on the ground. The constructions have begun. Between now and 2025, they will add another 20 million tonnes. In the last three months alone, Europe has followed, and Europe has announced another 16 million tonnes-17 million tonnes.
Their time period is slightly later. They will start conversion from 2024, 2025 onwards. In total, if you see minus China, without China, the world is adding another 35 million tonnes of steel in the next five to seven years, and half of it is going to be ready in the next three years alone. As the entire world graphite industry is already operating at more or less the entire possible capacity utilization of 90%-92%, it's very difficult to go beyond 90%-92% in our industry. In that backdrop, every new demand which is coming, we, all of us combined, are barely able to meet the full demand of the existing customers in the world, minus China. Every new capacity of electric arc furnace coming adding any more demand for graphite electrodes.
We are preparing ourselves to meet that demand. Luckily, we took this decision at a very opportune time, let's say about two years ago. Again, luckily, somehow we were able to manage. Our plan, which was to complete the expansion and start by October, November, is not really hampered. I mean, we are probably delayed by maybe a month or two, but by end of this year or early next year, latest by November, December, January. Within this year, within the next 2022-2023 financial year, we will be maybe producing some additional quantity in the month of February, March from the expanded capacity to meet this additional demand. Besides that, as I just said, we have made some technological improvements in our existing plant.
Between the part of the expansion being ready before March next year and also 3,000-4,000 tonnes, which we think we can produce, we've already started producing that proportionately in February and March. We will have at least 5,000-6,000 tonnes of additional electrodes to sell between now and next March. Then from March-April onwards next year, the additional 20,000 tonnes. We are very happy that our timing of decision that we took for expansion, we were worried about a year ago because of COVID. With all the new announcements of electric arc furnaces and additional demand coming up, the timing is now matching with the demand for electrodes next year onwards. We will be able to. We don't see any problem in selling whatever we are, we are going to produce in the next two, three years.
Understood. This was to be my concern. My second question is regarding the new capacity. How quickly we can ramp up to, optimum 80, 90%?
You see, this is a very, very difficult question to answer despite a spite of 45- 50 years of experience it's not a very, very. It's not an easy question to answer, even with the huge amount of experience that this company has. I mean, you may just run into some problem at some stage. Hopefully, given the experience and given that we are more or less repeating whatever we have, we have not gone for something which is very, very fancy. We have been handling all these expansions in the last 10 years. We are more or less repeating exactly the same thing. Unless there is a major surprise in store which we can't see today, we don't see much of a problem.
I mean, don't pin me down on a number, but it should be very easy to reach 70%-80% in the first six months itself.
Right. That was helpful. My second question regarding this one-off in the power cost, so it was kind of alluded in the opening comments. What will be compensated then?
What will be what?
There was a one-off in the power cost for the quarter three results, I believe. Power and fuel cost.
Yeah. Manish, why don't you explain that?
Yeah, that was INR 14 crore.
Okay. It was INR 14 crore one-off. Do you expect something like that to come again or is that like done for the time?
No, it was an old matter, some arrears with DISCOM which were reconciled, so it's not something which will reoccur.
It is not recurring in nature. Let's say for this equation, it's recurring.
No, it is not recurring. There was a dispute between us and the SCB. We didn't think that it was the right thing for them to get it, but then at the end of the day, you don't want to fight with anybody.
Yes. Absolutely, absolutely. Thank you, sir, and all the best. Thank you for the answers.
Thanks.
Thank you. I request all the participants, please restrict to two questions per participant. Participants in the press line one, two, ask a question. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Good afternoon, sir, and thanks for taking my question. My first question is on the export composition. Considering the differential energy prices across the globe, are we seeing differential export rates in, say, U.S., EU, and Japan? I think they are the three largest countries in the EAF group. Are you seeing a different export composition country-wise over the last two quarters and the realization thereof?
I don't think there is any major difference between country A or country B. It's a very international product, and most of our competitors have production facilities in U.S. and Europe. Maybe there could be one-off small countries where you can ask for a higher price, but we haven't seen much of a differential pricing between country A and country B.
Is it possible to break down the export composition? I'm not asking exact country, but the region-wise broadly, not like Europe, Japan, Middle East, like that.
What do you, Manish?
See, I would like to put it this way, that if you put, let's say take U.S. and Europe on one side, take Southeast Asia another side, Middle East on another side, I would say it's not more than 5% difference. Not more than that. Timing of order conclusion is also important. Suppose if we have picked an order which lasts for three months and in the middle the price are increasing and an order which is concluded in the third month and goes very well, exported that very month, so you'll see some variations. But across markets, since it's a global marketplace, it's not, I mean, with this, even with this freight we have today, you can virtually reach any country with your product.
It doesn't vary much, provided you're an established player in that market. All things remaining equal. Suppose if we have a special trial price, maybe we want to get into some customer, we may offer some incentive just to give us an opportunity. Other than that, the pricing is stable, this thing. When all things remain equal, our pricing doesn't change from market to market.
Generally speaking, if you really, really pin me down to one country, probably America is the first one to increase the price. That has been more or less a trend, and then rest of the country follow, rest of the world follow.
What is our export share to the U.S. right now? Has it changed meaningfully over the last two, three quarters or one year?
Yeah. I mean, we have our export share in America keeps growing rapidly. Our exports have practically doubled in the last 12 months. We are focusing on America for a very long time, only for the simple reason that while you know the rest of the world minus China produces about 47%-48% of steel through electric arc furnace. In America, this number is about 70%. America being the third largest country or fourth largest country for steel production, 70% of that steel is produced through electric arc furnace. This is by far the single largest consumer of electrode as a country. We have been focusing on America for a very long time.
We did a lot of trials in the last two years with new customers, keeping our expansion in mind. 90% of our trials were very, very successful. On the back of that, our exports have actually doubled in America in the last 12 months. They are again going up by, I mean, at least 40%-50% this year. At least 50% more than last year.
What is the order for total exports here, sir? Is it possible to quantify?
In America?
Similar areas.
America would be what, Manish, at least 12% to.
I would say our export 10%-20%, I would say, sir.
Yeah. 12%-15%. That will be the single largest export.
After the expansion in?
Sorry to interrupt you, sir. I'll request you to come back in the question queue for a follow-up.
No, no. Even after expansion, they will still remain the largest because that's the one country where the biggest expansions of electric arc furnaces are happening.
Thank you. We move on to the next participant. The next question is from the line of Hemant Kumar, Individual Investor. Please go ahead.
Hi. Thanks for the opportunity. I just wanna know, like, the EV business is picking up. I think it’s a year back we discussed that there’s a consultant who’s working on getting the new business and anode is like a kind of 60% of the lithium battery, and that is the business we were planning to look into it and do the right investment or get into the market. What’s any plan on that?
Manish?
See, it is, Hemant, being a carbon and graphite company, and these being kind of related products, we just keep looking at it. At this time, as we speak, there's no plan as such. Maybe it's in the future, we'll certainly let you know. It's a completely different process compared to graphite electrodes. Yes, it is carbon, definitely, but the whole processing and the whole value chain is completely different than graphite electrodes. Of course, EVs are going to grow very fast. From time to time, we consider this, you know, field. We look at it. Right now there's no plan on the table.
Okay. Yeah, I mean, that's the main graphite policy has been approved from the government. We saw like, what I understood from the last call was like it's just a minor tweak. The anodes will get produced from the base product from your, whatever the manufacturer currently it's happening. With Sanjeev facilities, you're gonna have the more capability on your front, yeah.
Yeah, you remember correctly. There was a time when we thought that if there's anything that can be done out of the existing plant, but then having gone into a lot of detail, it emerges that if you really want to make a cutting-edge anode, the processing should be different right from the very beginning.
Okay. Not now because a lot of new plants are coming up in India, planning to invest in India with the EV. There was no, like, request for artificial electrode or it's always goes with the natural electrodes means for the anode.
Oh, you're talking about the different materials which can be used to make an anode. Of course, it started from natural graphite. Of course, natural graphite is limited. It is a mined product. It came to artificial graphite. People thought artificial graphite is also not easy to obtain. Even mesophase pitch, the coal tar -based pitch people came in. The EV people are trying lot of materials. They have substitutes depending upon the right size and the right quality parameters they can obtain. They have an option of two, three different types of materials.
Okay. There is no as such demand for you guys to, like, look it at CDS level and take it an opportunity with them and start doing.
No, not from the electrode plant.
Okay. Thank you.
No, in this electrode plant, I mean, we cannot diversify into anything else. I mean, it's a dedicated graphite electrode plant. You're absolutely right. I mean, it is something of the future. As Manish explained and as we spoke about in the last call, we are looking at a couple of such opportunities. I mean, it's not the opportune time to talk about it yet. Nothing is ready. Nothing is cooked up, let's say. There are lots of things which we are looking at, and it's a matter of time that we'll take some decision and let you know.
Okay. Yeah, because it's been two years and you said, like, there is a professional consultant who's working on and looking at the opportunities, right? So that's why I was thinking-
Yeah, it is, it will come. It will come. Let me assure you, give us some more time.
Okay. Thank you. Thank you very much.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Thanks for the opportunity again. My second question was actually on the expansions we have on the GE space. I understand it's gonna be from a different raw material than needle coke.
No, no, it will not be different. It is, it's the same graphite electrode.
It's a Needle coke-based only.
Yeah.
Given the fact that Needle coke supplies are not increasing globally, do you foresee any issues on the RM side in terms of the new plant?
No, it will not be easy. I mean, let me say, I mean, there's no yes or no answer to this. I mean, we are pretty sure that we'll be able to manage to get this additional tonnage. It's not going to be easy. Nothing is easy. I don't think we should be worried about not being able to run the plant at full capacity because of that. I mean, we have been buying needle coke from five or six different sources for the last 45 years. So obviously before we jumped into this expansion, I mean, we've met them. We have told them our requirements and everything.
It's a matter of just 20,000 tonnes in an ocean of more than 500,000 tonnes that they produce.
In the long run, this is going to be a limiting factor for the industry to grow beyond a point. Is that correct in terms of the GE industry, the availability of RM? To that extent, our future plan. I'm not talking about the short term now. Beyond, say, four, five years when our capacity is utilized fully, we'll have to think of some other revenue stream because this growth is likely to get saturated given the issue on the RM front.
Yeah, you may be right. I mean, if somebody was to invest in a greenfield 50,000, 60,000, 70,000 tonnes of capacity, yes, that will be a constraint. I mean, today, you cannot say so easily that I'm going to spend X. When you're talking of 50,000 tonnes-60,000 tonnes of new greenfield plant, you're not talking of millions of dollars, you're talking of billions of dollars of investment. At that stage, yes, I mean, it'll be an issue. That is one of the reasons why we are not seeing many people talking about putting up a new plant or going for a very large expansion.
Again, I mean, given the experience of electrode building capacity that we have, any new greenfield expansion or any new greenfield plant, a new plant will take minimum of four to five years to build. When you are dealing in a space of steel industry where the fortunes can change very fast, it's not easy for any newcomer or even an existing player to talk about investing billions of dollars in a field where you are taking a view of four years plus.
Yeah. Yeah. Okay. Thank you. Thanks for explaining this.
Thank you very much. The next question is from the line of Siddarth Mohta from Principal India Mutual Fund. Please go ahead. Siddarth, we're unable to hear you. May I request you to unmute your line from your side and go ahead with the question, please.
Hello, now its better?
Yes. Thank you.
Yeah. Sir, good afternoon to you. Sir, this upcoming 20,000 metric tonnes being a brownfield unit, which will have this latest plant and machinery and all the latest equipment. What impact it can have on the manufacturing cost and any rough range on the EBITDA margin or on the spend?
Manish will you answer?
See, first of all, it's not like a brownfield plant. It's almost a greenfield plant. Every shop, every process is different. We are going to be making nipples from that. So the main plant is dedicated towards electrodes. Of course, it'll increase our depreciation costs, but being at the same place is going to actually cause a reduction in our overhead because we are a 100,000-tonne plant at a single location. So that way, we'll economize on the overhead costs. They will come down.
Okay. Sir, I know it's a bit early, but if it is possible to quantify the reduction in that overhead cost and what impact it can have on the margin. Any rough range will be okay, sir.
See, with 80 you're mixing 20 into that. Whatever expense you will be divided in that proportion.
Okay.
Of course, there'll be certain increase because we will still need 100 more people to run that plant. All the other overhead will get amortized over a larger tonnage, which is let's say 25% of what we are today.
Overhead cost, sir, would be what % of our revenue or of our cost roughly?
Gulshan, what exactly is that overheads on our revenue?
No. Sir, it's clear. If you go through the detailed balance sheet now, you can go to and easily calculate that our percentage of fixed cost or overhead cost to that sales revenue.
How much? 10%-12%.
No, you can calculate easily from the detailed balance sheet how much overall cost is proportional to that sales revenue.
Okay. Thank you, sir, and best wishes for upcoming quarters.
Thank you. Ladies and gentlemen, we'll take the last question from the line of Raghav. Please go ahead. Raghav, may I request you to unmute your line from your side and go ahead with the question, please. Raghav, can you hear us? Raghav, can you hear us?
Yeah, I can hear you. Can you guys hear me?
Yeah, yeah, we can hear you.
Okay. Yeah. Thank you for the opportunity, sir. Just wanted to ask that, you earlier said that the Chinese electrodes which were being exported, they are not really competitive with us. I just wanted to understand whether, you know, the technology for them could be upgraded in a manner in which they become competitive with us in the future in the ultra-high power space. You know it from that sort of way, sir, from the standpoint.
No, by saying that they are not competitive, it is not in competitive or non-competitive in terms of cost. It is. We are talking of the quality. Because they don't have the technology, they're not able to produce, let's say, the ultra-high power electrodes, which can be acceptable to an American customer or a European customer. About 80% of the total demand of electrodes in the world is for the UHP. That is at 80% where Chinese are not able to meet the customer's needs.
Okay.
It's a technology issue.
Yeah. There is no way that they could upgrade their technology somehow because, sorry, I'm new to this industry though.
No, I mean, of course. I mean, if you keep trying, you will succeed one day. You need a formal partner with 20, 30, 40 years of experience to back you up and give you the right advice, right people, training, right equipment. It's not very easy. I mean, just because you said you are a new person, let me just tell you. The easiest electrode that we produce takes about six to eight w eeks to produce, and the most difficult product that we produce takes as long as five months to produce. In these two to five months.
Hello?
Participants, please stay connected. Line for Mr. Jhunjhunwala dropped.
Okay.
Ladies and gentlemen, please stay connected. Participants, please stay connected.
Please hold.
Ladies and gentlemen, thank you for your patience. We have the line for Mr. Jhunjhunwala reconnected. Sir, you may go ahead. Mr. Ravi, Sir, can you hear us?
Yeah, I can. I thought the person who was.
Yes, yes.
The last question was asked by Raghav.
Yes, sir. Basically, you explained the five months it takes to for the
Because you said you are new to this industry.
Right.
I explained the technology part. The easiest product takes about two months to produce, and the longest product, the most difficult product takes about five months to produce. Between these two months and five months, there are five very different processes through which these electrodes pass through. If you are handling a product where it takes two months or five months and five distinctly different processes, and by this distinctly different processes, I mean from one shop to second shop to third shop to fourth to fifth. There is no relation between one and two and two and three and three and five. These are very, very different processes. If you are handling a product for as long as two to five months, there are various kinds of complexity. There are different technologies every day that you have to go through.
Unless you have a solid company behind you as a technology partner, it's a trial and error otherwise. That's where the Chinese are lagging. They don't have a credible graphite company behind them.
Understood. That was very helpful, sir. Thank you.
Thank you very much. Mr. Ravi Jhunjhunwala, I now hand the conference to you for closing comments. The line for Mr. Ravi Jhunjhunwala has been disconnected. Ladies and gentlemen, please stay connected. I'll rejoin sir. Ladies and gentlemen, please stay connected while we join Mr. Ravi Jhunjhunwala back to the call. Ladies and gentlemen, thank you for your patience. I'll hand the conference to Mr. Manish Gulati for closing comments.
Yeah. First of all, friends, thank you so much for your time and attending our conference call. I would like to summarize it in this way, that we hold a very positive outlook because of decarbonization efforts going globally, the carbon credits and the shift from blast furnaces to electric arc furnaces. The new electric arc furnaces coming up. We are helping an industry recycle steel. We hold a very positive outlook for electric industry as a whole, and HEG with becoming 100,000-tonne plant, which will be the largest plant in the western world. I think HEG is in the right business and it holds a bright future. We look forward to speaking to you once again with our annual results. Thank you so much.
Thank you very much. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.