Good day, ladies and gentlemen. Welcome to the HEG Limited's Q1 FY 'twenty two 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. Note that this conference is being recorded. I now hand the conference over to Mr.
Navin Nagarwal, Head Institutional Equities at SKP Securities Limited. Thank you and over to you sir.
Good afternoon, ladies and gentlemen. It is my pleasure to welcome you on behalf of ATG Limited and SKP Securities to this financial results conference call with the leadership team at ATG Limited. We have with us Mr. Ravi Junjunwala, Chairman, Managing Director and CEO of HEG Limited along with his colleagues, Mr. Manish Gulati, Executive Director Mr.
Umtaka Shagmera, Group CFO and Mr. Pulsant Kumar Sakhuja, CFO. We'll have the opening remarks from Mr. Junjunwala followed by a Q and A session. Over to you, Mr.
Junjunwala. Thank you.
Good afternoon, Navin, and good afternoon, friends, and welcome to our Q1 financial year 2020 phone call. In comparison with last quarter's results, HEB's performance this quarter was stronger, supported by improved global steel sector growth, which resulted in increase in demand for graphite electrodes and firming up of prices. As per the recent data released by World Steel Association, global crude steel production between January June surpassed a little over 1,000,000 tonnes for the calendar year 21 for 6 months, which was up by a strong 14% compared to 2020. Steel production ex China was up about 18% and while China increased by 11% compared to 2020. Friends, this is probably after a very, very long time that the rest of the world's steel production has grown more than China.
Just this morning, we got the July data of Chinese steel production, which shows a further fall of about 8% compared to June. Again, after a very long time that we see a reduction in Chinese steel production month on month. Chinese government continues to discourage export of steel to other parts of the world. To this effect, in addition to removing a 13% VAT rebate for exports, which they have already implemented from 1st July, we are seriously mulling over a proposal to put an export duty on steel exports. As you are all aware, any reduction in exports of steel from China helps the other part of the rest of the world, which incidentally produces about 47% to 48% of its total steel through electric arc furnace, which is our customer base.
The Chinese government continues to put in place stringent environmental measures to limit countries' carbon emission levels, which is directly supporting electric arc furnace capacity to replace polluting glass furnace capacity. Electric arc furnace still constitutes only 12% of Chinese steel production, which is two times of what it used to be in 2016 and which as per the Chinese government's announcement is likely to be around 20% by 2025. Again, this has to be seen in the backdrop where the rest of the world even today produces about 47% of their steel through electric car furnace. And especially in U. S, we are seeing a very strong growth where between 12,000,000 to 15,000,000 tonnes of additional new electric arc furnaces are under construction and most of them are likely to be ready by end of next calendar year.
Now, coming to India. As per WSA, Indian crude steel production registered a growth of about 31% in the 1st 6 months, January, June, comparing with the same period last year when steel production was obviously at a record low level due to nationwide lockdown because of COVID. India continues to maintain its position as the 2nd largest producer of steel in the world after China. Despite the 2nd wave of COVID-nineteen, the Indian steel industry performed exceptionally well and has been operating at a very high capacity utilization level and has yielded record margins in the last couple of quarters. Steel prices in India and worldwide are at record high levels and are expected to continue to remain strong, driven by robust demand and also driven by a reduction of Chinese steel exports to the rest of the world.
In this backdrop, growth globally and global efforts will reduce carbon emissions coupled with increased scrap generation in China. We believe that the electric arc furnace steel production in the world will grow at a CAGR of anywhere between 3% to 5% in the medium run, driving the ultra high power electrode demand. The electrode prices improved for both UHP and non UHP grades in Q1 'twenty one, 'twenty two, And we expect them to strengthen in the coming quarters due to robust demand arising from the increased steel production through EAF. In fact, in the last quarter, we have seen a level the 1st 6 months annual level of about 105,000,000 tonnes of electric arc furnace production on a pro rata basis for the quarter, which is more or less what we had seen at the highest level of 2017, 2018. NeedleCo prices are also rising in line with the electrode prices.
However, our entire old high cost inventories, coke for electrodes and needle coke are totally over now, and we look forward to improved operating margins during the rest of the quarter for the current year. Friends, our expansion to increase capacities from 80,000 tonnes to 100,000 tonnes is going on at full steam and we are confident of completing it by end of 2022 and be ready with commercial production from early 2023. This will increase our capacity to 100,000 tonnes under one roof, which would be around 35% to 40% higher than the next largest market. And as you are aware, any capacity expansions, even brownfield, does take a very long time in our business. And until now, we have not heard anyone else announcing any capacity enhancements in the short term.
I will now hand over the floor to CFO, Gulshan, to take you through the financial numbers and then we will all be very happy to answer any queries that you may have. Over to Gulshan.
Thank you, sir. Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the quarter ended 30th June 2021. For the quarter ended June 2021, HGG recorded a revenue from operations of INR 4.1 4 crores as against INR 380 crores in the previous quarter and INR 233 crores in the corresponding quarter of the last financial year. EBITDA including other income stood at INR 94 crores in the quarter as against INR 20 crores in the previous quarter and INR 35 crores in the corresponding quarter of the last financial year.
The company recorded a net profit after tax of INR 55.8 crores in the quarter as against a loss of INR 6.8 crores in the previous quarter and a profit of INR 10.76 crores in the corresponding quarter of the last financial year. Further, the Company, in accordance with the amended provisions of corporate social responsibility, which mandates incurring of 2% of the average profit of 3 financial years have incurred expenditures amounting to INR 6.15 crores during the quarter ended 30 June 2021 and INR 34.85 crores during the quarter ended 31 March 2021 and INR 41.86 crores during the financial year ended 31st March 2021, which has been included under the other expenses in the published results. The company is eligible for various export incentives on the export made. The Central Government of India had announced a new scheme of remission of duties and taxes on export products, which has replaced the existing MEIS scheme with effect from 1 Jan, 2021. As the rates under ROD TEP have not been announced till date, the income on account of export incentives under the new scheme has not been recognized for the quarter ended 31 March 2021 30 June 2021.
Now moving towards expansion, our Chairman had just said the same is going on in full swing. There was a few months delay ahead due to COVID and we expect the expansion project to be completed in the quarter October to December 2022, 2022 and we will be ready with a commercial production from early 2023. The company is a long term debt free and having a treasury size of approximately 50 Lirasco as on 30 June 2021. Now we would now like to address any questions or queries you have in your mind. Thank you.
Now over to Yaniv.
Thank you very much. Ladies and gentlemen, we will now begin the question The first question is from the line of Sonali Silgokar from Jefferies. Please go ahead.
So thank you for the opportunity and thank you for the detailed initial commentary. So my first question is again regarding to the global update in electrode sector. If you could just update us on the supply side. So you talked about the demand side, but on the supply side, especially the smaller players which had mushroomed in China. What is the update on the supply on that front, sir?
You see, Sonali, while Manish will give you a detailed answer, I mean, they have been explaining this in the past also that we do compete with China in about 30%, 35% of our production, which is called non ultra high power. But when it comes to the rest of our production, which is 65%, 70%, we still don't compete with them and we don't see them in the world market where we are exporting our UHP. And again, even in the non UHP that China is a player, there are several countries where there have been very substantial antidumping duties. And they've not been there for it's not a very new development, they have been there in some of these countries for a long time. U.
S. Has been having it for last maybe 5, 6 years. And we have information that EU has initiated the same very recently in the last 3, 4 months. So there again, and we all know the China plus 1 and anti China feeling that we particularly have currently. So even in that sector where we do compete with China, which is about 1 third of our production, we see we don't see that threat really, very seriously.
Manish, if you want to add anything. Yes, sir. I just wanted to add here, sir, that all the Sonali, all the Western producers, if you take the Shovadenco and then the GrafTech and the Tokai, none of them are increasing capacity. On the contrary, Shovadenco just closed their plant in mining and affecting their capacity to the extent of 40,000 tonnes. So the main Western producers, which includes Showa Denko, Grabside, the 2 small Japanese and our Indian competitors, none of them is increasing capacity.
And because of which, the capacity utilizations, because of increase in demand, which were about 65% as an industry, the Western liquid industry, is now moving up to 80 more than 80%, around 80% to 83% is what is going to be the global electric industry capacity utilization. And that is how we see the farthing of prices because the demand is increasing and everybody's capacity utilization is going up. And once they reach their 80s level, 80 level, the prices start to form up. And the other part, Chairman, Mr. Jugal has already explained And as I just mentioned, China, while the rest of the world produced about 47% of its steel through PAS, until 4 years ago, China was at 6% and now they have doubled to 12%.
And they want to reach about 20% by 2025. And 6% going to 25% is almost like more than a 4 times increase. And you have to keep that in mind when you're talking about 4 times, you're talking about a country like China where the percentages are very misleading. The base number is already so high that 50,000,000 tonnes of electro tarp burners, which they were doing about 4 years ago, is currently at about 110,000,000 and this is likely to be 200,000,000. So, they themselves will require a huge amount of electrodes for their own consumption.
And again, most of it is non UHV.
Thank you, sir. We just had Sonali Sulkar, who's line disconnected. I'll join her back. Ma'am, you may go ahead with your questions.
Yes. Thank you, sir. So my second question is regarding the pricing of electrodes. Sir, if you could help us with the approximate quantum of price increase that we have seen in Q1 FY 2022?
Madish? Sir, I would say it was somewhere between, if you ask a specific number, between 15% to 20% is what we have seen between Q4 and Q1.
Understand, sir. And going forward, we are optimistic about the outlook for this because of the demand centers opening up, right?
Yes. Yes.
But thirdly, on the navy coke, we mentioned that we have liquidated majority of our higher cost navy coke inventory in Q1. So going forward, should we expect to get the benefit of the lower cost inventory?
Yes, that's right. That will be helpful in improving the margins, yes.
Understand. So, but the medium coke, is it growing in tandem with the electrodes, the prices?
It is the prices still are enough electrode prices to protect the margin. But yes, they are also growing quarter by quarter. As electrode prices improve quarter by quarter, the needle prices are also increasing quarter by quarter. But since we are out of that high cost issue, if we were carrying for last 6 quarters. So now at least we should have a decent operating margin covering after considering the hike in needle coke prices.
Got it, sir. So what was the capacity utilization in Q1 of our granular?
Now more than 85%.
Okay. And even right now, as we speak in July August, sir, it's still sustaining at 80% -plus level?
Yes. It still continues to be more than 85%.
Got it, sir. So lastly, our other non operating income has declined materially on a y o y basis, almost half year on year. So how should we look at it? And should we expect that to normalize over the coming quarters?
Yes. Then, Gulshan will just take it over and explain.
Yes. So, So, Nani, if you see this other income on quarter on quarter basis, it is coming INR 22 crores as a new INR 25 crores in the last quarter. This is on account of that if you see in the market scenario, the rate of interest is going down and vis a vis that the income from the investment, the trading size that we have been maintaining in our books of accounts. That is also getting reduced over a period of time. That's why I said, Chita, on 25% to 24%, the reduction is on account of lower rate of interest on our treasury.
This is on account of that ratio.
And secondly, Sonali, you have to keep in mind this INR1200 crore expansion that we are doing. It's all for maternal approvals. So obviously, as it comes to a close, we keep reducing the treasury.
Yes, sir. Got it. And last question from my side. So you gave an update on the timelines of the CapEx. Any change in the expected outlay in FY 2022?
So I guess you had mentioned about rupees of the 12,000,000,000 about 5,600,000,000 outlay in FY 2022 and the rest in FY 2023 2024. Is that are we maintaining this?
Yes, I think 5 years. Yes, there is no change in the outlook.
Got it, sir. That's it from my side. Thank you.
Thank you. The next question is from the line of Saket Kapoor from Kapoor and Company. Please go ahead.
Namaskar, Ravi Shah, and thank you for the opportunity. Sir, firstly, sir, can you repeat the China production number, sir, month on month, which you articulated in your opening remarks for the month of June July, the steel production number?
We got this data only this morning, which suggests drop of about 8% steel production compared to June. The figure is for July, 8% below in July compared to June.
Month on month, 8% reduction there.
Yes. If you remember, if you have been tracking, I mean, they imposed certain restrictions, which commenced on 1st July. They removed the VAT, 13% VAT on export of steel. So obviously to that extent the export of steel must have come down. And secondly, they are also contemplating very seriously putting up an export duty.
So, going forward, we think that to the extent that their exports will come down substantially, there will be some correction in their own production also. And again, to remind you, every drop of export of steel from China to rest of the world helps our industry tremendously because 47% of that steel is produced through the electric arc furnace in the rest of the world.
Right. But
if we take entire China volume, what percentage is through the AF Group and how much is from the blast furnace?
China in 2016 was only 5% against world's 47%. And today? And that is where they started focusing so much on the carbon emissions. I'm just taking out of the context, but it's a published data, so nothing to hide there. Glass furnace steel industry constitutes the single largest industry polluter in China.
So that one particular sector of glass furnace constitutes as much as 18% of industrial pollution in China. So if one particular industry is as much as 18% of pollution And the numbers in China are like the same kinds of India or the whole world on one side and China on one side, at least on the steel. So that has created a lot of human cry in China about the pollution. And that is where they took some very drastic steps by closing down about 150,000,000 tons of glass furnaces in 2017, 2018. And with the results, their exports drastically came down to half from about 120,000,000 tons to 55,000,000 tons, 60,000,000 tons.
And as I said just now, any drop of Chinese steel outside of China helps the other part of the world to produce more steel. And they produce close to 50% through electric arc furnace. So, that is how the electrode demand shot up 2, 3 years ago. And this is what we are seeing right now because now China is going 1 step ahead and
they have
removed that refund of 13%. On top of that, there is a likelihood of putting up an export duty.
So, current mix is 50% from AF crude and 50% from the blast furnace with the reduction in the blast furnace capacity. This is
what we can find out. No, 47%, I'm talking about the rest of the world, not China. China even today is only 12%, 13%, which is likely to go to 25% by 2025.
And the current demand is from the European stream manufacturer. There, I think, so the EAF route has the highest percentage.
Yes. All the rest of the world minus China produces 47%. Okay. U. S.
Is about 70%, 75%, EU is about 40%, 45% and the whole world is about 47%.
Right. And so, this carbon emission part of the story, there is also some carbon tax that has been calculated in the steel trade in the European nations, all these are the positive factors for the EF routes to gain traction?
Absolutely. And these carbon taxes are now coming in vogue and they'll become they're getting more and more expensive by the day.
Right. And these taxes are pertaining to the steel manufacturers that are coming with the blast furnace only or for the EF2 also there are some percentage I think?
See, every industry has some pollution issues. We are really comparing glass furnace versus electric arc furnace. So, it's a static fact that for each ton of steel that you produce through the glass furnace, you're polluting that atmosphere by about 4 times. So the same ton of steel through electric arc furnace, let's say, if it is 1, the blast furnace is about 4.
Correct. Sir, coming to our story now, our export mix is I mean, 65% is export and 35% is domestic. So domestically, sir, I think so Tata BSL and SR Steel are the only 2 main buyers of EAF group, I mean, our electrodes or other players also?
No. In addition to these 2, you forgot the 3 generals, JSW, JCL and JSL. Right, sir. I was
thinking the GSL from the steel material part of the so if the requirement of in steel manufacturing to the scrap wood which GSL is being industrial, what how is that requirement differ, sir, from the same to go for carbon steel and stainless steel or 10 requirement?
Manish, will you answer that? Yes. See, stainless steel is about 1,000,000 tonne production and we are talking about the India total production of more than 100,000,000 tons. So stainless steel is a niche product, but the main demand of steel is from the carbon steel which is used for construction. So that is where and also then again automotive.
Stainless steel is a very small portion even worldwide. I can tell you the worldwide capacity of Rolut stainless steel making is about 50,000,000 tonnes. And 1,000,000 tonnes is in India, which is the general stainless, that's one too small, this thing. So the main demand for graphite electrodes and all this comes from the non stainless steel. Stainless steel is a very small segment, just like special alloy steel that.
I was only looking for what is the proportion required in their steel making process.
See, in their steel making process, they have to use stainless steel scrap. But the others use a variety of the TRIs, normal carbon scrap, etcetera.
I'm talking about our electrode consumption in proportionate to stainless steel and the carbon steel. So if you could give me the perception?
Yes. Sure, sure, sure, sure. I can provide that. See, our if you let's say, about 10%, I would say, would go of our electrode business would come from the stainless steel, not only that we have some customer like general stainless in India, and we have a couple of customers, 1 in Spain, 1 in U. S.
So we are catering to the stainless steel segment. But let's say, out of our total volumes, if I make a rough estimate, it would be 10% or less than 10%.
Yes, I'll come in the queue. Absolutely, Mahesh.
We take the next question from the line of Asit Moli from Wellington Management. Please go ahead. We've just lost the line for the current participant, Mr. Moli. We will take the question back from Mr.
Saket Kapoor from Kapoor and Company. Over to you, sir.
Yes. Thank you. Sir, I was coming to the raw material basket, sir. If you take this, our raw material basket, what percentage goes to the needle coke, sir? And if you could give the current environment for needle coke production and new capacities that are in the anvil and the geographies where they are expected?
Can I answer this? Yes, yes. Yes. See, if you look at the main needle coke suppliers in the world, which is Philips XC, say, Samitsubishi, Sumitomo, main needle coke suppliers, but there are coal tar based pitch plants, its coke plants coming up in China. And that is to support their own electrode industry because where are they going to get the coke from.
So eventually, the petroleum based needle coke is limited both by supply, by technology. And so the next best substitute or not exactly a substitute, but a poorer substitute is coal tar based pitch needle coke.
Sir, I didn't get the large portion.
Okay. So I was saying that the main producers, the names I said, are not we have not heard from them doing any capacity additions. But whatever capacity of the needle coke which you listen is coming from China. And I should specify that all the plants which are coming up in China are in the 3 companies. Most of them are coal tar based pitch needle coke.
It's not petroleum based needle coke, which you can use for the higher diameter, the large diameter UHP vectors. So what I'm saying is the capacity additions in needle pitch coke, which is happening in China, is to cater to their own increasing demand for electrodes. So they will be it's like a captive, they will be using those pitch coke for making graphite electrodes in China.
Okay. So with our expanded capacity, 20,000 tons, which will come up in next financial year, I think there are 23, so how is our raw material requirement going to get secured? And what is the ratio, sir, to then to CSA for 1 tonne of electrodes? How much of medium scope is required?
See, that is 1 on 1. You can just assume because there are other things also which go into it. But eventually, if you take the raw material to the last finished product, the relationship is 1 on 1. So 1 tonne of needle coke makes 1 tonne of electrodes. That is the thumb rule.
Rule. So for the expanded capacity, we will be securing that?
Yes, yes. We'll have to secure. Otherwise, how are we going to make electrodes? So it is a global marketplace. It is the same with every company.
The way they will source it, the same way we will source it. And we have been 50 years in the we're going to be 50 years in the business. So we have ongoing relationship with all the navy coke suppliers in the world. So, yes, it will be we don't see any problem, I mean, just with everybody.
Yes, right. It's 85% for 10%.
I would have
I would have finished my question. And anyway, I will come back to you.
Thank you, sir. We take the next question from the line of Alvin Mouni from Valentin Management. Please go ahead.
Yes. Hi. Good afternoon. So I read an SD article that talked about the announced capacity expansion in China and there have been 18 blast furnace capacity announcements while there will be 43 coal fired power plants. That coal fired power plant capacity announced to 35,000,000 tonnes.
So when you think about, let's say, 2025 and growing capacity to, let's say, 20 percent to 25% of DEF. How do you see these shorter term kind of data points? And how would you interpret them?
See, the long term trend is very, very clearly towards electric arc furnaces because glass furnaces are such a big polluter and 18% of the pollution in China is coming only from the steel industry. So they have to control it. Now you I'm sure if you have seen this news that China is trying to make only as much steel in 2021 as they have made in the last year. And they have made a proportion that 1,500,000 tonnes should close down to have 1,000,000 tonne of new capacity. So these kind of data points which you are mentioning that you heard that some new blast furnaces have come up are actually I would call them an aberration because the way China works, I mean, the way they still for years years, they could have gradually gravitated towards electric arc furnace, but they are now slowly doing it.
And every year, they sound more and more serious about it because it's becoming a problem for them. So this year, they will say they have put a clamp down on production, that 2021 production should be equal to 2020. But if you see the 1st 7 months, Jan to July, they've grown by 8%, which clearly means that in the next 4 months, they have to actually clamp down and bring it down. And July was the 1st month, then actually they were 8% down. They were 8%.
I will just if you're interested in checkers, I can tell you that the July output, actually they forced to be down by 8% versus June on production controls.
Understood. Thank you so much.
Thank you. The next question is from the line of Vishal Chandak from DAMP Capital. Please go ahead.
Hi. Thank you very much
for the opportunity. So my question is with respect to Exelisarm Services. The change in regulation regarding the app I am
sorry, Chuntra. May I please request you to speak a bit louder? Your question is now clearly audible.
Is it okay now?
Yes, sir. Thank you. Please continue.
Sure. So my question was with respect to availability of scrap for electric arc furnaces. Given the change in rules regarding scrap procurement in China that have been relaxed. So a lot of scrap is getting diverted to China. So do you see that as a threat to the long term sourcing of scrap for electric arc furnaces in the Western world?
See, right now, this is all these steps are actually positive. See, why they have done away with the duty on import of scrap, etcetera, is just to support the electric arc furnace industry there. But if you look at their statistics, their own scrap generation is now going to go up by 300,000,000, it's going to reach a level of 300,000,000 metric tons and that will be at 2025. So that is the time they will they are trying to make their year production also at 20%. So it's actually a positive when you say and electric car furnaces are that way depending upon country to country and depending upon availability of scrap, electric car furnaces have the capability to use direct reduced iron, which is DRI.
And still electric arc furnace are still much less polluting than the blast furnace. So this the balancing of scrap versus the electric arc furnace steel production will happen in only this way. Right now China is trying to promote electric arc furnaces, so they abolish the duties on scrap because they want more scrap to come in. But that will not choke the rest of the world on scrap because their own scrap generation is rising rapidly year after
year. Sure. Thank you.
So, Vishal, there is a study there are lots of studies and it sounds it doesn't sound normal to somebody like people like us living in India, but there are studies which say that it takes about 50 years for a country to grow to a stage where to start pulling down their buildings. So they are saying that early '80s was the time when China really started to become industrious and the new Beijing, the new Guangzhou and the new Shanghai got built. So, it takes about 50 years 40 to 50 years before you start pulling down all those buildings because they are no more considered to be safe. So, that is how 2025, 2030 year comes in that by that time, they will have a totally new Beijing, they will have a totally new Shanghai. So, all the new buildings, everything that you see that you've been seeing in the last 20 years will be pulled down and there will be a totally new Shanghai.
This is what happened in New York and Washington and all these large countries in the world. But again, I mean, DRI is a substitute. I mean, until the time you don't have enough scrap, you depend upon the DRI. Right,
sir. So what this essentially can also mean is that once you see a huge influx of scrap, the Chinese government would be planning to set up larger electric arc furnace compared to those 500,000, quarter 1,000,000 furnaces that they are setting up right now because that kind of scrap is getting
No, they are already putting in 2,000,000, 3,000,000 tonne scraps, I mean, the electric arc furnaces. Just like anybody, just like what you have in U. S. And Europe and India.
Yes. Got it. Thank you. Thank you very much.
Thank you. The next question is from the line of Sabina Gharwal from SKT Securities. Please go ahead.
Hi, Ravi. Okay, there are a couple of questions. The proportion of navy coke that's used for graphite electrodes and lithium ion, can this expand? Because the navy coke to GE ratio has been in between 2 to 2.25:one. So can this expand for lithium ion batteries and GEs?
No, I'll give you both answers. I mean the cork that goes to lithium ion is not the same cork which goes to the graphite industry. So, the companies who are making nickel coke in the world, the 4, 5 companies, they don't produce for them, these are 2 different products, produced at 2 different places. And you said the ratio is 2.25. What was that?
Sorry, I didn't get that. The ratio for needle coke to GE is?
It's 1 to 1, as Manish just said. 1 to 1. You need 1 tonne of coke to produce 1 tonne of electrodes.
Okay. And if you can give us some idea on the pricing for the next couple of quarters for graphite electrodes? I know this is something that we normally don't look at.
We can't give the numbers, but all we can say is that the previous quarter prices were about 15%, 20% higher and the current quarters are also higher. I mean, let's say, more or less in the same proportion.
Okay. I'll just come back in case I have another question. Janice, please go ahead. Take the others. Sure.
Thanks. The next question is from Mr. Go ahead.
Yes. Thank you, sir. Sir, I was speaking about this raw material basket. So if you could give the breakup between needle coke and other component which constitute the raw material basket for us?
See, Nickelode by far is the largest. The second largest cost is power, electrical power.
Okay, sir. But that is getting in the power and fuel or in the cost of material consumed?
Yes.
So power and fuel goes into the cost of material consumed, 1.60 is majoritably contributed by the needle coke only. P.
Vijay Kumar:]
It's a
little higher, sir.
But other raw material also. P.
Vijay Kumar:] No, it's a little higher.
P. Vijay Kumar:] No, it's a little higher, sir. P. Vijay Kumar:] No, it's a little higher, sir. P.
Vijay Kumar:] No, it's a little higher, sir. P. Vijay Kumar:] No, it's
a little higher, sir. P. Vijay Kumar:]
Okay. And what has been the price trend, sir? As you have seen the 15% to 20% increase in the price of electrodes, how have the prices of needle coke behave?
P. Vijay Kumar:] These two things go hand in hand. I mean, more or less, you see the same kind of financiers. When the electrode prices go up, the needle prices also go up more or less in that same region. But of course, the two bases are very different.
2? Didn't get
so. The base level price is very different when you start from there.
Right. And sir, as per our order bookings, we are back to back securing the Nirulco requirement. So the spread will be maintained going forward for the coming quarter also?
Yes. So coming quarter and the next couple of quarters, yes. I mean, but it's a very difficult question to answer because you can never match the 2. You can imagine all that we are importing all the raw materials. So you're not importing something today that you're going to deliver in September or August.
What we are buying today will be delivered, will be received, produced and delivered in October, November, December. So it's very difficult to match the 2. I mean, the prices of hope today can be x. But once we receive it from UK, Japan and U. S.
And produce electrode and send it back to U. S, Europe and Japan, it's a matter of 4, 5 months. So obviously, I mean, there is a time lag between them. So everybody is taking a risk of that time. But yes, to the extent possible, you want to match.
Okay. And we have also seen for this quarter the employee cost also going down, although on a base of chasing cost, now 18 crore. So what should be the annual trend, sorry?
Yes. Manish? Yes. See, the Rom, we did a wage settlement due to which you have seen some increase because the majority of the wage settlement with workers closed in the 1st year. So that is one listing.
And we have made provisions also for CMD commissions, etcetera. And this year, we gave increment also. Last year, we did not give any increment because the company was not doing good. So but still, if you look at our last 5, 6 year data, it is one of the it's going to be one of the lowest numbers still this year in 2021, 2022.
Sir, out of the breakup of investment of INR 1607 crores, what portion is accumulated towards Bilbara Energy? And is there any update with the change in policy towards with the hydro electricity generation or any change in the stance of government where we can look for diversing this stake or any update or you might be shared?
One thing I would like to say, INR 1500 crores does not include that investment of INR 300 crores that we had with the Himba Energy. This INR 1500 crores are complete trading price of equity that we have invested in a different purpose in the debt market. And it does not include the investment of RMB254 of remuneration.
Sir, any update on the same, sir, of monetizing that or any change in the policy that we are expecting going forward? And anything material on it? And how has been the performance of
the power plant there? Perfect, Karim. At the current moment, we are not even thinking about that. It's investment, it's a great sector to be in. I mean, when the coal prices are will keep going up and when the valve prices keep going up, I mean, the hydro, as you know, once you have prepaid your deck, cost of production is very, very marginal.
So it's a great investment to be in HIFO.
And sir, currently what is our ownership in the company?
It's 49%.
49%. 49%. Yes. And the remaining is being held by 5% by IFC World Bank and rest of the equity is owned by some other companies. Okay, sir.
Thank you, sir, for answering that. It's a one hypothetical question, what it actually takes us to set up this needle coke facility, Manay. We have been in this business for such a long time. And what it takes to be integrated in that form to set up needle coke, the type of investment and the raw material input for the sale, if you could indulge on it? That's the last question.
You see, what it takes the main thing what it takes is the technology. And there are only 3, 4 players in the world, and the world has not seen any additional players in the last 40, 50 years. It's exactly like graphite. I mean, it doesn't take I mean, anybody can put a $1,000,000,000 or $2,000,000 investment and put a graphite plant. But the issue is not about the money, issue is about the reliability of technology.
Like, AGG was the last absolutely the last new entrant in the graphite business, let's say 50 years it's exactly 50 years ago. We came in this business in 1976. So it's exactly the same story. I mean the technology is very scarce and it is in the hands of only 3, 4 companies. And so and it's not easy to copy that technology.
But does it make any kind of a significant sense for you when you are expanding capacity and when the world is moving towards EA approved to have some sort of capacity done in the country with the existing players so that a win win situation can be established between the producer and the consumer? Can something in that line be contemplated with the change of stance in the steel production because of this carbon emissions cropping up all across the globe?
No. As I said, everybody will be very, very keen to do that. Every graphite company would be very keen to have backward integration. But the question is, where do you get the know how from?
I'm talking about the existing pair, collaborating with the existing pair. Have anything carved out that it will improve our metrics going forward? And would be also a win situation for the producer? P.
Vijay Kumar:] 1 of the 3, 4 companies in the world are prepared to even talk about it. That's what I'm saying. I mean, it's like a graphite business. I mean, we are not interested to give this know how to anybody else. It's exactly the same story.
Correct. Okay. Thank you for all the answers, sir, and thank you for the opening remarks that was commenting on the stream and the guidance.
Thank you. The next question is from the line of Arvind Mouni from Wellington Management. Please go ahead.
Yes. Hi. Based on commentary from other countries exporting from India and iron markets, shipping seems to be a very big challenge both in terms of availability as well as high freight rates. How are you dealing with that? And has it kind of impacted your business?
Or is there a chance of any impact going forward with maybe tighter capacity continuing?
We continue to face this shortage of containers. And I mean, it's the whole world is grappling with it. It's not just and it is definitely hurting the export community. To us, at least the value of goods are much higher than the freight we pay. But for lower value of goods, it is catastrophic what is happening.
The freights to some of the sectors, mainly, I would say, Americas, the U. S, Canada, Mexico and Europe. From India, they've increased manyfold. Like they've gone 2 times, three times. There's no stopping where they're going.
The rates from India to Southeast Asian countries and Middle East are still subdued. So 10% to 15% increase quarter on quarter. So we are struggling with this and we hope we are talking to shipping lines and they say this situation will last at least until the end of the year because the trade routes have become completely skewed from there's a lot of containers are available between China and U. S. And for the rest of the world is struggling to get them.
So it was a doubling of the COVID and the pent up demand after COVID, the trade gets skewed. And also mergers of some major shipping lines have also contributed to this. But this is not a normal situation as the shipping line say. The price will eventually in the we'll have to bear with this 1 or 2 more quarters and they'll start to cool down. That's what we think.
But today, yes, it's a huge issue arranging the data even.
Do you bill your customers in a
FOB or CIF basis?
No. The customers have to be given FOB just like the ATV buys all the raw materials and we calculate what we get on our factory door. So for us, if we are supplying to U. S, I have to go by the market because there are internal suppliers sitting there. If I, let's say, add $200, $300 freight cost onto them, I'll immediately lose.
In Europe, they have so many graphic plants. So I get these costs, everything up or down is on us. The advantage is on us. The disadvantage is also on us in exports. For the consumer, it is the landed price at the factory.
Understood. And inventory levels at this point in time in, let's say, June, July, August, you find are reasonable of end product. We are not paying any product at
at our works or in the supply chain or with customers?
No, at your company.
At the record low levels, I would say. Record low levels of inventory. Less than a month, I mean the electrode are just getting made and getting shipped.
Thank you very much.
Thank you.
Thank you. The next question is from the line of Navin Nagar from SKP Securities. Please go ahead.
Apologies, Navinji, for not being clear with my last question. The question was on with regard to the cost price basis. So currently, the needy coke to graphite electrode ratio is about 2.5:one. Going forward, can you expect this to expand or contract?
2.5 is to 1. I mean, I think from it, do you mean like Millico being 30% of our product cost, 75% of our product cost? Is that what you mean you're dividing that by this to 1? 100%. Historically, I think this is the stays there.
Historically, this way that D2Go comprises 30% to 35% of the product cost barring this ups and downs, market up and down, which come in between sometimes like we saw in the last 6 quarters. That's where the balance changes. Otherwise, it stays in a stable market, 30% to 35% is our needle co cost.
So only if there's a deviation, it would be in the short term. Otherwise, more or less, it would continue to build this bank.
Yes, yes. So it's Nelico and then the power and then the other things.
Thank you,
Thank you. Ladies and gentlemen, thank you very much. That was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Jijun Wala for his closing remarks.
Over to you, sir.
Thank you, everyone, for your serious interest in pursuing with us for every quarter. And I hope to meet you and to come out with some better results compared to what you are seeing right now. We look forward to seeing you again.
Thank you very much. On behalf of SKP Securities, this concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.
Thank you.