Ladies and gentlemen, welcome to HEG Limited's Q3 FY 2025 result conference call organized by SKP Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and you will be able to ask questions after management's opening remarks. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head of Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. I'm pleased to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director, and CEO, and Mr. Riju Jhunjhunwala, Vice Chairman, along with their colleagues, Mr. Manish Gulati, Executive Director, Mr. Om Prakash Ajmera, Group CFO, Mr. Ravi Tripathi, CFO, and Mr. Puneet Anand, CSO. We'll have the opening remarks from Mr. Jhunjhunwala followed by a Q&A session. Thank you, and over to you, Ravi.
Thanks. Thanks. Good afternoon, and welcome to our financial results conference call for the third quarter, 2024-25. Global crude steel production for the full calendar year 2024 totaled about 1,883 million tons, making a 0.8% decline from 2023. However, excluding China, the world production reached 878 million tons, showing a very insignificant small growth of 0.2% as per the recent data published by the World Steel Association. Steel production across major regions saw some mixed results, while U.S., Japan, Korea, and Russia dropped between 2.5%-7%. Mexico declined by 16.5%. On the other hand, India continued its growth trajectory, with production rising by 6.3% to close to 150 million tons, supported by robust infrastructure and a strong automotive sector. Germany and Turkey posted a positive gain of 5.2% and 9.4%.
Meanwhile, China, who by far is the world's single largest steel producer, saw a decline of 1.7%, producing 1.005 billion tons in 2024. However, Chinese steel exports surged in 2024 due to a slowdown in domestic demand there, reaching 111 million tons, which is the highest in the past eight years, which obviously results in a reduction of steel production in all other parts of the world except China, which has a direct bearing on the graphite electrode demand in the markets we serve. Having stabilized our plant operations post-expansion to 100,000 tons, we were still able to operate our plant at about 80% capacity utilization, with a base level of 100,000 tons, which was 81% last year, 2023-2024, for the first three quarters at a capacity of 80,000 tons.
So practically, what I'm saying is our capacity utilization remains 80% at 100,000 tons versus 80% at 80,000 tons, which used to be one year ago. From all available public data available, we can safely say this is by far the highest capacity utilization amongst all the graphite electrodes companies in the Western world. Electrode pricing remains under pressure due to subdued demand, while needle coke prices have been stable for the past two-to-three quarters, which obviously results in a narrowing of profit spread. However, we believe that we remain the lowest cost producer in the world, or a little bit better even after expansion. Despite near-term challenges, we remain highly optimistic about our industry's medium-to-long-term outlook. The decarbonization shift is irreversible, and we are closely tracking hundreds of projects all over the world who are coming up with new greenfield electric arc furnaces worldwide.
While margins may remain under pressure in coming quarters, in our view, we should start seeing a demand recovery in the second half of the current year with some new capacities of electric arc furnaces coming into operation in different geographies of the world. And as you know, we have been exporting about 2/3 of our production to more than 30 countries for a long time, and we believe that we are fairly well positioned to capitalize on this increased demand. As you may have seen, some of our peer group companies in the Western world have recently announced a price increase for the new orders in the region of 15%-20%, and we do hope prices will start improving gradually as the current price levels are not sustainable for some of the high-cost producers. Our demerger scheme is in the process.
It got delayed by about two months due to our share split, which was also important to do, and the papers have now been refiled with CCI. We hope to get all the required approvals by the end of this year. Friends with strong technological capabilities, operational efficiencies, and market reach, we are confident in navigating industry shifts and creating long-term value for our shareholders. With this, I'll now pass on the floor to our CFO, Ravi Tripathi, who will take us through the financial figures. Following that, our Executive Director, Manish, Riju, and our Chief Strategy Officer, Puneet, along with me, will be delighted to address any queries that you may have. Over to Ravi.
Thank you, sir. Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the quarter ended 31st December 2024. For the quarter ended 31st December 2024, HEG recorded revenue from operations of INR 477 crores as against INR 562 crores in the corresponding quarter of the previous financial year. During the quarter ended 31st December 2024, the company delivered EBITDA of INR 194 crores as against INR 110 crores in the corresponding quarter of the previous year. The company, on a standalone basis, recorded a net profit after tax of INR 98 crores in Q3 FY 2025 as against a similar amount of INR 37 crores in the corresponding quarter of the previous year.
On a consolidated basis, the net profit after tax is INR 83 crores in Q3 FY 2025 as against INR 44 crores in the corresponding quarter of the previous financial year. The company is a long-term debt-free and had a treasury size of nearly 1,000 crores as on 31st December 2024. Now, to take more questions from the participants, a detailed presentation has been uploaded on the company's website and on the stock exchange. Now, we would like to address any questions or queries you have in your mind. Thank you. Over to Navin.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and 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 now wait for a moment while the question queue assembles. We have the first question from the line of Praful Kumar from Dymon Asia. Please go ahead.
Hi, good afternoon, sir. Am I audible?
Yeah, yeah, you are. Go ahead.
Okay. Thank you, sir. I have just broadly three questions. One, if I listen to the con calls of our global competitors, they are all indicating a 15-odd % price hike given the prevailing conditions and weakening balance sheets. In that context, and given the fact that recently U.S. major steel producers have given a reasonably confident outlook for the year, do you think you'll be taking the commensurate price hikes or will you still be maintaining how it works in terms of if they increase prices, are you competitive enough to increase them?
You want to ask the second two other questions so that we can answer one more?
Yes. Yes. So the second question is your demerger process, the anode business. How should we understand in terms of what value it can create for minorities over a medium term? So what is the broad sense and how this will be valued over time in terms of, say, opportunity size, market share? How do you think about the business, where we should peg the valuations, maybe 100 million, 500 million ballpark? And the final question is in terms of these reciprocal duties that have been talked about, how competitive will be and how it works and what it means for the business. These are the three questions, sir. Thank you.
What was the last one we missed that?
The duties that have been talked about from the U.S., the reciprocal duties, what it means for our industry and how, yeah, yeah. Thank you.
Now, about the price increase. So obviously, if you, I'm sure all of you are comparing our results versus everybody else's, so you will clearly see a difference, whereas we are still making 15%, 17% EBITDA even in these markets. It's not the same situation with some of the other competitors that we have, so taking a lead from one, the second guy has also increased. The third guy has also announced a price increase. Let's see. I mean, I can't make any more comment than that. I mean, the time will tell the next couple of quarters whether it goes through or it doesn't go through. I mean.
No, but so the question is if their price hike goes through, we'll be obviously comparable. So understanding that each steel producer has two, three vendors.
Everybody's prices are more or less similar, give and take $10, $20 here and there. So obviously, one price increase goes up, everybody will follow. But I'm not sure. I mean, by our wish that we will increase the price, if that's simple, then everybody would have done that long back. I mean, it's for the market to accept or not to accept.
So.
So that's the first one. The second one, our Chief Strategy Officer, Puneet, is on the call. He will explain about the demerger process. About the duties, I'm not sure. I mean, of course, we have heard the results of Mr. Modi's visit to the U.S. this morning. They have not announced any duties, reciprocal duties as they call. As in when they do, we'll have to be at that 7.5%. But given our competitiveness and given our cost, till the time we as a country, so long as we are not able to I mean, basically, what I'm trying to say is if this duty does come whenever it comes on a reciprocal basis, so except paying that duty and still selling the electrodes in the U.S. market, I mean, there's no other option.
But since America happens to be amongst the single largest consumer of electrodes, so to the extent possible, we would not like to lose our market share. And we'll absorb that 7.5%. As I said, we still have a reasonable margin. If I remember correctly, our EBITDA margin last quarter was also about 16%, 17%. So to that extent, whatever exports we do to the U.S., the EBITDA will come down to 10%. That's all.
Okay. Thank you, sir.
Hi. So on the demerger part, can you hear me?
Yes. Thank you.
Yeah, Puneet.
Yeah, so on the demerger part, like Ravi told about that, since we have done a split and the process got delayed, we have to.
We did the share split. Share split. From INR 10, we went down to two.
Correct. So we envisage that the entire process and the listing of the new entity will be done by the end of this year. On the question about the value for the shareholders and all, so the prime objective of doing this demerger was to actually unlock the value of the shareholders. Reason being, today, HEG, their five businesses have a multiple, and the green business, which we do, which is the anode business, which is the other green businesses which we are into doing into this new entity, has an entirely different multiple. And today, also, if you see the market cap of HEG, that doesn't give the fair value of the value it holds. So to answer you, if you have seen the PwC and ICICI Securities reports on the fair valuation of the asset which will be the new entity, that is close to INR 3,200 crores. That is a fair value of that asset. So once this process is being done entirely, it will create immense value for the shareholders.
And the shareholder, it will be exactly similar, one- to- one.
So yes, sir, you're right. When you are doing this scheme of arrangement, it is one-to-one. But since promoters are also contributing their 51% stake of the Bhilwara Energy into this company, so they will be given an additional share of this company because they are putting the value to it. But this is not having any detrimental value on the shareholders because it will enhance the value and create a linear structure for the future.
Got it. Thank you, sir. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Hi. Good afternoon. Looking at the current pricing environment and our capacity utilization, where do we see our company in FY 2026? Can you kindly provide us a guidance on revenue and EBITDA for FY 2026?
So it will all depend upon what happens in the next 12 months. As I said, we have been tracking practically every new electric arc furnace which is under construction in Europe, in America, in other parts of the world. And we are pretty sure we can't talk about the specific numbers, but we are pretty sure that a lot of these are going to be in operation this year. And so with this new demand coming up, and the old demand is not going away in any case. So all the new capacities which are coming in are going to add to electric demand. So it's too early to predict what's going to happen in 2026.
I mean, and as I probably have told last time also, any new greenfield plant which is coming for electric arc furnace, the CapEx is more or less $1 billion for 1 million tons of new plant. So it's a fairly heavy expansion in the current scheme of things. So there is always a possibility of preponing or postponing of one or two quarters for whatever reason that somebody has. So reacting to something which is likely to happen, let's say, 9 months, 12 months down the road, is very dangerous. I mean, you obviously cannot put a number to it, but all I can tell you is that at least 20 million-30 million tons of new electric arc furnaces are more or less coming by end of this year, or let's say between now and the end of this year.
Okay. And for the current ongoing quarter, have we increased our prices as one of our larger competitors, what you said, has increased their prices? So, even have we increased our prices?
No. Nobody has increased the prices. You see, I could go on and send 100 letters to 100 customers asking for 20%, but that doesn't serve much of a purpose. I mean, everybody wants to increase, but whether it is going to be acceptable or not, that is the main question. So everybody is trying to do whatever he can in order to push the price. But it's too early to say. And typically, in the American-European system, they talk about two quarters or three quarters of pricing. So whatever they are predicting or contemplating is probably in the second half. But the first two quarters probably is more or less 70%-80% already sold at the old prices.
So the current quarter prices are similar to what it was in the Q3 previous quarter?
Yeah. Yeah. Yeah. Yeah.
So we can expect a similar margin for the current quarter?
Yeah. You see, you have to also appreciate in this particular product, from the time you buy your raw material and by the time you sell your electrodes, it's anywhere between three to six months. The raw material is imported. So by the time you buy, you get it shipped, and you get it, it's already two, two and a half months. And the process time to produce electrodes is anywhere between two to three months to five months, depending on the size, quality, and everything else.
So we can more or less know our order book if not full two quarters, we know at any point of time what the next quarter or quarter and a half look like. Because everything is frozen. I mean, the needle coke is purchased, the power price is known, selling price is known. So you know the cost price, you know the selling price. So whatever we are now talking about is already going to the third quarter of this calendar year.
Okay. So basically, what you mean to say is for next one, two quarters, our EBITDAs will remain in the similar range, around 16%-17%?
Yeah. Yeah.
And sir, recently, there was some news on China's quota on graphite exports used in EV batteries. And I think our stock prices zoomed up after this news. So I mean, we are currently not doing this production, right, for graphite used in EVs?
Yeah. That was for natural graphite and all the graphite powder and products used for the EV anode powder. That was the export restriction. It was not on graphite electrodes.
Correct. Correct. So currently, we are not into that, right?
We will come into that later when our anode plant is in production.
Okay. And that will take at least what? How many more quarters?
18 months, maybe.
Okay. Sir, what is the export percentage to the U.S., sir? Just now, you just said that maybe the U.S. can have an import duty. So what is the percentage of our sales to export?
What is the percentage to the U.S.? I would not like to talk about the exact percentages, but it is among the largest.
Oh, okay. Okay.
The U.S. is one of our larger geographies where we sell.
Okay.
It is pretty natural because they are the single largest consumer of electrodes in the world as a country. Just to clarify, as you know, electrodes are used where the steel production happens through electric arc furnaces. While the rest of the world produces about 47%-48% steel through electric arc furnaces, the U.S. produces more than 75%. Obviously, the U.S. is the third largest producer of steel. That makes the U.S. amongst the largest consumers of electrodes in terms of capacity and size.
Okay. Okay. That's it from my side. Thank you, and all the best for your future products.
Thank you.
Thank you. The next question is from the line of Suraj Khaitan from SKP Securities. Please go ahead.
Thank you for the opportunity, sir. My first question is, can you provide an update on the?
I'm sorry. My name is not clearly audible. It's very low in volume.
Hello?
Yeah. Go ahead. Go ahead.
Sir, can you please provide an update on the current status of the Graphite Anode project?
I think Puneet just talked about it. I mean, it's delayed by about two, three months because the split that we did, split of HEG shares. And the anode project is practically I mean, the construction started more than two, three quarters back. We are targeting end of next year.
Okay, sir.
End of 2026.
Thank you. Thank you.
Thank you.
Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Yeah. Good afternoon, sir. And thanks for the opportunity. So sir, my first question was, in the current graphite electrode market of, say, seven and a half, eight lakh tons, what is the capacity utilization?
You're talking of capacity utilization of ours or others or?
Of the overall 7.5 lakh-8 lakh ton market, ex-China.
No. First of all, ex-China is nowhere close to 700,000 tons. I mean, ex-China, after some of the capacities have been closed down in the last two years in the Western world, that capacity is more or less in the region of 550, maximum 600,000 tons. So it is not in that region that you're talking about. And again, I'm just giving you public data which is all available on the website of different companies. I think the two Western companies like GrafTech and Resonac, they have very recently come out with their results for the last quarter. And they are both more or less in the region of 50%-52% capacity utilization.
You see, among the three major groups, Rajesh, one is Resonac, one is GrafTech, and a player which is smaller than us is Tokai. So like you, we also just read their papers and whatever they provide in public. So let's say one of them said 55, and then there's somewhere you can read 60. So if you just add ours and theirs and put it all together in one basket, so your question which you asked was, what is the overall industry capacity utilization ex-China? Probably you will end up at a number around anywhere between 60-65, or in that range, 60-65. We will add all of us together and divide by the total capacities we have. Probably it would be close to 65.
So on the current operational capacity of five and a half lakh tons which sir mentioned, the utilization is 65%. Is that correct?
Yeah. Yeah. 60, very close. So if you add up everybody.
That is about three and a half lakh tons is the current production in the market. Is that right?
Ex-China. Yeah.
Ex-China. Yes.
You can take a number of 600,000 after all the recent closures announced. And on that 600,000, you can talk about 65% because this is a bad year, actually.
Okay. So I have two questions. So we are now operating at a 380, 380 kind of production figure. So by the analysis that you provided so nicely, we are assuming that the overall GE demand will go up by over two lakh tons over the next five years. So I have two questions in two parts. One is that what is to prevent the old capacity from coming in and satisfying this demand? Secondly, you mentioned in your notes that China's shift to EAF has been stalled, resulting in an oversupply of Chinese electrodes and their supply in the market. So earlier, we thought that the quantum of Chinese electrodes which could come out is limited in terms of the technical parameters of UHP electrodes.
So given these two factors, that industry can go back to the original capacity of seven and a half lakh tons and Chinese electrodes can also come, where is the case for a firmer pricing scenario? If you could clarify these doubts. Thank you so much.
I'll clarify this. It's pretty simple. I mean, we still believe that China is still producing not more than 13%, 14%, 15% of its total steel through electric arc furnaces, whereas the rest of the world is now in the region of 47%-48% minus China. So that's number one. Secondly, China's electrodes and the Chinese electrodes technology and the quality is still far behind. And with great difficulty, they are able to make some of their electrodes work in some of the European and American and Indian plants. It's not just Europe. It's not just America. It's even India. I mean, they are exporting a little bit in India also. So whatever we have been saying for a long time, we don't really consider them as a threat, at least in the near future.
The Ultra-High Power, which is what we have been talking about, the majority of our production or Graphite India's production or Americans or the Japanese companies' production is majorly for the Ultra-High Power. So where China is not able to provide the same quality.
Okay. No, so because you mentioned this as a point in your notes, in your note that oversupply of Chinese electrodes has contributed to continued price decline. So I was just wondering why this note has come because I also had the same impression that they can't compete in the high-quality electrodes. But since you put it as a note in your presentation, I was just wondering how much of a threat is it?
Rajesh, are you referring to our investor presentation or somebody else's?
Your investor presentation, Industry Outlook. You mentioned there in point number five, the China shift to electric arc steel production has stalled, resulting in an oversupply of Chinese electrodes and continued price decline.
Yeah. So let me explain that point in perspective. You see, it's when see, China earlier said that they would reach 20% of their production by, let's say, 2020 and then 2025. So as we see their production, their shift to electric arc furnaces is not happening as per their own schedule. So when we say stall, we stall as compared to their own projections of reaching 20%. So it's still there about, I think, not even 30, 40, it's around 11%-12%. Had that electric arc furnaces shift happened in China, the oversupply of Chinese electrodes in export markets would not have happened. So they are still lagging behind their own EAF production targets. So every time that target shifts, that is what is causing an oversupply of Chinese electrodes, even if they are not of the UHP variety because a large part is the HP grade variety. So that's what that Point number 4 means. Five.
Got it. So these Chinese electrodes are coming only into India or even in the U.S.? U.S., so they can't come because of the import duty, but in other markets like the Middle East and Japan also, the Chinese electrodes are coming now?
See, Chinese electrodes are going all over the world, Rajesh. It's about that quality which they are supplying. I think there must be, I think, some customs data. I was having a look a few days back. It's about 400,000 tons. But out of that 400,000 tons of electrodes, they are not UHP variety. And they go to all kinds of countries, a big list of countries, everywhere. There's a big dumping duty in the U.S. on Chinese electrodes. That's where they are limited. But other than that, they go to every country, including India.
Okay, so I just wanted to know whether that's a concern for a long-term thesis. That's all.
So they've always been there. You see, not only now, for five, six, seven years, they have been exporting a lot of these tonnages. And they mostly cater to the little furnaces market. Lately, they are also targeting some furnaces where UHP grade works. But that's still behind, and I'm not known of any big customer group giving them 20%-30% of the business for the last few years because in this product, consistency and reliability is most important rather than price.
But you see, all these new 100 million or 70 million, 80 million, that whatever we are talking about in terms of new electric arc furnaces being built all over the world, they are all very large furnaces with very large amount of transformer and power and everything. Their quality requirement, the size of electrodes is very, very different than what China can produce. So China has been producing a lot of electrodes. They're consuming a lot of electrodes. But their size of furnaces, the size of transformer, the power that they feed into those furnaces is nowhere comparable to these plants which are coming up now. And one point here is also important for you to understand.
Electrode only means one and a half to two % of the cost of production of a steel company, whereas one bad electrode, one breakage of a bad electrode means one or two hours gone. So the cost of loss of that production of two hours is far too high compared to the cost of one and a half %, two % in the price difference and the consumption difference of electrodes.
Right. That's helpful. Thank you so much. Thank you so much.
Thank you.
The next question is from the line of Pranay Khandelwal from Tirthan Capital. Please go ahead.
Yeah. Hi. Thank you for the opportunity. Just wanted to ask, the management made a comment that the U.S. and Europe, they sell the capacity one or two quarters ahead. So just wanted to understand if that is something that applies to us also. Do we follow the same practice?
No. You see, if we are exporting about 2/3 of our production, it takes about, as I said, between two to four to five months. It takes to produce all those electrodes. And if we are so unless we have order books for the next two quarters at least, you can't even start production of those electrodes.
I see. So we work on an order basis.
I mean, today, if you are operating at 80%-85% capacity, let's say this quarter, January-March, we can supply another 5%-7% for an ad hoc demand. But 80%-85% is already sold. And similarly, if it is not 80%-85% for next quarter, April-June, it will be at least 50%. This way, you cannot plan unless you know what size and what quality you have to produce and sell in April, March, April, May. You can't plan your production also.
Okay, and yeah, I think that's all from my side. Thank you.
Okay. Thank you.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
No, I'm just thank you for this opportunity. Sir, firstly, I missed your number on the global. Yeah. Am I audible, sir?
Yeah. Yeah. Global, what was your word? Global what?
Yes, sir. Yes, sir. Global capacity addition, firstly, in terms of the graphite electrodes that have taken place for 2024. And what are the capacity addition in the annual going ahead? Whether there are any?
No. See, I can give you more or less accurate data. I mean, if we go back to, let's say, 2010, the total capacity of electrode minus the two Indian plants was 740,000 tons. That 740 is today close to 500,000 tons. So this number is 90%-95% accurate because there have been public announcements that this plant is closed, that plant is closed of this capacity and that capacity. So 10 years ago, 14 years ago, 740,000 tons meant about 21 plants. Again, I'm talking minus Graphite India, minus HEG. So that 740,000 tons and 21 plants in 2010, currently, it stands at 500,000 tons and 13 plants. So eight plants have to fully close down, and 240,000 tons of capacity has gone out of business. And this is, as I said, without HEG and Graphite India.
And now, if you come to India, India was 120,000 tons in 2010. So 740 outside of India, 120 in India. I'm going back to 2010. And that 120 was equally divided between HEG and Graphite India, 60,000 tons each. Currently, today, as we speak, we are 100, and Graphite India is 80. Graphite India, as you know, had a plant in Germany which they closed down three, four years ago. They had a plant in Bangalore which they had closed about seven, eight years ago. So Graphite India today has 2 plants with a capacity of 80,000 tons in Durgapur and Nashik. So if this gives you a picture, if this gives you a satisfactory answer to what you are looking for, so these are the statistics.
How has the steel production shaped up from the electric arc furnaces route if we take that statistics in correlation to how the mounting utilization of capacity for graphite has been?
See, I'll tell you the global figure, again, minus China, because in all these discussions, we are excluding China because as soon as you mix China in the rest of the world, the figures differ, the change drastically. Because China produces only 10%-11% of its steel through electric arc furnaces, and China produces 55% of the world's steel. Whereas the balance, 45% steel which is produced by everybody excluding China, electric arc furnaces accounted for about 40%. So that 40% in the last two-three years has come close to 50%. So 40% going to 50% in the last five-seven years basically means 25% jump. Now, in India, for some reason, which we cannot understand, the electric arc furnaces are not being built, whereas close to 100 million tons of new greenfield electric arc furnaces are coming in simply because of the carbon emission.
Carbon emissions in the electric arc furnaces is between four to five times higher than the same steel produced through the electric arc furnaces. So in that backdrop, 100 million tons of new electric arc furnaces are coming in the world, which does not include India and which does not include China. And the CapEx for this 100 million tons is roughly $100 billion. So for every million tons of new greenfield electric arc furnaces, the cost is about $1 billion. So the steel industry outside of India and outside of China is investing about $100 billion to build about 100 million tons of new electric arc furnaces. I don't know if I made sense, if this is what you were looking for.
Yes, sir. And 2% of that will go towards the expenditure towards the graphite consumption.
Oh, no, no. You are confusing now. We are talking about the CapEx.
CapEx, okay.
The CapEx to build 100 million tons is about $100 billion. And when you are talking of 2%, we are talking of the operating cost. That means what I'm saying is electrode constitutes about 2% of the operating cost to produce a ton of steel. So it's a very insignificant cost for the steel producer. But as I explained in answer to one more question earlier, that 2% can stop your furnace for two, three hours. If one electrode breaks, it takes you two hours of production just for a bad quality electrode, which accounts for 2% of your cost. So the cost of that two hours is very, very high as compared to saving and buying an electrode which is, let's say, 5%, 3%, 4% cheaper than the best ones. You imagine a 200-ton furnace stopping for two hours. He loses 400 tons of steel production because of the bad electrode, which only means 1.5%-2% of his operating cost.
And sir.
That's where the quality and the technology comes in.
Sir, can you comment on the raw material price basket, especially for the needle coke and the pitch tar part? And also, when we look at our other income component, that has gone up for this quarter. So what factors led to these other income increase in other income?
First question. Other income has gone up. No, no. First question was what? I mean, the other question was MTM.
First question was regarding the RM prices.
First question was needle coke. No, first question was needle coke prices. So as I said, the electrode prices are more or less frozen for at least one or two quarters because it takes that long to produce electrode. So in conjunction with that, the needle coke prices are also frozen for one to two quarters. Because unless we know the cost of needle coke, at least for the next two quarters, we can't buy it. We can't sell our electrodes. So this more or less goes hand in hand.
And the price trend also, sir, going ahead with the capacity addition for needle coke, also, I think that is mainly from China only, the major producer. So what would be the outlook in terms of?
No, major producer of what? What was China?
Needle coke, I think so, is majorly produced.
No, no. We don't buy a single ton of needle coke from China.
Okay, sir. How was the capacity?
China doesn't produce needle coke. We only produce there are basically only two or three producers of needle coke in the world. It's exactly the same story in needle coke as electrodes. There are a very handful of companies producing needle coke and a handful of companies producing electrodes. It's a matter of technology, basically. There's an American company, and there are two, three small Japanese companies for needle coke.
One point.
I just wanted to ask you to please rejoin the Q&A. We have other questions.
I will join the Q&A. Kindly provide an opportunity for a closing remark. Yeah.
Thank you. Ladies and gentlemen, we will now take the last two questions for the afternoon. The first is from the line of Deep Mehta from Bank of India Mutual Fund. Please go ahead.
Please go ahead.
Hi, sir. Thank you for the opportunity. Just taking for the last participant's question. Like you said, roughly 2.4 lakh ton of electrode capacities has been gone since last few years. How difficult or easy is it for those guys to bring back those capacities? And what can be the lead time between someone wanting to start the capacity and those capacities actually coming on stream?
See, just to give you a quick context, our HEG plant near Bhopal, that is really the last new greenfield plant built in the world. So that gives you an idea about the complexity of the technology and how many companies there are who can give you the technology. And it used to be seven, eight at that time when we came in 1976. Today, it is down to three or four. If you really talk about the graphite world, there are basically four large companies: GrafTech and Resonac. GrafTech in America, Resonac in Japan, and the two of us in India. There's a small company in Japan called Tokai, but they have a capacity of 72,000 tons between three locations.
So in any case, with an average of 24,000-25,000 tons plants at three locations, and all those three locations being in Japan and Europe, the costs are way higher than anybody else. So this is the context in which you ask that question. So I don't know if this helps you.
That is somewhat helpful, but let's say GrafTech or some big company, they'll shut down a capacity.
Yeah, talk.
Yeah.
No, they can always restart. I mean, of course, they can restart. But again, these plants are all very, very old. I mean, even if you take our plant, we started this plant in 1976 with a capacity of 10,000 tons. But we have kept expanding from 10,000 tons, and currently, we are at 100,000 tons. So even in terms of equipment and everything, every five years or every four years, when we have expanded by 15,000 tons, 20,000 tons, 30,000 tons, we have had this opportunity to buy the best equipment of that day. All the equipment that we buy, there is obviously some improvement in cost, some improvement in technology, some improvement in efficiency. So because we have kept expanding over the last, we have had this advantage over others that every time we have expanded, we have bought the best equipment of that day.
So theoretically, what you are saying is perfect, that it is always possible to restart a plant. Let's say, I mean, I'm just talking out of my mind. If the prices go to $10,000 per ton, everything will start. Why should they not? Even if your cost is $500 higher or $700 higher, everything will restart. And they will obviously restart. If there's a demand for electrodes and the prices go to $10,000 per ton, it doesn't matter whether you make $500 more or less. So theoretically, yes, it is possible. But given the situation in the world today, especially in terms of labor and regulations and things like that, it is not. I mean, today, it's not easy to restart a plant which was closed 10 years ago, let's say, in Japan or Germany or Spain. But yes, theoretically, you are perfectly all right.
I mean, nothing stops them to restart the plant. But a couple of plants in the last five, seven years, which were closed down, have actually been razed to the ground. So there are both the scenarios. Some plants have been razed to the ground because they were very close to a largish kind of a city in Germany or Japan or Spain. So it was not worthwhile waiting for restarting the plant rather than selling the land to a real estate developer.
Understood, sir. Very helpful. That's all from my side. Thank you.
Thank you. The next question is from the line of Ziemowit Borucki from Opoka TFI. Please go ahead.
Hi. Thanks for taking my question. Ravi, if I may, you just authorized an increase in the investment limit in foreign stocks. It's around 40%. And I understand that you will increase your stake in GrafTech even more and probably exceed 10% in the company. So the question is, what is your long-term plan with such a huge stake in competitor? And why do you think it's better to buy those shares instead of buying back your own stock? And the second question, on price increases, you mentioned that your competitors increased prices or they try to increase prices. Yes, Resonac 20%, Tokai 10%, GrafTech 15%. And you just mentioned that you are waiting for those to go through or not to go through. And the question is, why are you in a waiting mode and why you are not acting proactively and do the same as your competitors? Meaning, send those 100 letters to your 100 customers saying that you would like to increase prices. Thank you.
Okay. Now, your first question, the first two questions are relating to our investments in GrafTech. See, from our calls in the last, let's say, four, five calls over the last year and a half, two years, we have always been saying that we see a big increase in the demand for electrodes. And there are not too many players who are in this business. There has not been any new player in the field of graphite electrodes in the world. We were the last one 50 years ago. So in that backdrop, we have been expanding our plant because, as I said, we are amongst the lowest cost producers of electrodes in the world. And of course, the size of the plant makes a difference. From 10,000, if you have grown to 100,000, when you understand, I mean, what happens when you produce 100,000 on the fixed costs.
So in that backdrop, about six months ago, we just saw that GrafTech's market cap, and GrafTech is in a very special situation compared to all the other four, five graphite producers. That's the only company who is backward integrated to the raw material, needle coke. So they had a capacity of 200,000 tons of electrodes and 140,000 tons of needle coke. So if you have been following our business, let's say, for the last five, six, seven years, you would have seen that five, seven years ago when the electrode prices went up by absolutely went through the roof, let's say, so did the needle coke prices. So GrafTech is in a very, very good situation where they have 70% of their own raw material. And that raw material happens to be a very special kind of crude oil.
As you know, in the Western world, you can buy your raw material, especially oil, in future. You can buy all your raw material for 140,000 tons of needle coke for three, four, five, six years at a frozen price. You can pay a premium or a discount depending upon when you are doing it. You can actually freeze your raw material cost. To answer your question very frankly and very clearly, three, four, five months ago, their market cap with more capacity, more or less two times capacity of electrodes, plus a 70% backward integration, that is what GrafTech is, which that privilege is not available to any of the other graphite companies of needle coke. As you must have understood from our tone and tenor, we are looking at good days. Nobody can time that.
But we are talking about an increase in the electrode demand because of this new 80, 90, 100 million tons of new electric arc furnaces which are likely to be in operation. Some of them are already in operation, and some of them are coming this year and another next two or three years. So in that backdrop, their market cap was practically half of ours. So which didn't make sense given the capacities, given the backward integration, and given the next two-three years' demand of electrodes. And we were sitting on a fairly substantial treasury, which was giving us 6%-8% return.
So we said, "Why not?" I mean, if we are sitting on cash and making 7%-8% return, and if we believe in this business, and so obviously, if we believe in this business and we believe in all whatever I just explained, that their prices are likely to shoot up much more than ours. I mean, that's what actually prompted us to do it. So I believe that explains our rationale about why we invested there and what else. I mean, was there anything else that you asked? Why waiting for a price increase? Go ahead. Hello.
Yes. And okay. Sorry.
So is it okay? I mean, have I answered you to your satisfaction, the first question?
Yes. Maybe one more sentence on the first part of the question. So what is your long-term plan with such a stake? Because we are not talking about 1% in the company, but 10+ . So is it just waiting for the price increase, or you would like to make some kind of integration? If you can comment.
No, for the time being, we are not looking at any integration. As I said, I mean, if we are the cheapest cost producer, why would we like to have any integration with a producer whose cost is much higher than ours? So that is not even in our radar. It's purely on the assumption that we are in the right business. We believe the electrode business is going to be better and better and better. And when that day comes, their share prices will see a much larger jump than our own prices because of that needle coke that I just talked about. And we saw that five years ago.
I mean, their prices jumped much, much more than us because not only did they make profits on electrodes, they made tons of profits on needle coke, which only they could have done. That's purely the reason that attracted us to invest in GrafTech. We are happy about it. I mean, it doesn't matter whether it goes down or up. I mean, we are not taking a short term view on that.
Okay. Thank you. And the second question on why you are not acting proactively on price increases, if you could comment on that.
No, I didn't say that. I didn't mean that. I mean, even if I didn't say, I didn't mean it. I mean, you see, announcing on paper and making that change on ground are two different things. If purely by sending a letter, if I could get a price increase, I'll be very happy to do it this afternoon, and we are still half the size of the other two bigger players, so if they have taken the initiative, the market is aware about the intention and the reason they have announced the price increase is obviously because they also believe more or less on whatever we just spoke about, that new electric arc furnaces are coming, the demand of electrodes is going to rise, so in that backdrop, obviously, they have announced the price increase.
And as I said in answering an earlier question, in this business, you are more or less already booked for at least 100% for the next quarter and at least 50%-60% of the second quarter. And we are also going by the assumption that if there is a price increase because the other two guys have already announced, we will see it in the market in any case. So there's no need to irritate the customer by sending letters after letters that we are also increasing the price. I mean, whatever will happen will apply to us in any case.
Okay. That's very clear. Thank you very much.
But I can assure you that we are not selling cheaper. I mean, our quality, our service is that we don't need to sell cheaper than them. And we are not doing it.
Thank you. Participants are requested to please restrict themselves to two questions per participant. The next question is from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yeah, good afternoon, sir. So if you can just quantify the MTM gains on your other income, I think this will largely pertain to the shares that you hold of GrafTech, right?
Yeah. That was one of the reasons, right? The major one.
So can you quantify, sir, what was the other income on account of MTM gains?
I think it was somewhere in the region of INR 60 crores-70 crores.
Okay. And second, sir, on the anode plant, I think your last commentary was that you're still negotiating your deals with the state governments regarding some relief from the power tariffs or something of that sort, right? And now you mentioned that the construction of the plant has started. So can you please help us understand? So where are we on that front? And have you finalized the location and the tariffs and the state government deals?
So I can answer that. Did you decide? We've absolutely decided on the site. We've already procured the site at 105 acres in Dewas. And we are in the process of now finally doing the final drawings for the 20,000 tons plant, which we increased from 10,000 tons. And in the next few weeks, we'll be starting to open all the LCs, etc., for all the machine import that we have to do. With the state government, I mean, obviously, I mean, we have a whole list of demands that we want. And whatever we can get out of that, we will try to extract the most. But regardless of that, based on the current activity that we have, we are still going ahead with that plant exactly as per plan.
Right. And sir, initially, we were expecting a payback of 5-7 years given the fact that there was a decline in lithium and battery prices. So that mathematics still remaining, or does that improve into our favor or go on adverse?
It would remain the same right now because the battery prices that now we have taken in our business plan and changed all our other assumptions accordingly. I think the battery prices, the way we are seeing globally now, they have more or less bottomed out. So we won't be seeing a further decline over there, and again, I mean, China produces more than 7 lakh tons of this product. And we are talking about 20,000 tons. And there's a host of American companies, Indian companies, and European companies who want to buy this material from places other than China. So while obviously, we are not going to get a 20%-30% kind of a delta compared to China, but definitely a 10%-15% added margin because of the product being made outside China is something that is a very, I mean, reasonable assumption.
Right. And sir.
Of course, if we get the other stocks that we are asking from the government, if we get that, then of course, the payback definitely becomes shorter.
Great. And sir, we intend to spend something like INR 700 crores, right? So can you please share the timeline? I mean, what happens in FY 2026? What's going to happen in FY 2027?
Right now, we spent around INR 100 crores. I think this plant will be fully operational by September 2026. That is the plan. Obviously, by that time, the demerger would have happened. It will be part of the new company, which is HEG Tech, which would be part of the Bhilwara Energy, which will be one vertical, bottle-to-bottle manufacturing, which will be the other vertical. Third vertical would be Rep lus, which is our battery storage company. The fourth would be this particular TACC project. Of course, I mean, as part of the demerger, the HEG shareholders will get one share for all these other projects as well.
Right, and the total CapEx will remain the same, right? INR 700 crores?
1,700 to 1,750, depending on the bigger bit of issue with the whole dollar appreciation, which we, of course, are trying to talk to all the Chinese partners that this has to be on their account because, I mean, prices of capital expenditure should also go down and not go up only because of the dollar appreciation.
Sure, sir. Thank you. Thank you so much. I wish you all the best.
Thank you. Ladies and gentlemen, we now have the last question of the afternoon from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
For the opportunity. Hope I'm audible? Hello?
You are audible, sir. You may continue.
Yeah, yeah. Audible. You are audible.
Yes, sir , firstly, about this anode plant, which you, sir, was explaining, so this will be entirely a different vertical and no correlation as such with the electrode part of the story. And the total CapEx to run the plant ultimately would be how much, sir?
So I would not say that HEG and that will not have any correlation. Of course, it will be in a different company after the demerger. But a couple of the major factors like the raw material purchase, your graphitization process, these are factors that are common to HEG Graphite and to the new anode plant, which definitely gives us a much bigger upper hand compared to our other competitors in this. And yes, it will be in a different company, but we'll have a lot of synergies between the two companies. I mean, after this is confirmed. And the total CapEx would be, like you mentioned, between INR 780 crores and INR 1,800 crores.
And what we observe, I'm also an investor in your other group company, RSWM. We find you also there as the managing director and here, the joint managing director. So I think there is a split of responsibilities in both the two different aspects. But just as a concluding remark, we find that for HEG as a whole, not only for this quarter, but now being for many years, both Ravi sir and his team have been always not only answering to the question, but leading forefront in explaining to us all the nitty-gritty. Whereas when we look at your other group company, RSWM, there is a shift in the top role and all. So just like to bring to your kind notice that, you should be taking some more keen interest in listening to your investors there also, addressing their queries and putting things in order. They are in order. You have a new team there. I was there. I was there apart. Yeah, so we would like you to be there also, sir.
But talking about the new industries, we are going into absolutely four different verticals, which is the bottle-to-bottle, which is your anode, which is this thing, your battery storage. And in time, obviously, this company will be completely professionally led. We need to have a CEO for this company. But as of now, we are just putting all the pieces of the puzzle together and managing it that way. As far as RSWM is concerned, I think we've answered most of the questions yesterday. It's just been a bad 18 months for the textile industry in general. And whatever internal changes we had to make, whatever efforts we need to make from our side, I mean, absolutely nothing is going unnoticed or not being done.
Yes. Yes. So congratulations to all the good work being done in both the organizations, and we hope for the continuity of these calls and a lot of merit in the discussions. Thank you.
Thank you very much. That was the last question in the queue. Before I hand over the call to Mr. Jhunjhunwala for the closing remarks, I'd like to invite Mr. Manish Gulati. Manishji?
Yeah. Thank you, Navinji. I wanted to make a clarification. See, while we were answering queries on industry capacity, industry utilization, there were some questions from Rajesh Majumdar of B&K . So let me clarify very clearly. The nameplate capacity of all the graphite electrode industry ex-China is 700,000 tons. And when Rajeshji asked what would be the typical industry-level utilization, while we can very clearly say ours, we only have to look at public statements made by others. Some of them make it clearly. Some of which we can't make out. So let's say 65%-70% would probably be the industry-wide capacity utilization. That's the maximum estimate we can give. So 65% of 700,000 tons would mean 450,000 tons of electrodes. And 70% would mean 500,000 tons of electrodes. So I just wanted to clarify this very clearly. This is what we think, our estimate of the industry utilization. We are very accurate with our own, of course. That's all.
Thank you, Manishji. I'd now like to hand over the call to Mr. Jhunjhunwala for his closing remarks. Raviji.
Thank you, friends. It's been a pleasure talking to you. And this time, we had very, very probing questions. I hope we have been able to satisfy you. And I look forward to having another discussion in the three months' time with you. Thank you.
Thank you. Thank you very much. On behalf of SKP Securities Limited, that concludes this conference. Thank you all for joining us, ladies and gentlemen. You may now disconnect your lines.