Ladies and gentlemen, good day and welcome to HEG Limited's Q1 FY 2026 earnings conference call. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Pachisia from SKP Securities. Thank you and over to you, sir.
Good afternoon, ladies and gentlemen. I am pleased to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team of HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director, and CEO; Mr. Riju Jhunjhunwala, Vice Chairman, along with their colleagues Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; Mr. Ravi Tripathi, CFO; Mr. Puneet Anand, CSO; and Mr. Ankur Khaitan, MD and CEO of TACC Limited. We will have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Over to you, Ravi.
Good afternoon, friends, and welcome to our financial results conference call for this Q1 FY 2026. Let me begin with a brief overview of the global steel industry trends, which continue to shape the demand environment for graphite electrodes. According to the World Steel Association, global steel production in the first six months of 2025, calendar year 2025, stood at about 934 million tons, which is a decline of about 1.9% year-on-year, and 952.4 million tons in the corresponding period of last year, indicating a slowdown in the demand across major steel-producing economies. China's steel production declined by about 2.4%, primarily due to weaker construction activities there and the government-imposed production curbs. At the same time, the Finnish steel exports surged 9.2% year-on-year to 58 million tons, increasing global competition and exerting additional pressure on international steel prices.
Production outside of China fell by about 1.2% to 419 million tons, driven by ongoing macroeconomic headwinds and a muted industrial recovery in most of the countries. In contrast, India remained a standout performer with a 9.2% year-on-year increase to about 81 million tons in the first six months, supported by our continued infrastructure spending and automotive sector growth. Another large producer of steel, Japan, reported a 5% decline. South Korea fell by 2.8%, Turkey dropped by 1.7%, while the U.S. registered a modest 0.8% increase, highlighting relative market resilience. In this kind of a macro environment, the graphite electrode market continues to face challenging conditions during the quarter.
The recent imposition of 25% duty in the U.S., an important market for us and the leading consumer of graphite electrodes, is being studied, and we hope that this will eventually settle down to some reasonable level, as we believe discussions between the two countries are ongoing. However, given HEG's well-diversified sales footprint across all major markets, we would do our best to see that its impact on us is minimal. On the near-to-medium term of our demand, the global transition towards low-emission electric arc furnace steel making continues to gather momentum, underpinned by regulatory adoptions and decarbonization targets. Electric arc furnaces, which offer a significantly lower carbon footprint versus traditional blast furnaces, are central to the steel industry's transformation. The global shift towards electric arc furnace steel making continues to accelerate, driven by climate goals.
This transition is expected to generate substantial incremental demand for our product, which is estimated at 150,000 - 200,000 tons annually by 2030, excluding China, reinforcing the industry's long-term growth potential. As per our data, in the last two years, about 11 million tons of new electric arc furnace capacity have already been installed in the Western world, while we expect another 50 million- 55 million tons to be in operation by 2027 and an added 40 million tons or so between 2028 and 2030. All this totals up to a staggering figure of about 100 million tons of new capacity, which we have never seen before. As you are aware, this is all due to the continued focus on lower carbon emissions by every country in the world, which electric arc furnace steel provides.
HEG continues to operate at its highest utilization levels in the industry, despite a stagnant demand. Last quarter, we operated at 90% +, and in this background, we have to remember that this 90% is on our newly expanded capacity of 100,000 tons. Our single location, a large production base, combined with a competitive cost, positions us as one of the lowest-cost producers globally. Despite market challenges, we remain confident in the medium to long-term growth of our industry. The combination of electric arc furnace-led structural demand growth, supply rationalization by some other industry leaders in the world, and current unsustainably low price levels should gradually lead to market stabilization and pricing recovery.
Considering all these, we have recently announced another expansion plan to increase our existing capacity from 100,000 tons - 115,000 tons, which will require a CapEx of about INR 650 crore to be completed in two and a half years from now, with expected production in January-March 2028, which will help us to further reduce our costs and increase our market share. Regarding [the] merger, the scheme is filed with stock exchanges and all other relevant authorities, after which it will go to NCLT, and we do expect to get NCLT approval by the end of the calendar year 2025. With this, I would now like to invite our CFO, Ravi Tripathi, to present the financial results for the quarter.
Along with our Vice Chairman, Riju, Executive Director, Manish, and Chief Strategy Officer, Puneet, we will all be very happy to answer your questions about electrode business, as well as other diversifications which are under implementation. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press * and 1 until that's on the screen.
[Before that, Ravi has] to speak before that.
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 2025. For the quarter ended 30th June 2025, HEG recorded revenue from operations of INR 613 crore as against INR 571 crore in the corresponding quarter of the previous financial year. During the quarter ended 30th June 2025, the company delivered an EBITDA of INR 154 crore as against INR 59 crore in the corresponding quarter of the previous year. The company, on a standalone basis, recorded a net profit after tax of INR 72 crore in Q1 FY 2026 as against INR 3 crore in the corresponding quarter of the previous year. On a consolidated basis, the net profit after tax is INR 105 crore in Q1 FY 2026 as against INR 23 crore in the corresponding quarter of the previous financial year.
The company is long-term debt-free and had a treasury size of nearly INR 977 crore as of 30th June 2025. Now, to take more questions from the participants, the detailed presentation has been uploaded on the company's website and on the stock exchange. We would like to address any questions or queries you have in your mind. Thank you. Over to Naveen.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press * and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press * and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Lahoti from Emkay Global. Please go ahead.
Thanks for the opportunity and congratulations on a good set of numbers. My first question is on our expansion plan of 15,000 tons. Given that there were capacity curtailments globally, there must have been an option to acquire something for cheap valuations. We have decided to expand capacity that comes with a time period of two to three years. If you could provide some color in terms of the thought process that has gone behind in making this decision to build instead of going inorganic?
See, we obviously looked at all these opportunities that you are talking about. As you are probably aware, one of the two major international producers has formally announced that they are wanting to exit this business. While we are pursuing this, we are in contact with them. We will probably, at the right time, whenever they are ready, go and look at the plant and then take a view. Our gut feeling has been, in the last 20, 30 years, that these opportunities were available to us even in the past. As you know, most of the other graphite production happens in all the expensive countries of the world, basically Japan, Germany, France, Spain, Italy, U.S. With the cost structure that we believe they have, and most of these are listed companies, so a lot of data is available to everyone to see.
We believe that it is still better to spend two and a half years and to build more capacity in our own country where our costs are significantly lower than if we were to acquire any plant in any Western world. First of all, these plants are very, very, very old. To my memory, probably the last plant which was built, some of these plants which are currently on the block, probably the last one would have been built 60, 70 years ago, or at least more than 50 years ago. They have not done much in those plants. It probably doesn't make sense to acquire a very old plant in a European or a Japanese or an American economy where obviously the costs are much higher than ours. In the long term, we looked at all the permutation combinations and we again came to a conclusion.
Secondly, it's not easy. Even if you start looking at some possibility today, it's a very long-drawn process. It should take at least six, nine months, 12 months to even conclude that deal. We are more or less certain that expanding in India at the existing size gives us a much more competitive edge. While we will look at it, in the last 20- 25 years, we have looked at all these opportunities and we have stepped back and expanded here. We didn't want to waste another six, nine months, 12 months, and then come to that conclusion. Of course, so long as we are amongst the cheapest core producers, which we are, based in India, we'll continue to look at that opportunity. Nobody's cost us to acquire one of the good plants which is on the block, even after expanding to 150.
Okay, understood. Does this CapEx that we have announced of INR 600 crore include captive power plant as well, or will we continue to procure from the grid?
No, we have always continued to buy the power from the grid. We don't have any captive power plant. We had built it long, long back, but as we formally announced long ago, we had closed that down maybe more than 10 years ago.
Okay, and lastly, just a housekeeping question. How much was the production volume in Q1?
In excess of 90%. Yeah, as I said, we operated at more than 90% last year, last quarter, and we are more or less in that same range, maybe a couple of percentage plus or minus.
Okay, noted. Thank you and all the best.
Thank you. The next question is from the line of [Steve Canota] from Baroda BNP Paribas Mutual Fund. Please go ahead.
Thank you, sir, for this opportunity. Would you be able to share your assessment of the demand-supply balance outside China, and what would be the average replacement level at this point of time? That was the first question.
Okay. Shall I answer, sir?
Yeah, go ahead.
Yeah, sir, it's ex-China region, especially the electric arc furnaces. The rest of the world is between 70% - 75% utilization as a total.
I was actually referring to the utilization of the [graphite electrode plants] as an industry outside China.
Okay, sure. See, we hear what you hear from the peer group. I mean, one of them said they were at 65% in the last quarter, and there would be some, I mean, it's all market hearsay. Anybody would be, one of them provides a number. The rest of them do not do that. I believe the others would also be at a level of 60%, I would say. One of them is [KL] because you can, you know who I'm referring to. That was 65%, and the others would also be in that same range, 60%, between 60% - 65%.
Sir, as a follow-up, typically we have seen the pricing sort of fluctuating whenever the industry utilization level goes above 80% or so. How far are we away from the situation, and the addition of our plants, would it sort of delay that positioning or keep the market oversupplied for a few more years? One more related question was, in the U.S. now, the duties have been increased. Could it lead to the restart of any of the U.S. plants?
Yeah, see, you were the first to answer the second question. The U.S. makes about 72% of the steel from the electric arc furnace route. Their utilizations, I mean, I was reading a paper, there was around 75% in the U.S. I just missed the other question.
Can I ask a question? In terms of the U.S., basically, do we see a risk of restart of any graphite electrode plants which could add supply to the industry?
Okay, understood. You see, in the U.S. particularly, the plants which are there, there's no risk of restart in the sense because there's nothing on the ground other than the ones which are running. There's one competitor's plant, two Japanese, and their plants are on the ground and running. One of the other competitors, which was [Northvolt], I think it runs partly or something, whatever you hear from their public documents, maybe some half of the operation is going on, some machining or something. There is no other plant other than these two which are already operational, which could come up in the U.S. per se. There's one more graphite plant in Mexico, and that's also a running plant.
There's nothing we can see that there's some closed plant which will come up, other than the one small plant I referred to, which runs half of it, half of the process, unless value-added ones.
Understood, sir. The fourth question was about, basically, as you are noting that the industry utilization is in the range of 60 %- 65%. We have announced capacity expansion of 15 kt. Our Indian competitors have also announced the capacity expansion of another 25 kt. Will this supply addition delay utilization level improving in the industry and thereby keep the prices under pressure for a few more years?
[Crosstalk] I'll answer that. In my opening remarks, I clearly said that X amount of new electric arc furnaces have already started production in the last two years. In the next four to five years, we believe that about 100 million tons of new electric arc furnace capacities are being added all over the Western world. We are not talking of China. This is the first time in history that most of the large steel companies around the world, and it actually includes every country which produces steel, not just some countries, are stopping their blast furnaces and replacing them by electric arc furnaces only because of the carbon emission. Electric arc furnace steel emits about 20% - 22% of the carbon compared to the same steel produced by the blast furnace.
Given the sensitivity of the subject of carbon emission now, about 3 million tons of new electric arc furnaces are coming up somewhere in the world, in the Western world. Out of it, about 11 , 12 have already come in. 20, 25 are coming within this year and next year. In total, we do have a list of about 100 million tons. This 100 million tons will add demand for 150,000 - 200,000 tons of electrodes. In the backdrop of this demand increase of 150,000- 200,000 tons, of course, this will take some time. It's not going to happen overnight, but it has started happening. New electric arc furnaces are already operational. They need more electrodes, and new ones are coming up every two months, every three months, every six months for the next three, four years. The demand is likely to go up.
On the supply side, as you probably have seen, as we have seen, some capacity closures have taken place in the last two, three years in Europe and in America. The total capacity which used to be on the ground two, three years ago has substantially come down, and some more are in the offing. Whatever I just said is very important. As I also started off by saying, we believe we are the lowest cost producer of the graphite electrode anywhere in the world. That gives us a certain advantage. If we increase the capacity, when we increased from 80 - 100, we practically didn't increase any fixed costs. When we now increase from 100 - 115, of course, there will be some increase in fixed costs, but it will be nowhere in the region of a proportionate increase.
I can imagine an increase in capital, in running costs, in production costs. If we are adding more and more capacity, it adds to our competitiveness. It adds to our bottom line.
Understood, sir. Quite clear . One last question was about, we have around 10% stake in GrafTech . What would be our ambition there, and how do we plan to develop further that?
Our intention, when we started buying, and we clearly mentioned this in the last couple of calls, our intention is simply the share price. As we have explained in the past, GrafTech happens to be the only company in the graphite business which has a backup of their own raw material, needle coke. As we are very bullish about the graphite demand, graphite electrode demand, fundamentally, there will be a demand for additional needle coke. Graftech happens to be the only graphite company which has a substantial backup in terms of backward integration of coke. When the electrode prices are rising on the background of demand, the needle coke prices also go up. When that happens, that will be the only graphite company which will have a twin advantage of increased prices of needle coke and increased prices of electrodes.
When we took this decision to buy a bit of GrafTech share on that day, about 9, 10, 12 months ago, the market cap was unreasonably low. It was probably 1/3 of ours. It didn't justify the kind of market cap they had, which was practically double the capacity of electrodes plus a backup of their raw material, which nobody else has. In the backdrop of what we expect, the demand of electrodes to grow, needle coke demand to grow, we took a view that it's a very safe bet.
Understood, sir. Thank you. It's quite clear.
Thank you. The next question is from the line of Chirag Pachisia from SKP Securities. Please go ahead.
Sir, the new 15,000 ton per annum expansion has a lower CapEx per ton than your previous stage. What key factors are there in this improved capital efficiency, and can we expect similar cost advantages in the future expansion?
Yeah, you see, you rightly notice that it's less than before. The last expansion was unique in its own way because we wanted a totally different facility to make needles, which are the critical part along with electrodes. Now here, what we are doing is this 15,000 because now we have ample needles capacity. The investment in the last project was higher. Another thing is that now we have a big 100,000 ton plant, and we have an opportunity where there are one or two shops there, one or two processes where the capacity already exists to some level. That is why we just streamline all our processes to make all equal into that 115. We will end up saving some money here in this to have a synergy with already a 100,000 ton plant because there are six different processes. One of the processes we already had that capacity.
That is how we save money.
Right. Thank you, sir. That's all for me.
Thank you.
Thank you. The next question is from the line of [Rohit from ITART DMS]. Please go ahead.
Am I audible, sir?
Yeah.
Yeah, yeah. Good afternoon. Just two or three questions. One was that in terms of the realization in the electrode business, I think you were mentioning in the last call that the capacity for a set of half tonnes is to sort of, it takes time for them to get, I mean, get sort of to operationalize. Now that probably they would have gotten operational, most of the equipment, how do you see the realization happening now, let's say, in the coming years? Any thoughts on that?
See, you have seen the steel production figures. See, graphite electrodes is a derived demand for every ton of steel made. Let's say it consumes 1.5, 1.6 kg per ton. This steel production, and you know the geopolitical situation, for the last two years, steel has been stagnating. What is happening now is, of course, it's not going to continue like that forever. Even the existing electric arc furnace capacities are underutilized at a 75% level. The moment, see, electric arc furnace is a start and stop operation. The plant manager decides in the morning how many heat cracks can make today. Whereas with blast furnaces, either works or it doesn't work. Electric arc furnaces work both ways. They are very quick to ramp up their production and very quick to adjust also.
Once this steel production, once we get out of this geopolitical situation going on, and of course, this is in addition to the new electric arc furnaces which are coming. We believe the prices are just a factor of demand. The moment all industry capacity utilizations of graphite electrode industry crosses 80%, 85%, then, of course, there's a firming up of prices. We are a little away from that. Maybe it takes two quarters, three quarters, I don't know. Yes, every electrode company in the world needs the price to rise because it's an unviable price to work on. We're just keeping ourselves afloat just because of our size and being at one location and being a lower cost producer. Otherwise, firming up prices, I don't know what is their timing, maybe two more quarters, but it should happen because we are at the lowest end now.
Okay, sir. You mentioned a bit about China , but some view in the Chinese industry are not specific to us, but others that they also want to add capacity or sort of not get into extreme price war kind of a scenario. Are you hearing anything or any signs that we're seeing for our industry in the Chinese markets as well, or nothing of that sort? Are you hearing anything?
First of all, we are not submitting to China. Whatever you have heard about their internal electrode capacity is usual. Let me say this, that China has a huge capacity of making electrodes, huge. There's a huge export also all over the world. Most of the exports which they are going are for the laser furnaces, which we call the HP variety or the non-UHP variety. That forms the lion's share of their export. What is happening inside China? Probably the electric arc furnaces, which were projected to be 20% of their production, it's not 20% still. They're running behind their own schedule. It's very difficult for us to comment what is exactly happening inside China because there are only five or six integrated companies, and that's our one process shop. Who's closing capacity there? Very difficult to comment.
Okay. The last question was on the investment in GrafTech, which you outlined for the previous participant. Usually, that's why you outlined the future of the steel plant as well. They also have a large portion of their finance that are not retiring, but they've gotten some expansion on the electricity part. Given that the type of market they have gained and they have in this moment as well, how do you view that, sir, given that it is more time than all of us anticipate? How do you view that as a risk to that investment? Whatever you can share.
Sir, shall I answer?
Yeah, go ahead.
Yeah, you see, you're talking about that one-shot debt payment of $900 million something, which is now payable after the rescheduling. It's now payable in December 2029. You see, with the new year coming up and the expectation of steel production, at least from next year, to start increasing, I think that 2027, 2028, or 2029 should definitely be good years, and they should be able to repay some of the debt. Of course, rescheduling possibility is always there when the industry looks good. I think we still have a few more years to go. I think it should be fine, and there should be a turnaround in that timeframe when the steel production also goes up, the new electric arc furnaces also come up, prices come up, there are enough margins to pay off the debt. That's what we think. I think our 10% stake is very much safe.
Okay, thank you. [That's all from my side].
Thank you. The next question is from the line of [Rahul from Dhammynesha]. Please go ahead.
Hi, good afternoon, gentlemen. A couple of points. When you say America as a region, does it include other geographies like Canada, Mexico? What does it include?
No, when we said about 8 %- 10% that we sell to America is the U.S.A. We are not including Canada and Mexico.
Thank you, Rahul. Anything mitigating in terms of, you know, that you guys are working on for minimizing the impact in terms of procurement or any other levers that you guys have for management to use? Or is it something?
We have heard of a couple of options wherein by importing some raw materials from the U.S., the duty gets adjusted. It is very, very new. All these things have just come up in the last three, four, five days. We are in the middle of studying all that, and we are probably going to take some legal opinion before we come to a conclusion. I really can't tell you anything more than that at this stage.
Sir, recently on GrafTech 's earnings call, they mentioned that the realizations from $3,800 odd per ton is upwards of $4,200 for them. How does it work? Generally, you know, it's a similar pricing all over the globe, you know, that people follow, or there can be difference? How does it converge over time? They've been guiding very briefly on, you know, that all the electric arc furnace guys, given 73% of U.S. is in electric arc furnace production, are very happy with the price tag because they want the industry to thrive and do well from here, given the nature of the industry today. How does it work for us?
Let me answer this by saying that pricing is different in different markets. For this product, there's pricing that's different in the U.S., pricing that's different in Japan, pricing that's different in Middle East, and different in Southeast Asia. It varies. Since they're in the U.S. and with the help of tariffs, they will, of course, enjoy that protected marketplace. That's what they might be feeling upbeat about because there's one market which has a higher rate of electric arc furnaces. In that market where pricing is already elevated compared to other markets which are much more competitive, they must be getting that additional price increases.
Typically, we have seen in the last many, many years, we've also seen that American customers tend to pay a slightly higher price if they are happy with the company, if they are happy with the quality, if they're happy with their consumption, after-sales service. I wanted to broadly get that trend of realizations in terms of, and I don't want to pick up a quarter, but broadly that trend, how would the realization from, given that some of the biggest players in the industry have indicated a 10% long-term realization jump, and he's saying that customers have absorbed it very well. Broadly, I want to understand the trend of the realizations for you. That's all.
As Chairman said, only about 10% of our sales go to the U.S., and 90% is other than the U.S., which is Middle East, Southeast Asia, Europe, everywhere. That price trend, which they are talking about, the 10%, we are not seeing that happen much in other areas, regions. Maybe slight, I mean, here and there, but in some customers, some, but not generally. I cannot say that this 10% we are getting everywhere in the Middle East and in Europe or in Southeast Asia. The U.S. has, of course, when the moment you have tariffs, that gives them an opportunity to raise prices.
Fair enough. In terms of you.
Sorry to interrupt, sir, but I'm going to request you to rejoin the question queue for a follow-up question.
Okay, thank you.
Thank you. The next question is from the line of Jatin Damania from Svan Investments. Please go ahead.
Good afternoon, sir. Am I audible?
Yeah, there's an echo from your side. Could you go to a better reception area or a better area where there's no echo?
Now it's clear?
Yes, sir, this is much better.
Yeah. Sir, just on the previous participant's question in terms of the pricing, we didn't venture much. We have seen the broad-based increase in the graphite electrode realization, and we know that China is not that big a competitor for us, given the technology and the quantity that we are using. There could be some amount of a benefit that should come to HEG or the other domestic players who are into U.S. and HEG specific. By when can one assume that there could be a benefit of the realization that was taken globally could be beneficial for us?
I think for us, I was just looking at the pricing which you mentioned for the January to March quarter and April to June quarter. This is just about the same, a very slight increase in what we saw in April to June, but at the same level. When we see the firming of our price, we have to wait. We have to wait till the steel production turns around and shows some healthy increase. As I said, we have soon been the first one to capture the opportunity because they just decide in a matter of days that when they have to ramp up production. Maybe it takes two quarters or more. I can only say that our feeling is that this is about the lowest it could get. At this point, the inefficient plants start to close down, which you have seen. It cannot go below this.
Now how long it takes, that's anybody's guess, two quarters, three quarters. There should be some firming of our price, which is dependent on how steel production does in the rest of the world , ex-China .
One more point, rather than only talking about the price and the price increase, if you talk about the margins, probably that is more relevant. I mean, the costs have also been stagnant. When the electrode prices are more or less at the same level, they're very, very slightly going up, in some regions going up and some regions not going up. The impact is not visible, but directionally, everybody believes in the industry that probably we have reached the bottom. You also have to look at the cost. The costs have also not gone up, which means the raw materials prices, power prices, all other costs have not gone up in the last couple of years. We have a slight advantage that now we are able to sell another 15,000, 17,000 tons within the same fixed cost.
Sir, thank you for the detailed answer. The last thing that you mentioned, that even the cost, I mean, has not gone up. Can you show something like in terms of how do you see a supplier of needle coke in the near to medium term and the cost dynamics for the same?
It's impossible for anybody to answer that question. I mean, it all depends upon what is the demand for electrode and the demand for needle coke, which is our raw material. It depends on that. There are only a few suppliers, so every information is available to everybody. Obviously, when the electrode prices will start increasing, the needle coke prices will also follow. It's only a matter of time.
Okay, sir. In terms of the CapEx that we allowed, now we are moving from 100 - 115 at an estimated cost of about INR 650 crore without our power. At the same time, sir, one of our competitors also allowed the expansion of 25,000 tons of capacity with a CapEx of INR 600 crore, which includes the power. That's one way to understand because if you look on the per ton basis, we are on the higher side. Is there any change in technology or the difference, or you can probably answer why we are on the higher side?
No, I can only speak about ourselves. We can't speak about somebody else. I mean, I don't know what they are doing, how they are doing. The only thing I can only tell you is that we will not compromise on the equipment. We will not compromise on the cost of the equipment. We are only focusing on the quality.
Oh, okay, sir. What sorts of IRR or the payback period we can...
Sorry to interrupt, sir, but I'm going to request you to rejoin the question queue.
It's a follow-up question. Just on the IRR, can I expect on this, the new CapEx?
Let Puneet answer that question.
Hi. We are expecting a double-digit IRR on this, and the payback is lower than within four to five years.
Sure, sir. Thank you. That comes from my side. All the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, please limit your questions to two participants. The next question is from the line of [Tomil Shah] from Paras Investments. Please go ahead.
Yeah, hi. Congratulations on a good set of numbers. For this quarter gone by, our capacity utilization was 90% +. I mean, what's the outlook for the remaining year? Do you see our capacity utilization going up further from here?
I would say that 85% maybe. Sorry.
No, go ahead. Go ahead.
Sir, I would say that this quarter was 90% +. For the remaining quarter, I'll try to book quarter by quarter. It's very difficult to answer for more than one quarter at a time or two quarters at a time. I think it should be around 85%. There's a reason of 85% for the balance sheet quarters.
Okay. Sir, what is the reason for our, I mean, margins are fluctuating every quarter? I think it's, you were mentioning there's a mark-to-market profit or loss for GrafTech International . I mean, how can we look at EBITDA margins for the next one, two quarters?
See, that mark-to-market ends up confusing a lot of investors. If you take it out, our EBITDA would be very similar in the last two quarters and are likely to stay that way in the July to September quarter as well. What confuses people is that mark-to-market sometimes has a drop in price and sometimes it increases in price. We always mention in the notes, if you just take that out, you will have quite a stable EBITDA level operational.
Okay, but then why do we do it every quarter? Can we do it every year, I mean, once in a year?
No, that's what NDAs and that's what auditors tell us. You have to do it every quarter. That's the rule.
Okay.
Can't help it.
Okay. Once we remove it, it's around 17%?
Yes. No, no, that's right. I have a sheet in front of me for the EBITDA, which obviously talks only about the operational EBITDA. It doesn't have to do anything with whether you made money or lost money or the investments and all that. Our EBITDA in 2022-2023 was 28%. 2023-2024 was 21%, which dropped down to 17% in 2024-2025. Immediate previous year was 17%, and this quarter was about 23%. 28%, 21%, 17%, 23%. This has been the trend.
Okay, sorry. Which you are saying, this you are saying after excluding this mark-to-market, 23% for previous quarter?
Yes.
Is this including the mark-to-market here?
[Let Manish speak, go ahead] .
Yeah, okay, go ahead. This is including mark-to-market gain last year. That's right.
Without that, it will be what, 17%?
Yeah, without this beta, it's still 17%.
Okay. My final question, sir, I wanted to know more on the Greentech businesses. What's the current revenue and margins, and how much can we scale this business in the next one, two years?
Can you repeat your question, please?
I wanted to know more on the HEG Greentech, your anode business. What's the current revenue and margins in that business, and how much can we scale this business in the next one, two years?
On the HEG Greentech chain, like we have already told, we are setting up the anode plant there, 20,000 tons that will be operational by March 2027. You can see the revenue after that. Today, if you ask me, there are two revenue streams from the HEG Greentech platform. One is our hydro assets, which are in Himachal. Secondly, our best company, which is [AriPlus]. Both of these companies are generating the revenue. For the FY 2026, you can consider the revenue of, say, INR 500- 600+ crore EBITDA of around INR 200 - 225 crore in this. Apart from this, the other businesses which we have actually announced in HEG Greentech will take some time. We feel that by FY 2028, the other businesses will commence, and then we will see the actual revenue and the EBITDA there.
Basically, the quarter gone by, even this is including this HEG Greentech business?
The quarter gone by only includes the Hydro because today, HEG owns around 40% of the equity in this, of course, the inclusion by the singularity in BEL . Once the company gets merged and the HEG graphite business gets demerged, then only you will see the exact revenue and the profitability from the HEG Greentech side.
Okay, okay. That's it. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Good afternoon, sir, and thank you for the opportunity. I was wondering that after a long time, we are seeing some capacity announcements by the Indian companies in graphite electrodes. Is it fair to assume that this is coming from the needle coke availability from the capacity closures in the world? The second part of this question is the capacity closures are in the region of 100 - 120 kt, and the capacity increases are around, sir, in the region of, say, total 40 kt, including you and graphite . Does that mean that there will be an ample availability of needle coke in the future for at least the next three to four years to, you know, kind of avoid a large spike in needle coke price to tackle the first question?
I don't think we can give a very clear answer to that. Yes, what your calculations are, more or less in the ballpark, that over the last two, three years, some capacities of electrodes have closed down in the Western world. Obviously, to that extent, there is excess needle coke available. This will also have to be seen whether some of these capacities of electrodes which were closed down in the last two, three years. As I said in answer to some other question earlier, there are all these plants which were built before HEG. I'm not even sure if any plant was built within five or 10 years just before HEG came in. Most of the European and Japanese plants will be like maybe 60, 65, 70+ years of age. I'm not able to answer that question very clearly.
After having closed down the plant, whether some of these equipments have been derailed, they have been taken away. Maybe at some plants, they have removed everything and started using it for real estate, as we heard about three, four years ago in one of the plants in Germany. After closing a plant which has been in operation, which was built 60, 70 years ago, and after having closed for two, three, four years, whether it is as easy as it looks like that you go one day and restart so suddenly and start operations. These are very, very vague questions to answer. Nobody has a correct answer to that. If suddenly electrode demands are to shoot up by 30,000, 40,000, 50,000, 100,000 tons, obviously, there'll be a clamor to restart some of these plants.
Now, which plant will be in what condition that day and at what cost would you be able to restart? Not just the restarting cost, but the cost of operating that plant. That plant was closed in the last two, three years because it was not viable. It will become viable to restart that plant at a cost. Obviously, the cost means the electrode prices will have to go up to justify restarting that plant. Whether you can restart that plant in six months, nine months, 12 months, two years, this is anybody's guess. As I said, most of these plants are more than 50, 60, 70 years old.
[No, that's true.]
It is a very difficult question to answer. Each plant will have a different story.
That's fair. Actually, my other question was that because of the tariff war that we are seeing from the U.S. and Japan on Chinese electrodes, is it fair to assume that there'll be a price pressure, at least in the HP side of the market, for a considerable period of time, at least in the near term? Obviously, that Chinese exports, I don't know what the figure is for the first six months, perhaps you could share that as well. Is it going to put some pressure on the pricing, at least on HP?
I don't think if you're talking of the lower grade, what you call HP and not UHP, high power and ultra high power. There, with the situation that Europe and America have created for China, and Manish will tell you, by probably in one case, the duties are as high as 100% in some country, Europe or America, I don't know. In both these countries, the Chinese electrodes are facing a huge amount of duties. I mean, in India, it's only 20 %- 25%, which is very possible that there is some negotiation going on. Manish here, you remember, it's 93%, 94% in one country. Is it America?
Sure, Europe.
There was Asian and Japan 93.5%. In the U.S., depending on the supplier, it was as high as 139% + the 25% which they had to tax for. I can answer Rajesh's question. You see, these HP prices have always been competitive. We have been actually comprised with about 25% of our business. Even earlier also, it's not about today. Earlier also, because of Chinese low-priced HP grade products, their margins have been always lower compared to the [Asahi] power grade. That is competitive. Nothing has changed there. It still continues the same way. We have our own set of customers. We have our own country, India, where the people buy who buy electric arc furnace electrodes from us. Also, car cars and buy metal furnace electrodes from us. That competitiveness is there. We can't help it. It's not something new which has happened.
Therefore, for years, since China, there was a source capacity of graphite electrodes in the HP grade.
Is our export domestic ratio still at 70/30, or has it changed?
Yeah, it's the same. It's the same. It's not changed. It's around 70/30 already.
Okay, thank you.
Thank you. The next question is from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yeah, good afternoon, sir. Just wanted to check what will be the CapEx outlay for this year and next year, given that we are heavy on the anode side, the expansion graphite electrodes, as well as some maintenance capabilities that are supposed to be spent. Secondly, how do you plan to fund it through, you know, do we see an interim debt on the balance sheet because that will be kind of a breakeven? Sir, if you can guide on the CapEx and the funding of the CC.
Hi, Shashank, Puneet on this side . The CapEx of anode has already been mentioned before. There is a CapEx of INR 1,800- INR 1,900 crore for the 20,000 tons for which HEG has put INR 750 crore of equity and the rest we are doing the financial closure. For this expansion, which we are planning, which will be done in the next two to three years, this will be done through internal equity plus some loans since [HEG] generates the cash. The money will go in a phased manner. We will be planning it to generate equity and some discounting.
Could we see INR 1,000 crore of cash also on the CapEx part, anode and graphite all put together this year and next year?
Yeah, yeah, easily, easily.
Around INR 1,000 crore CapEx, right, for both the things put together?
Like I said, the demand of anode is going full-fledged, and the CapEx and machinery order has already started. I think it could also increase.
Okay, okay. In interim, we should have some debt on the book sales side incrementally because the cash flow. Standard INR 20 crore per year and we'll have some amount of equity on the balance sheet as well.
Right. Interimly, yes, we will be, we are raising the, we are doing the financial closure for the anode project that is undergoing. For the expansion, we already have started the paperwork and all. Interim, we will be having certain terms later here.
Sure, sir. Thank you so much, and wish you all the best.
Thank you.
The next question is from the line of [Rohit from Marshmallow Capital]. Please go ahead.
Thank you for the opportunity. First off, I would like to thank the management. Your calls are always very educational. My question is basically a follow-up on what the Chairman said earlier on GrafTech. You mentioned that around 10 months back, when you bought it, GrafTech was around 1/3 of the market cap of HEG itself. That's where the purchase made sense. Today, if I see, I think GrafTech is 1/4 of the market cap. When you allocate capital to graphite electrode capacity, you chose to expand over, let's say, increasing process taking GrafTech. For the $70 million that we are putting out, we could have bought maybe 15% - 20% additional GrafTech. How do you take the decision on expanding capacity or when 15% - 20% of GrafTech is sort of equivalent to getting an additional 30,000 - 40,000 tons capacity?
How do you make the decision and why not have more capacity in GrafTech instead of doing the organic expansion?
Hi, Rohit . Puneet Anand on this side. I'll take this thing. Rohit, you see, since if you see the history of HEG, we never invested in equity. The investment in GrafTech is because we understand this business. That doesn't mean that we put all our eggs in one basket. When we are doing an expansion, that is the core business of HEG, and we are positive about that. Secondly, like our Chairman already discussed earlier also, there's a huge cost difference between GrafTech and HEG costs for production. GrafTech 's share is only for investment purposes, which we will keep. Whenever we feel there is a substantial profit we are making for the shareholders, we will exit. The business we are doing for a longer duration, and we will do the expansion. Just to add, Rohit , here one more thing.
The shares which we have bought, these are bought under FPI route, which doesn't allow us to vote beyond 10%. The management is not offering an opinion to change it into the FDI route. If you have any change in the investment decision, that we will discuss with the board and we'll inform the investors.
Okay. There's some kind of a regulation which sort of restricts us from going beyond 10% at this point in time as well. Is that fair?
Yes, yes, sir. Indian companies are only allowed to do it through two routes. We have taken the FPI route to do it.
Understood. Second, opposing question on GrafTech. It's sort of a follow-up on the previous participant. See, I mean, at least if I see last year's annual cash flow, they did an operating loss of around INR 100 crore, and their available liquidity is around $300 million- $400 million cash loss, [a nd maybe $200 million ] of cash loss against the available liquidity of around $300 million- $400 million. I understand there are covenants around the liquidity also because they're coming off some working capital as well or line of credit there as well.
I mean, while I think Manish sir did mention that over the next two, three years, we could see upturn, but given the available liquidity covers their cash flow, if you just take last year's cash flow only for three, four years, isn't there a risk that in that context, wouldn't that have been a better option to go for inflow of equity? Here I'm sort of contradicting the first question. In that context, wouldn't it have been better to expand capacity further here? Why go for GrafTech? Because given this possible bankruptcy, given the cash flow loss that they have last year, and if that is analyzed, you can see them getting bankrupt in two, three years.
Rohit , what's your question here? I didn't understand your question.
Do you, I mean, the operating cash loss last year is around INR 90 million-INR 100 million, and the available liquidity, I believe, is around INR 300 million. They seem to have run only for three years. How do you think of that risk there, given that some amount of liquidity is coming from line of credit, if that covenant attached to it?
Right. I can discuss only things which I know through the announcement done by GrafTech . We are not privy to any other information from the management directly. The thing is that we are positive about turning off this business in the next few quarters or so, and it might turn very swiftly. Yes, there's a risk that the $25 million every quarter they are burning, and they have about $300 million of liquidity there. They also have certain lines of credit which they can withdraw if they need money. This $900 million of debt which is there was due in 2027. The creditors actually extended it to 2029. They have given them the additional lines also if it is required.
We are hopeful that in the next two, three years, and three years is a very large period of time, we are very hopeful that the entire industry will change. The kind of new EAF plants are coming. We feel that the pricing and things will change.
Understood. Fair enough. I mean, this was very helpful.
Yeah, sorry.
It was very helpful.
We always evaluate our investments intelligently and see from the good perspective. Whenever the management or the Board of Directors feels that it is going on a different route, we will take the call back.
Yeah, understood. Fair enough. I mean, this is very helpful. Thank you so much for the opportunity. I'll get back in the queue.
Thanks. Ladies and gentlemen, on behalf of SKP Securities and HEG Limited, thank you for attending the HEG quarterly con call for Q1 2026. I now hand the conference to Mr. Jhunjhunwala for closing comments.
Thank you, friends. As always, I hope you've been able to answer most of your questions. Not all of them may have been totally to what you expected, but under the circumstances that we are talking publicly, we have to be reserved in some cases. We have always tried to be as open as possible to the extent that we can be in the public domain. I thank you for all your interest. It was a long, probably the longest call. I hope you keep taking so much of interest, which will make us more and more and more alert. Thank you.
Thank you. On behalf of HEG Limited, on behalf of SKP Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your line.