HEG Limited Q3 FY24 Earnings Conference Call Insights

Key highlights from HEG Limited (HEG) Q3 FY24 Earnings Concall

• Steel Production Trends
  • Global steel production flat in 2023 versus 2022 at around 1.8 billion tons.
  • China production declined in H2 2023 but increased exports by 34%.
  • India steel production grew 12% driven by domestic infrastructure and real estate.
  • Expect global steel production to remain subdued in 2024 as well.
• Electrodes Demand Growth
  • Decarbonization driving more electric arc furnace steel capacity additions.
  • 90 million tons of new EAF capacity announced globally, boosting electrode demand.
  • Electrode demand estimated to increase by 150k-200k tons through 2029-30.
  • New 20k tons TACC facility to meet growing anode powder needs of EV market.
• Operations Update
  • Operated at 85% capacity utilization in first 3 quarters of fiscal year.
  • Expanded capacity of 100k tons now operational, to start commercial output this quarter.
  • Raw material inventory levels normalized, no overhang presently.
  • Margins to remain under pressure over next 2-3 quarters due to weak steel demand.
  • Well positioned to capitalize on long term electrode demand growth
• Financial Performance
  • Recorded revenue from operations of INR 562 crores versus INR 614 crores last quarter.
  • EBITDA including other income stood at INR 110 crores compared to INR 130 crores in Q2FY24.
  • Net profit after tax declined to INR 37 crores from INR 62 crores quarter-on-quarter.
  • Revenue decreased by 8.5% compared to previous quarter.
  • Delivered lower volumes as focus remains on exports for the company.
• Volume Growth Trends
  • Expect to sell 10-12% higher volumes in FY2024 versus last year.
  • Volume growth largely flat across the three quarters of this fiscal year.
  • Overall steel production stagnant leading to flat electric arc furnace volumes as well.
• Anode Business Outlook
  • Investing INR 2,000 crores in 20,000 tons per annum facility.
  • Expect 25-30% EBITDA margins from second year of operations.
  • Commercial production to commence by March-April 2025.
• Capacity Utilization and Spreads
  • Operated at ~85% capacity utilization across all three quarters.
  • Will benchmark utilization to expanded 1 lakh tonnes capacity going forward.
  • Spreads have declined across the three quarters due to lag effect.
  • Electrode prices fall but higher cost needle coke inventory works through.
• Graphite Demand Growth
  • 90 million tons new electric arc furnace steel capacity announced globally, requiring ~200,000 extra tons graphite electrodes per year.
  • Expect to start production in new EV graphite facility by July-September 2025.
  • HEG will produce graphite for lithium-ion batteries for electric vehicles.
• Needle Coke Supply
  • 4-5 petroleum needle coke suppliers currently globally.
  • Supply expected to match demand with increased electric arc furnace capacity.
  • No new needle coke capacity added in ~50 years similar to electrode industry.
• Electrode Pricing Pressure
  • Demand ex-China not changed much recently.
  • Some companies’ utilization rates have fallen.
  • Pricing pressure likely due to competitive dynamics between major producers.
  • Company believes it has cost and quality advantage over competitors.
• Anode Facility Update
  • Leveraging internal graphite expertise from current electrode operations.
  • Running pilot plant to develop products matched to customer needs.
  • Locating in Madhya Pradesh to get government subsidies
  • Targeting INR5-6 per unit cost through state subsidy and potential dedicated solar/wind electricity tie-ups.
  • 50 GWh lithium-ion battery factories being set up currently in India.
  • Company aims to be early leader in this market through 2025 start date.