HEG Limited (NSE: HEG) Q3 2025 Earnings Call dated Feb. 14, 2025
Corporate Participants:
Ravi Jhunjhunwala — Chairman, Managing Director and Chief Executive Officer
Ravi Kant Tripathi — Chief Financial Officer
Manish Gulati — Executive Director
Analysts:
Navin B. Agrawal — Analyst
Praful Kumar — Analyst
Saumil Shah — Analyst
Suraj Khaitan — Analyst
Rajesh Majumdar — Analyst
Pranay Khandelwal — Analyst
Saket Kapoor — Analyst
Deep Mehta — Analyst
Zed — Analyst
Shashank Kanodia — Analyst
Presentation:
Operator
Ladies and gentlemen, welcome to HEG Limited’s Q3 FY ’25 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr Naveen Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Navin B. Agrawal — Analyst
Thank you. 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, Chairman, Managing Director and CEO; and Mr Richu Junjanwala, Vice-Chairman, along with their colleague, Mr Manish Kulati, Executive Director; Mr, Group CFO; Mr, CFO; and Mr Punit, CSO.
We’ll have the opening remarks from Mr followed by a Q&A session. Thank you and over to you, Abhiji.
Ravi Jhunjhunwala — Chairman, Managing Director and Chief Executive Officer
Thanks. Friends, good afternoon and welcome to our financial results conference call for the 3rd-quarter 2024-’25 global crude steel production for the full calendar Year 2024 totaled about 1,883 million tonnes, 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 US, Japan, Korea and Russia dropped between 2.5% to 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 tonnes 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 tonnes 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 into a reduction of steel production in all other parts of the world except China, which is a direct bearing on the graphite electrode demand in the markets we serve. Having stabilized our plant operations post expansion 200,000 tonnes, 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 ’23 ’24 for the first 3/4 at capacity of 80,000 tonnes. So practically, what I’m saying is our capacity utilization remains 80% at 100,000 tons versus 80% at 80,000 tonnes, which used to be one year-ago. From all available public data available, we can safely say that 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 coal prices have been stable for the past two to 3/4, which obviously results into 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 hundreds of projects all over the world which are who are coming up with new greenfield electric arc 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 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 two-thirds 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% to 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 SEBI. 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, Ravit, who will take us through the financial figures. Following that, our Executive Director, Manish and our Chief Strategy Officer, Puneet, along with me, will be delighted to address any queries that you may have. Over to Ravi.
Ravi Kant Tripathi — Chief Financial Officer
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 2025. For the quarter ended 31st December 2024, SEG recorded revenue from operation of INR477 crores as against INR562 crores in the corresponding quarter of the previous financial year. During the quarter ended 31st December 2024, the company delivered EBITDA of INR194 crores as against INR110 crores in the corresponding quarter of the previous year. The company on a standalone basis recorded a net profit-after-tax of INR98 crores in Q3 FY ’25 as against similar amount of INR37 crore in corresponding quarter of previous year. And on consolidated basis, the net profit-after-tax is INR83 crores in Q3 FY ’25 as against INR44 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 INR1,000 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 Naveen.
Questions and Answers:
Operator
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 touchstone 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 Prapul Kumar from Diamond Asia. Please go-ahead.
Praful Kumar
Hi, good afternoon, sir. Am I audible?
Ravi Jhunjhunwala
Yeah, yeah, you are. Go-ahead.
Praful Kumar
Okay. Thank you, sir. I have just broadly three questions. One, if I listen to the con-calls of your global competitors, they are all indicating a 15-odd percent price hike given the conditions they are prevailing and weakening balance sheets. In that context and given the fact that recently US majors of steel producers have given a reasonably confident outlook for the year, you know, do you think you’ll be taking the price hikes or you’ll be still maintaining how it works in terms of if they increased prices, are you competitive enough to increase them?
Ravi Jhunjhunwala
You want to ask two other questions so that we can answer this one-go.
Praful Kumar
Yes. Sir, second question is your demerger process, the annual 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 EUR100 million, EUR500 million ballpark?
And final question is in terms of this reciprocal duties that has been talked about, how competitive we will be and how it works and what it means for the business? These are the three questions, sir. Thank you.
Ravi Jhunjhunwala
So what was the last one? We missed that.
Praful Kumar
Yeah. The duties that has been talked about from the US, the reciprocal duties, what it means for our industry and how — yeah, yeah. Thank you.
Ravi Jhunjhunwala
Now about the price increase. So obviously, if you — I’m sure all of you are comparing our results versus everybody else is, so you will clearly see a difference where, 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. And let’s see, I mean, I can’t make any more comment than that. I mean till the time will tell the next couple of quarters, whether it goes through or it doesn’t go through. I mean,
Praful Kumar
But sir, the question is, if their price hike goes through, we’ll be obviously comparable. So understanding that each steel producer has two, three vendors,
Ravi Jhunjhunwala
Everybody’s prices is 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 simple, then everybody would have done that long back. I mean for the market to accept or not to accept. 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 US this morning they have not announced any duties or reciprocal duties as they call as and when they do will have to be at that 7.5%, but given our given our competitive competitiveness and given our costs till the time we as a country so long as we are not able 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 US market, I mean there is 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 — 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 US the EBITDA will come down to 10%, that’s all.
Praful Kumar
Okay. Thank you, sir. Hi, so on the demerger part, can you hear me?
Ravi Jhunjhunwala
Yes.
Praful Kumar
Yeah. So on the demerger part, like Ravi told about that since we have done a split and the process got delayed,
Ravi Jhunjhunwala
We did the share split, share split right from INR10, we went down to 2
Praful Kumar
We envisage that the entire process and the listing of the new entity will be done by this end-of-the year. On the question about the value for the shareholders and all, so the prime objective doing this demerger was to actually unlock the value of the shareholders. Reason being today HEG business have a — 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 a different entirely multiple. And today also if you see the market cap of HEG, that doesn’t give the same as value of the value which holds.
Ravi Jhunjhunwala
So to answer you, if you have seen the PWC and ICEG reports on the fair valuation of the asset, which will be the new entity, that is close to INR3,200 crores. That is a fair-value of that asset. So once this process has been done entirely, it will create immense value for the shareholders
And the shareholder it will be exactly similar, one-to-one.
Praful Kumar
So yes, you’re right, when you are doing this scheme of arrangement, the — it is one is to one, but since promoters are also contributing their 51% stake of the Energy into this company, so they will be given additional share of this company because they are putting the value to it. But this is not — this is not having any recremental value on the shareholders because it will enhance the value and create a linear structure for the future for business.
Got it. Thank you, sir. All the best.
Ravi Jhunjhunwala
Thank you.
Operator
Thank you. The next question is from the line of Saumil Shah from Paras Investments. Please go-ahead.
Saumil Shah
Hi, good afternoon. Looking at the current pricing environment and our capacity utilization, where do we see our company in FY ’26? Can you kindly provide us a guidance on revenue and EBITDA for FY ’26?
Ravi Kant Tripathi
So it will all depend upon what happens in the next 12 months. As I said, we have been tracking practically every new electric car furnace which is which is under — 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 electrode demand. So it’s too early to predict what’s going to happen in ’26. I mean, in — 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 tonnes 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 nine 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 to 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 end of this year
Saumil Shah
Okay. And for the current ongoing quarter, have we increased our prices as one of our larger competitor what you said has increased their prices. So even have we increased our prices?
Ravi Jhunjhunwala
No, nobody has increased the prices. The I could go on and send 100 letters to 100 customers asking about 20%, but that doesn’t serve much of the 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 3/4 of pricing.
So whatever they are predicting or contemplating is probably in the second half with the first two quarters probably is more or less 70%, 80% already sold at the old prices.
Saumil Shah
So the current quarter prices are similar to what it were in the Q3 previous quarter.
Ravi Jhunjhunwala
Yeah, yeah. Yeah.
Saumil Shah
So we can expect the similar margins for the current quarter.
Ravi Jhunjhunwala
Yeah. You see, you have to also appreciate in this — in this particular product that 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 2, 2.5 months and the process time to produce electrode is anywhere between two to two to three months-to five months, depending on the size, quality and everything else. So we can more or less — we more or less know our — if not full two quarters, we know at any point of time what does the next quarter or quarter and a half look like because everything is frozen. I mean the needy 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 3rd-quarter of this calendar year.
Saumil Shah
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%.
Ravi Jhunjhunwala
Yeah. Yeah.
Saumil Shah
Okay, okay. And sir, recently, there were some news on Chinese China’s quota on graphide exports used in EV batteries. And I think our stock price prices zoomed up after this news. So I mean, we are currently not doing this production, right, for graphite use in EVs.
Ravi Jhunjhunwala
Yeah, that is — 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.
Saumil Shah
No, that’s correct. So currently, we are not into that, right?
Ravi Jhunjhunwala
We will come into that later when our plant is in — the anode plant is in-production.
Saumil Shah
Okay. And that will take at least what — how many more quarters?
Ravi Jhunjhunwala
18 months maybe.
Saumil Shah
Okay. Okay. Okay. And sir, what is the export percentage to US just now you just said that maybe US can have an import duty. So what is the percentage of our sales to export?
Ravi Jhunjhunwala
Percentage to US? I would not like to talk, talk about the exact percentages, but it is amongst the largest
Saumil Shah
Okay
Ravi Jhunjhunwala
US is one of our one of our larger geographies together where we sell okay and it is it is pretty natural because they are the single largest consumer of electrodes in the world as a country and just to clarify as you know electrodes are used where the steel production happens to happens through electric arc wireneurs so while the rest of the world produces about 47% 48% steel through electric arc US produces more than 75%.
So obviously and US is the third-largest producer of steel. So that makes US amongst the largest consumers of electrodes in terms of capacity and size.
Saumil Shah
Okay. Okay. That’s it from my side. Thank you and all the best for your future quarters.
Ravi Jhunjhunwala
Thank you.
Operator
Thank you. The next question is from the line of Suraj Khaitan from SKP Securities. Please go-ahead.
Suraj Khaitan
Thank you for the opportunity, sir. My first question is,
Operator
I’m not clearly audible. It’s very low in volume.
Suraj Khaitan
Hello.
Ravi Jhunjhunwala
Yeah, go-ahead. Go-ahead.
Suraj Khaitan
Sir, can you please provide an update on the current status of and project.
Ravi Jhunjhunwala
I think what Puneet just talked about it’s delayed by about 2-3 months because the split that we did split of HCG shares and the Apple project is practically. I mean the construction started more than 2, 3 quarters back. We are targeting end of next year
Suraj Khaitan
Thank you. Thank you.
Ravi Jhunjhunwala
Thank you.
Operator
Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go-ahead.
Rajesh Majumdar
Yeah, good afternoon, sir, and thanks for the opportunity. So sir, my first question was, in the current graphite electrode market of say, 7.5 laks, 8 lakh tons, what is the capacity utilization
Ravi Jhunjhunwala
You’re talking of capacity utilization of ours or others of the
Rajesh Majumdar
Overall 7,5, 8 lakh tonne market that ex-China no,
Ravi Jhunjhunwala
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 tonnes. So it was 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.
Ravi Kant Tripathi
You see among the three major groups, Rajesh jee, one is, one is Raftec and the 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 reduce 60. So if you just add hours and theres and put it all together in one basket. So your question which you asked was what is the overall industry capacity utilization ex-China?, you will end-up at a number around anywhere between 65 or in that range, 60 to 65, we will add all of us together and divide by the total capacities we have, probably it would be — close to 65.
Rajesh Majumdar
So on the current operational capacity of 5.5 lakh odd tonnes which sir mentioned, the utilization is 65%. Is that correct?
Ravi Kant Tripathi
Yes. Yeah, 60 very close. So if you add-up everybody.
Rajesh Majumdar
That is about 3.5 lakh tons is the current production in the market. Is that right?
Ravi Jhunjhunwala
Ex-China. Yeah,
Rajesh Majumdar
Ex-China. Yes.
Ravi Jhunjhunwala
There is a number of 600,000 after all the decent closures announced. And on that 600,000, you can talk about 65% because this is a bad year actually.
Rajesh Majumdar
Okay. So I have two questions. So we are now operating at, say, 380 kt 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 2 lakh tons over the next five years. So my — I have two questions in two-parts. One is that what is to prevent from 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 electrode, 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 7.5 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.
Ravi Jhunjhunwala
So 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 electricals, whereas the rest of the world is now in the region of 47% 48% minus China. So that’s number-one. Secondly, China — China’s electrodes and the Chinese electrodes technology and the qualities is still far behind and they are very — with great difficulties, they are able to make some of their — some of their electrodes work-in some of the European and American 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 seeing for the long-time, we — 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, majority of our production or graphite India’s production or Americans or the Japanese countries production is majorly for the ultra-high power.
It’s where China is not able to provide the same quality.
Rajesh Majumdar
Okay, so because you mentioned this is a point in your notes, in your note that oversupply of Chinese electrodes have 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 as to how much of a threat is it?
Ravi Jhunjhunwala
Which are –, are you referring to our investor presentation or somebody else’s
Rajesh Majumdar
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 electrons and continued price declines.
Ravi Jhunjhunwala
Yeah. So let me explain this 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, production, their shift to electric furnace is not happening as per their own schedule. So when we see stall, we installed as compared to their own projections of reaching 20%. So it’s still there about, I think not even 13% around 11% 12%. Had that electric arc furnace shift happened in China, the oversupply of Chinese electrodes in export markets would not have happened. So they are still lagging behind their own EF production targets. So every time that target shifts, otherwise — that is what is causing an oversupply of Chinese electrodes, even if they are not of the USP variety because the large part is the HP grade variety. So that’s what that point number four means.
Rajesh Majumdar
I got it. Got it. So this Chinese electrodes are coming only into India or even in US. US they can’t come because of the import duty. But in other markets like Middle-East and Japan also, the Chinese electrodes are coming now.
Ravi Jhunjhunwala
So see Chinese electrodes are going all over the world, Rajeshy. It’s about that quality which they are supplying. I think there must be. I think some custom 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 and big list of countries everywhere. There is a big dumping duty in US on Chinese electrodes. That’s — that’s where they are limited, but other than that they go to every country including India.
Rajesh Majumdar
Okay. So I just wanted to know whether that’s a concern for us long-term thesis, that’s all.
Ravi Jhunjhunwala
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 furnace market. Lately, they are also targeting some furnaces where UHP grade works. But that’s still behind. I’m not known of any big customer group giving them 20% 30% of the business work last few years because in this product, consistency and reliability is most important rather than price.
Ravi Kant Tripathi
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 electrode, they’re consuming lot of electrode, but their size of furnace, the size of rectrofarmer, the transfer, the power that they feed into those furnaces is nowhere comparable to the — these plants which are coming up now.
And one point here is also important for you to understand. Electrode only means 1.5% to 2% of the cost of production of a steel company. Yes, whereas one bad electrode, one breakage of 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 1.5%, 2% in the price difference and the consumption difference of electrodes.
Rajesh Majumdar
Right, that’s helpful. Thank you so much. Thank you so much.
Operator
Thank you. The next question is from the line of Pranay Khandelwal from Capital. Please go-ahead.
Pranay Khandelwal
Yeah, hi. Thank you for the opportunity. Just wanted to ask the management made a comment that the US and the Europe they sell the capacity one or two quarters ahead. So just wanted to understand if that is something that applies to us also. Like do we also follow the same practice?
Ravi Jhunjhunwala
No, you see, if we are exporting about two-thirds of our production, it takes about, as I said, between two to four to five months it takes to produce all those electrodes.
Pranay Khandelwal
Okay.
Ravi Jhunjhunwala
And if we are — so unless we have order book for the next two quarters at least, you can’t even start production of those electrodes.
Pranay Khandelwal
I certainly work on a certain order basic
Ravi Jhunjhunwala
Pattern. I mean today if you are operating at 80%, 85% capacity, let’s say, in this quarter, January, March, we can we can supply another 5%, 7% for an ad-hoc supplier, ad-hoc demand, but 80%, 85% is already sold,
Pranay Khandelwal
Okay.
Ravi Jhunjhunwala
And similarly, if it is not 80%, 85% for next quarter, April, June, it will be at least 50%.
Pranay Khandelwal
Okay.
Ravi Jhunjhunwala
This way you cannot plan unless you know what size and what quality you have to produce and sell-in April March March, April, May you can’t plan your production also
Pranay Khandelwal
And I think that’s all from my side. Thank you.
Ravi Jhunjhunwala
Okay. Thank you.
Operator
Thank you. The next question is from the line of Saket Kapoor from Kapoor Company. Please go-ahead.
Saket Kapoor
Yeah. Nashkar, sir, and thank you for this opportunity. Sir, firstly, I missed your number on the global, yeah. Am I audible, sir?
Ravi Jhunjhunwala
Yeah, your global — what was your word? Global what?
Saket Kapoor
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 anvil going ahead, whether they are any?
Ravi Jhunjhunwala
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 tonnes. That 740 is today close to 500,000 tonnes. So that the 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 tonnes meant about 21 plants.
Again, I’m talking minus graphite India minus HGG. So that 740,000 tons and 21 plants in 2010 currently stands at 500,000 tons and 13 plants. So eight plants have to fully close down and 240,000 tons of capacities has gone out of business and this is as I said without HEG and graphite India and now if you come to 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 now currently today as we speak BR 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 closed about seven, eight years ago. So Graphite India today has two plants with a capacity of 80,000 tons in Durgapur and Nasik. 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.
Saket Kapoor
And how have the steel production shaped up from the electric arc furnace route if we take that statistics in correlation to how the mount boiling of capacity for graphite has been
Ravi Jhunjhunwala
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 furnace and China produces 55% of the world’s steel. Whereas the balanced 45% steel which is produced by everybody excluding China, electric arc furnace accounted for about 40%. So that 40% in the last years has come close to 50% So 40 going to 50 in the last 5-7 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 because simply because of the carbon emission, carbon emission in the electric arc furnace is between four to five times higher than the same steel produced through the electric arc furnace. 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 furnace, 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 I don’t know if I made sense if this is what you are looking for?
Saket Kapoor
And 2% of that will go towards the expenditure towards the graphite consumption.
Ravi Jhunjhunwala
No, no, you are confusing. We are talking about the capex of capex to build 100 million tons is about $100 billion, right? And when you are talking of 2%, we are talking about the operating cost. That means what I’m saying is two 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, but that 2% can stop your furnace for 2, 3 hours. If one electrode breaks it takes you to you waste two hours of production just for bad quality electrode, which is which accounts for 2% of your cost. So the cost of that two hours is very, very-high as compared to saving in 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 so he loses 400 tons of steel production because of the bad electrode which only means 1.5% to 2% of his operating cost.
The quality and the technology comes in.
Saket Kapoor
Thank you. Sir, can you comment on the raw-material price basket, especially for the needle coke and the 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?
Ravi Jhunjhunwala
First of marketing other income has gone up. No, no, first question was what I mean the other question was MTM.
Saket Kapoor
First question was regarding the RM price question
Ravi Jhunjhunwala
No, first question was needle coke prices. So as I said, the electrodes — electrode prices are more or less frozen for at least one or two quarters, because it takes that long to produce electrode. So in connoissance 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.
Saket Kapoor
And the price sense also, sir, going ahead, the capacity addition for needle coke also, I think that is mainly from China only the major producer. So what’s the terms of
Ravi Jhunjhunwala
No major producer of what was China?
Saket Kapoor
Needle coke, I think so is
Ravi Jhunjhunwala
No, no, we don’t buy a single ton of your needle coke from China
Saket Kapoor
Okay, sir needle coke?
Ravi Jhunjhunwala
China doesn’t produce needle coke we purely 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 very handful of companies producing needle coke and handful of companies producing electrodes. It’s a matter of technology basically. So there is an American company and there are two, three small Japanese companies for needle coke.
Saket Kapoor
And one point.
Operator
One point I request you to please rejoin the question.
Saket Kapoor
I will join the. Thank you, sir. Kindly provide an opportunity for a closing remark. Yeah.
Operator
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,
Deep Mehta
Hi, sir. Thank you for the opportunity. Just taking for the last participants’ question. Like you said, the roughly 2.4 lakh tonne of electrode capacity 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 Austria
Ravi Jhunjhunwala
See just to give you a quick context our plant HEG plant near Bopal 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 where and it used to be 7-8 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, GraphTech and Resonac, in America, Resonac in Japan and the two of us in India.
There is a small company in Japan called Tokai, but they have a capacity of 72,000 tons between three plants, three locations. So in any case with an average of 24,000 to 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 this is a context in which you ask that question so I don’t know if this helps you
Deep Mehta
That is somewhat helpful but let’s say Graftech or some big company, they have shut-down our capacity.
Ravi Jhunjhunwala
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 76 with a capacity of 10,000 tonnes. But we have — we have kept expanding from 10,000 tons and currently we are at 100,000 tonnes. 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 equipments of that day.
All the equipment that we buy, there is obviously some improvement in cost, some improvement in technology, some equipment in some improvement in efficiency. So because we have kept expanding over the last month 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 — it is always possible to restart the plant. Let’s say, I mean, I’m just Nick talking out of my mind if the prices go to 10,000 tonnes, 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 electrode and the prices go to 10,000 tonnes, 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, that it is not 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’re perfect, 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 raised to the ground. So there are both the scenarios. Some plants have been raised to the ground because they were very close to a large-ish 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
Deep Mehta
Understood, sir. Very helpful. That’s all from my side. Thank you.
Zed
Thank you. The next question is from the line of Zed from Opoka TFI. Please go-ahead.
Hi, thanks for taking my question. Two, if I may. You just authorized an increase in the investment limit in foreign stocks by some 40% and I understand that you will increase your stake in graphically 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 by increased prices or they try to increase prices. Yes, 20%,, 10%, graphic, 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 sent those 100 letters to your 100 customers saying that you would like to increase prices. Thank you.
Ravi Jhunjhunwala
Okay. Now your first question — first two questions are relating to our investments in. See from our calls in the last let’s say four or 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 producer of electrodes in the world.
And of course, the size of the plant makes a difference from 10,000 if we 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 GraphTech 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 has — who is backward integrated to the raw-material coke. Coke. So they had a capacity of 200,000 tons of electrodes and 140,000 tons of needle coke. So if you — if you have been following our business, let’s say, for the last five, six, seven years, you would have seen that years ago when the electrode prices went up by absolutely went through the roof let’s say so did the needle coke prices.
So 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 and 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 so you can actually freeze your raw-material cost.
So to answer your question very frankly and very clearly. So three, four, five months ago, their market cap with more capacity is more or less two times capacity of electrodes, plus a 70% backward integration, that is what is which that privilege is not available to any of the other graphite companies of needle coke and as you must-have understood from our tone and we are looking at good days. Nobody can time that. But we are talking about increase in the electrode demand because of this new 80 million, 90 million, 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, 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, so — and we were sitting on fairly substantial treasury, which was giving us 6%, 7%, 6%, 7%, 8% returns. So we said why not? I mean if we are sitting on cash and making 7%, 8% returns. 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 that’s what that’s what actually prompted us to do it. So that is so I believe that explains our rationale about why, why we invested there and what else? I mean, was there anything else that you asked? Why waiting for a price increase?
Zed
Hello, yes, and okay, sorry.
Ravi Jhunjhunwala
So is it okay? I mean, have I answered you to your satisfaction? The first question
Zed
Yes maybe the first 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 plus. So is it just waiting for a price increase or you would like to make some kind of integration if you can comment.
Ravi Jhunjhunwala
No, for the timing, we are not looking at any integration. As I said, I mean, if we are — we are the cheapest cost producer, why would we like to have any integration with the producer whose cost is much higher than ours hours so that is not that is not even in our radar. It’s purely on the 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 prices — their share prices will see a much larger gem 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 they made not only they made profits on electrodes, they made tons of profits on needle coke which only they could have done. So that is that reason that attracted us to invest in and we are happy about it. I mean it doesn’t matter whether it goes down or up. I mean we are not we, we are not taking a short view on that
Zed
Okay, thank you. And the second question on the — why you are not acting proactively on price increases, if you could comment on that?
Ravi Jhunjhunwala
No, I didn’t say that. I didn’t mean that. I mean, 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. It’s purely by sending a letter, if I could get a price increase, I’ll be very happy to do it this afternoon. But the — 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 furnishes are coming, the demand of electrodes is going to rise. So in that backdrop, obviously, they have announced a price increase. So — and as I said in answering an early question, in this business, you are more or less already booked for the next at least 100% for the next quarter and at least 50% to 60% of the second-quarter. So and we are also going by the assumption that if there is a price increase because the other two guys have already announced and we will see it in the market in any case. So there is 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.
Zed
Okay, that’s very clear. Thank you very much.
Ravi Jhunjhunwala
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.
Operator
Participants are requested to please restrict themselves to two questions per participant, per participant. The next question is from the line of Kanodia from ICICI Securities. Please go-ahead.
Shashank Kanodia
Yeah, good afternoon, sir. So if you can just quantify the MTM gains on your other income. I think this was largely pertaining to the shares that you heard of your tech, right?
Ravi Jhunjhunwala
Yeah, that was one of the reasons. Right. So major one.
Shashank Kanodia
So can you quantify, sir, what was the other income on account of MTM gains?
Ravi Jhunjhunwala
I think it was somewhere in the region of INR60 crore INR70 crores.
Shashank Kanodia
Okay. Okay. Okay. And second, sir, on the 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? So — 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 we finalized the location in the tariffs and state government deals?
Ravi Jhunjhunwala
So I can answer that reduce the side. We are — we’ve absolutely decided on the site. We’ve already procured the site at 105 acres in Devas and we are in the process of now finally doing the final drawings for the 20,000 tonnes plant, which we increased from 10,000 tonnes. And in the next few weeks, we’ll be starting to 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 we have, we are still going ahead with that plant exactly our plan.
Shashank Kanodia
Right. And sir, initially we were expecting a payback of roughly seven years given the fact there was a decline in lithium and battery prices. So that mathematics still in or does that improve into our favor or Call-IT
Ravi Jhunjhunwala
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 tonnes and there is 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 about compared to China, but definitely a 10% to 15% added margin because of the product being made outside China is something that is a very, I mean reasonable assumption. Of course, if we get the other swaps that we are asking from the government if we get that, then of course the payback desperately becomes shorter.
Shashank Kanodia
Okay. And sir, we intend to spend something like INR1,700 crores, right? So can you please share the timeline? I think what happens in FY ’26, what’s going to happen in FY ’27?.
Ravi Jhunjhunwala
So we right now we spent around INR100 crores and I think this plant will be fully operational by September 2026. So that is a plan. And obviously by that time the demerger would have happened. So it will be part of the new company, which is FEV Greenhek, which would consider the — which would be part of the Bilwara Energy, which will be one vertical, bottle to bottle manufacturing, which will be the other vertical.
Third vertical would be RD+, which is our battery storage company and the fourth would be this particular the project. So of course, I mean, as part of the demerger, the HEG shareholders will get one share for all these projects as well.
Shashank Kanodia
Like that. And the total capex spend remains similar, INR700 odd crores,
Ravi Jhunjhunwala
1,700 to 1,750 depending on your — there’s been a bit of an 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 that account, because I mean prices of capital expenditure should also go down and not go up only because of the dollar appreciation.
Shashank Kanodia
Sure, sir. Thank you. Thank you so much and wish all the best.
Operator
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
Saket Kapoor
For the opportunity. Hope I’m audible. Hello
Operator
. You are audible, sir.
Ravi Jhunjhunwala
You are audible.
Saket Kapoor
Yes, sir. Sir, firstly, about this plant which reducer was explaining. So this will be at entirely a different vertical and no-no correlation as such with the electrode part of the story and the total capex to run the plant optimately would be how much sir?
Ravi Jhunjhunwala
No, 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 couple of the major factors like the raw-material purchase, your graphatization 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 as far as this is concerned. Concerned and the total capex would be like you mentioned between INR1,700 crore and INR1,800 crores.
Saket Kapoor
And, sir, 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 or the Joint Managing Director. So I think so there is a split of responsibilities in both — both the two different aspects. But just to address as a concluding remarks, we find that for HEG as a whole, not only for this quarter, for now being for many years, both Ravi Sir and his team has been always not only answering to the question, but leading forefront in explaining to us all the mitigating, whereas when we look at your other group company, RSWM, there is a shift in top role and all. So would like just like to take — bring to your kind notice that, sir, you should be taking some more keen interest in listening to your investors. They are also addressing their queries and putting things in order. They are in order. You have a new team.
Ravi Jhunjhunwala
They have a large investor call. I was there apart.
Saket Kapoor
Yeah. I would like you to be there also nothing.
Ravi Jhunjhunwala
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 your this thing, your battery storage. And in time, obviously there’ll be — 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 have answered Most of our 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.
Saket Kapoor
Yes, sir. Yes, sir, congratulations to all the — all the good work being done in both the organizations and we hope for the continuity of these calls and lot of merit in the discussion, sir. Thank you
Operator
Thank you very much. That was the last question in the queue. Before I hand over the call to Mr for the closing remarks, I’d like to invite Mr Manish.
Manish Gulati
Yeah. Thank you, Raminji. I wanted to make a clarification. See, while we were answering queries on industry capacity, industry utilization, there were some questions from Rajesh of B&K. So let me clarify very clearly, the nameplate capacity of all the graphite electrode industry ex-China is 700,000 tonnes. And when we say — when Rajeshy 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 fairly, some of which we can’t make out. So let’s say, 65% to 70% would probably be the industry-wide capacity. This is the maximum estimate we can give. So 65% of 700,000 tonnes could mean 4.5 lakh tons of electrodes and 70% would mean 500,000 — 5 lakh 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.
Operator
Thank you, Maniji. And I’d now like to hand over the call to Mr for his closing remarks. Savi?
Ravi Jhunjhunwala
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 three months’ time with you. Thank you.
Operator
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.