HEG Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from HEG Limited (HEG) Q2 FY24 Earnings Concall

• Steel Production Trends
  • Steel production outside China down 2-4% in 2022 vs 2021, but up 11.6% in India.
  • China exporting more steel, pressuring production in Europe and U.S.
  • World Steel Association revised 2023-2024 projections down for EU and U.S.
  • Electric arc furnace (EAF) steel accounts for 50% of steel outside China, up from 44% in 2015.
  • 85 million tonnes of new EAF capacity announced in past 12-15 months.
  • Projections of 535 million tonnes EAF steel production by 2030, up from 435 million tonnes currently.
  • No new graphite electrode capacity announced to meet rising EAF demand.
• HEG Capacity Expansion
  • Expanded graphite electrode capacity to 100,000 tonnes now fully operational.
  • Around 90% in Q1, 85% in Q2.
  • Using latest, most modern and environmentally-friendly equipment.
  • Approved 20,000 tonne graphite anode plant for EVs in one phase.
  • Construction beginning soon, completion expected by mid-2025.
  • Expect around 75% in Q3 and Q4.
• European Business
  • Antidumping duty of 7% in Europe for past 15-16 years.
  • HEG paying the duty but hasn’t lost market share.
  • Will continue selling current volumes and more in Europe.
• Pricing Comparison
  • U.S. peer GrafTech has long-term contracts at high fixed prices.
  • HEG not selling electrodes cheaper than competitors.
• China Anode Export Ban
  • China controls 92%+ of global graphite market.
  • Ban adds confidence in HEG’s 20,000 tonne anode plant.
  • Plant timing positive with ban in place.
  • Aims to start domestic anode supply chain.
  • Can source needle coke locally or import pitch coke.
• Anode Plant Environment Approvals
  • Acquired land and obtained state clearances.
  • Conducting central environment study.
  • Can start some construction before full approval.
• India Critical Mineral Auctions
  • Government inviting bids for 20 minerals including lithium and graphite.
  • HEG makes synthetic graphite, won’t bid on natural graphite mining.
  • Anode plant will use synthetic not mined graphite.
• Competition
  • One competitor developing silicon-based anode in lithium-ion anode market.
  • However, graphite still 90% plus of lithium-ion batteries.
  • HEG does not expect 100% replacement of graphite before 2050.
  • Epsilon planning $650M plant in US, smaller one in India.
  • Similar product to HEG but different raw materials.
  • Himadri also announced anode plans.
• Sustainability Initiatives
  • Anode plant designed for carbon neutrality.
  • Includes renewable energy, green belts.
  • Electrodes use hydro, solar power.
  • Similar to initiatives by global peers.
• Anode Plant Capex and Margins
  • Capex of INR1,000 crores estimated for 10,000 tonnes.
  • 20,000 tonnes will be less than double due to savings.
  • Targeting 30% EBITDA margins.
  • 5-6 year payback period.