HEG Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from HEG Limited (HEG) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:11:28] Sonali Salgaonkar from Jefferies enquired about the capacity utilization for 3Q23. Ravi Jhunjhunwala CEO answered that for Oct.-Dec. quarter it was about 60% and in Jan.-Mar., the company is at about 70%. And in 3Q22 it was around 85%.

• [00:12:12] Sonali Salgaonkar from Jefferies asked that in which countries the company is seeing dip in steel production. Manish Gulati ED said that the company received pushback on orders from its European customers and some customers in Turkey, leading to a drop in sales to 60% capacity utilization level.

• [00:13:49] Sonali Salgaonkar from Jefferies enquired about the current inventory levels in the channel. Manish Gulati ED replied that HEG’s finished goods inventory is close to 2 months, which is slightly more than the normal 1 month of inventory.

• [00:15:33] Sonali Salgaonkar from Jefferies asked that of the INR1,200 crore of capex, how much has been spent and the expected spend in coming quarter. Manish Gulati ED answered that about INR1,000 crore is already spent of the INR1,200 crore and only INR200 crore is pending.

• [00:16:38] Sonali Salgaonkar at Jefferies queried about the total addressable capacity of the new business that would be of 10 gw capacity by 2Q CY25. Omprakash Ajmera Group CFO said that in the first phase, HEG is planning to produce 10,000 tonnes of graphite anode which would cater to 10 gw hour of cell manufacturing. BY 2025, HEG expects the Indian battery demand to be around 50 gw hour and 260 gw hour by 2030.

• [00:27:56] Saket Kapoor with Kapoor & Company asked how Turkey demand impacted due to the catastrophe. Ravi Jhunjhunwala CEO answered that every year in tonnage terms, HEG supply about 11% or 12% in Turkey. Now after the catastrophe it’s down to about 6-7%.

• [00:33:29] Saket Kapoor with Kapoor & Company enquired about the margins outlook going ahead. Manish Gulati ED said that HEG has seen a slowdown in demand for electrodes, which is causing needle coke producers to adjust their prices. This should help HEG maintain its margins, as it can make up for the decrease in electrode price with the decrease in needle coke price.

• [00:35:02] Saket Kapoor with Kapoor & Company asked how is the power and fuel line item shaping up and the dependence on external source. Manish Gulati ED answered that the company has stable electricity prices from the state electricity board, and two coal-based power plants that are not currently running.

• [00:41:10] Preet Malde at Centra Advisors enquired about the target ROCE the company is aiming at, with the capex per tonne coming in at INR6 lakhs per tonne. Gulshan Sakhuja CFO said that HEG is expecting $8,000 per tonne and EBITDA margin is expected to remain about the same.

• [00:41:52] Preet Malde at Centra Advisors also asked about the peak utilization of electrode manufacturing expansion by another 20,000 tonnes. Gulshan Sakhuja CFO replied that HEG expects to capture that market as the demand comes in place in future.

• [00:44:35] Preet Malde at Centra Advisors asked about the new business segment of anode, how HEG is going to finance that segment. Ravi Jhunjhunwala CEO clarified that HEG is currently financing the project internally, but in the future it may look to outside sources for additional funding.