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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.
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