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.