Key highlights from HEG Limited (HEG) Q4 FY23 Earnings Concall
Q&A Highlights:
- [00:12:50] Vipraw Srivastava of InCred asked if an increase is expected in US sales contribution with the upcoming EAF plants. Ravi Jhunjhunwala MD replied that in the last four years, sales in the US have increased 2.5 to 3 times due to the focus on the US as the single largest producer and consumer of electric arc furnace steel.
- [00:14:34] Vipraw Srivastava at InCred enquired if the development of silicon anode batteries by US companies pose a substantial risk to HEG’s anode business. Riju Jhunjhunwala VC replied that graphite anode will be the primary driver for lithium-ion batteries for the next 10-15 years and is being targeted for four business segments: EVs, energy storage, green hydrogen, and steel manufacturing. The initial capacity of 10,000 tonnes is conservative and can be increased with government support.
- [00:18:47] Bajrang Bafna with Sunidhi Securities asked how will China’s progression from 11-12% to 20% in converting blast furnaces to electric arc furnaces affect their dumping of electrodes in the global market and focus on their domestic market. Ravi Jhunjhunwala MD said that China’s electric arc furnace capacity is expected to increase from 5% to 20% in the next five years. This will lead to a significant increase in demand for electrodes, as EAFs require electrodes to produce steel. HEG is well-positioned to capitalize on this demand, it has a proven track record of expanding production capacity and is the only company that has announced an expansion in the last 12 months.
- [00:25:15] Bajrang Bafna with Sunidhi Securities also asked how will the recent correction in needle coke prices from $2,300 to $1,800 impact HEG margins in the next 2-3 quarters. Ravi Jhunjhunwala MD replied that the needle coke industry is directly related to the graphite industry and as the demand for electrodes increases with the growth of electric arc furnace capacity, the demand for needle coke also increases. The relationship between the two industries is that of supplier and customer.
- [00:27:37] Bajrang Bafna with Sunidhi Securities enquired if the recent correction in needle coke prices and the expected increase in volume growth and utilization levels due to additional global demand impact HEG margins in the coming quarters. Ravi Jhunjhunwala MD replied that the electrode and needle coke prices are directly connected and if one drops, the other will also drop. The margin for electrodes is corrected due to changes in needle coke prices and can increase even if needle coke prices increase.
- [00:29:02] Bhavik Shah from MK Ventures asked about the 4Q23 capacity utilization and with the new capacity coming in, what will be capacity utilization in FY24. Manish Gulati ED answered that in 4Q23 it was above mid 70s. With the new capacity of 100,000 tonnes starting in July, the aim is to have a capacity utilization of around 70% for the whole year as additional demand is anticipated to come in towards the later half of the year.
- [00:30:53] Bhavik Shah of MK Ventures enquired if HEG will we be aggressive with the excess capacity or will try to maintain its margins going forward. Ravi Jhunjhunwala MD said HEG will take a balanced approach to allow the market time to absorb the additional capacity while taking care of margins and not being aggressive either way. The aim is to gradually sell the 100,000 tonnes and wait for demand to rise naturally.
- [00:31:56] Bhavik Shah of MK Ventures asked what kind of technology collaboration will be needed for the new anode capex and will it be in-house or through partnerships. Riju Jhunjhunwala VC replied that most of the technology for the new anode capex is standard except for graphitizing the product which HEG has a competitive advantage. The technology will be a hybrid mix of Indian, Chinese, and European machinery with adjacent furnaces developed in-house with HEG proprietorship.
- [00:33:12] Bhavik Shah of MK Ventures asked about the kind of revenue and margins expected from the anode business. Riju Jhunjhunwala VC answered that for a 10,000 tonne plant, the revenue should be around $9,000 to $10,000 per tonne and a reasonable operating margin of at least 25% is assumed for this business.
- [00:34:48] Vipraw Srivastava at InCred enquired about the ballpark figure for Europe’s contribution to HEG’s sales volume. Riju Jhunjhunwala VC answered that Europe contributes about 9-10% to HEG’s total sales.