HEG - HEG Ltd. Share Price

Management of HEG Limited provided an optimistic outlook for the company, emphasizing long-term growth opportunities driven by the shift towards electric arc furnace (EAF) steel production. They highlighted notable growth trends in global steel production and the structural changes in the market due to increasing decarbonization efforts.

Key forward-looking points include:

1. Global steel production in Q1 FY26 was 459 million tons, down 2% YoY, but saw an 8% sequential recovery. Excluding China, production was 212 million tons"”down 1.3% QoQ.
2. India showed strong performance with a 5% QoQ growth due to robust infrastructure activities.
3. HEG expects incremental electrode demand of approximately 200,000 tons by 2030 driven by new EAF installations, with global capacity expected to exceed 100 million tons by 2030.
4. HEG's expansion plans involve increasing production capacity from 100,000 to 115,000 tons by early 2028.
5. Current utilization rates exceed 90%, signaling strong operational efficiency.
6. The company's EBITDA increased from INR 388 crores to INR 497 crores, with margins rising from 17% to 19% in FY26.
7. The anticipated completion of the final 15,000 tons expansion should strengthen HEG's global demand capacity at competitive costs.
8. Management remains committed to the investment in GrafTech, viewing it as strategically essential despite market volatility.
9. The company reported unrealized losses of INR 189 crores in Q4 FY26 primarily due to foreign exchange impacts, but overall financial health remains strong with no long-term debt and a cash reserve of INR 792 crores.
10. The board proposed a final dividend of INR 3.4 per share, subject to approval.

In summary, HEG's management maintains confidence in the long-term demand for electrodes and the company's ability to capitalize on emerging opportunities in the steel industry while navigating current challenges.

Here are the major questions and their detailed answers from the Q&A section of the earnings transcript for HEG Limited's Q4 FY26 conference call:

1. Question: Could you quantify how much price hike we are looking to take starting from this financial year, and is there a similar cost increase for needle coke?
Answer: We're currently booked for orders until September. While we plan to increase prices, the exact amount will vary regionally, potentially anywhere from INR 300 to 500. As energy prices are affecting our costs, a price increase is essential to maintain and improve margins.

2. Question: Where are we in terms of customer qualification for TACC, and how fast can we ramp up once it gets commissioned?
Answer: Our pilot plant for sampling has yielded excellent results with leading OEMs globally. We expect to achieve 40% to 60% capacity utilization within the first year post-commissioning, with no technology bottlenecks remaining.

3. Question: Why is revenue low in Q4? Is it due to lower realizations or lower sales volume?
Answer: There was a slight dip in volume"”about 1,000 tons"”along with some lower-priced orders in our regional sales mix. However, the pricing overall remained stable, so I expect revenues to recover soon.

4. Question: Is there any disruption because of the Middle East, and what proportion of sales come from there?
Answer: Yes, we usually sell about 20% in the Middle East, but due to disruptions, orders have been postponed. We expect to catch up once the situation normalizes, allowing us to ship pending orders.

5. Question: Are we covered for needle coke purchases amidst rising prices? How will this impact us moving forward?
Answer: We are covered for needle coke until June, which protects us until September. However, we might face price increases from other suppliers later depending on energy costs and overall market conditions.

6. Question: Do you see the rise in energy prices as a hindrance to electric arc furnace operations and CBAM implementation?
Answer: Energy prices significantly impact electric arc furnaces, but local adjustments in power pricing may mitigate specific impacts. The market must shift towards electric arc furnaces due to lower carbon emissions, driven by CBAM regulations.

7. Question: Can you quantify the FX loss reflected in the other expenses?
Answer: Our FX loss for the quarter is approximately INR 35 to 40 crores, completely unrealized. If the rupee appreciates, this should reverse in subsequent quarters.

8. Question: Why has other income declined this quarter?
Answer: The decline relates to fair valuation losses that have been classified in other expenses. Overall, these impacts have led to lower other income compared to previous quarters.

9. Question: How should we view EBITDA margins going forward?
Answer: In the first half of the year, we expect EBITDA margins around 17-18%, slightly fluctuating due to market conditions, but we are confident about sustaining margins above 20% in the full year.

10. Question: How do you see our volumes over the next two to three years considering regionalization?
Answer: We believe our competitive cost structure can mitigate the impact of protective measures like anti-dumping duties. Legal assessments are ongoing, but we expect to maintain robust export volumes through our cost advantages.