HEG - HEG Ltd. Share Price

Management provided a cautiously optimistic outlook for HEG Limited, underscoring the potential for incremental demand driven by the global shift towards low-emission Electric Arc Furnace (EAF) steelmaking. Key highlights from the management's commentary include:

1. Global Graphite Electrode Demand: The transition to EAF steelmaking is expected to generate an additional demand of approximately 200,000 tons of graphite electrodes by 2030, excluding China. This demand is bolstered by increasing climate regulations.

2. Expansion Plans: HEG is on track to expand its capacity by an additional 15,000 tons, with construction progressing as planned and completion expected by early 2028. This will position the company well to meet the growing demand.

3. Market Position: The company has achieved high capacity utilization rates, operating at 89% across the last three quarters, claiming the highest utilization rates in the global graphite industry. The single largest facility in Mandideep, with a total capacity of 100,000 tons, underlines HEG's operational efficiency.

4. Financial Performance: For Q3 FY26, revenue increased to Rs. 656 crores compared to Rs. 477 crores in the same quarter of the previous year. For the nine-month period, revenue reached Rs. 1,965 crores, reflecting a solid growth trajectory.

5. Market Dynamics: The global steel production saw a year-on-year decline in 2025, with significant reductions in China, Sweden, Japan, and South Korea, which gives HEG a competitive position against lower demand pressures.

6. Regulatory Landscape: The anticipated reduction in tariffs from 50% to 18% for U.S. imports is expected to mitigate cost pressures, allowing HEG to sustain profitability even amid competitive pricing dynamics in the graphite electrode market.

7. Shareholder Engagement: A composite scheme of arrangement is progressing through regulatory channels, with expectations for NCLT approval by Q1 FY27, further aligning management strategies with shareholder interests.

In summary, management emphasizes the long-term growth potential amid current market challenges, backed by strategic capacity expansions and regulatory support for sustainable steel production.

Questions and Answers from HEG Limited Q&A Section

1. Question: "Can you repeat the statement that you made about the NCLT order just before the Q&A started?"

Answer: "I prefer not to disclose specific figures regarding the competitive landscape, as it's a calculated guess based on turnover, capacity utilization, and plant capacity. However, our composite scheme of arrangement is progressing with the NCLT hearing wrapped up, and we anticipate an order in one to two weeks."

2. Question: "Regarding volume growth, is it fair to expect our nine-month volumes would have grown by about 20%?"

Answer: "We shared our capacity utilization and current capacity of 100,000 tons earlier, from which you can easily estimate growth. We believe volume growth is in the range you mentioned."

3. Question: "Where have we gained market share from, and which competitors or geographies are we outperforming?"

Answer: "We have gained market share uniformly across regions, servicing over 30-35 countries globally. The U.S. dominates electric arc furnace steel production, and we see ourselves gaining across all regions, without pinpointing a specific competitor."

4. Question: "Given the 18% tariff, how will this impact our cost structure compared to competitors?"

Answer: "We will absorb the 18% tariff and maintain our customer base. Our product mix won't shift significantly either way as we intend to remain competitive despite the additional cost."

5. Question: "What are your thoughts on the investment in GrafTech, and do you foresee potential partial closure?"

Answer: "We do not expect any company in this industry to close. The demand for electrodes remains strong, and while GrafTech may face challenges, we are optimistic about the industry's growth potential, not anticipating any closures."

6. Question: "How do you view the impact of Chinese electrodes on the market?"

Answer: "Chinese suppliers may affect non-UHP grades, but consistency and quality remain a challenge for them. Our focus is on the growing demand for UHP electrodes, which we believe we are well-positioned to meet."

7. Question: "Will our product mix change, considering the competitive landscape?"

Answer: "Our product mix might vary by a couple of percent, but we won't lose market share due to competitive pressures. Our long-term strategy prioritizes retaining customer relationships despite market dynamics."

8. Question: "With the annual pricing arrangements, will realizations remain steady into the next year?"

Answer: "Approximately 50-60% of our volume is hedged for the next year, suggesting that pricing will be more or less similar to previous quarters."

9. Question: "Regarding other expenses, why has there been a positive delta sequentially?"

Answer: "The sequential reduction in other expenses is linked to a drop in sales, which naturally reduces variable costs, like selling expenses and commissions."

10. Question: "What is your view on the upcoming capacity additions in Europe and the US impacting electrode demand?"

Answer: "The capacity additions are mainly replacements for aging blast furnaces due to regulatory pressures to reduce emissions. Therefore, electrode demand is likely to increase rather than stagnate."

These answers encapsulate the key points discussed in the Earnings Conference Call, keeping all information pertinent and accurate within the character limit.