HEG Limited – Q4 FY25 & FY25 Full Year Concall Highlights Industry Dynamics & Capacity Rationalization: - Global crude steel production declined slightly in Q1 2025, with major economies posting declines except India, which grew 6.8% driven by infrastructure investments. - China’s steel output increased marginally, leading to higher exports and pressure on steel prices. - Significant industry capacity cuts: 4 plant closures and downsizing of 4 others (total ~120,000 tons or 18% ex-China/Russia), including Resonac and Tokai Carbon reducing or closing capacities. - Management views these capacity reductions as a positive, tightening supply and supporting medium-term pricing recovery. HEG’s Operational Positioning: - Capacity increased from 80,000 to 100,000 tons last year; operating at 80-85% utilization compared to 50-60% peers. - Claims to be among the lowest-cost producers globally, benefiting from scale, operational efficiencies, and a diversified export footprint across 25-30 countries. - Limited impact from US 10% tariffs due to diversification. Financial Performance (FY25 & Q4 FY25): - FY25 Revenue: ₹2,153 crore (vs ₹2,395 crore in FY24); Q4 Revenue: ₹537 crore. - EBITDA: ₹388 crore (FY25), EBITDA margin averaged 21%; Q4 margin improved to 27%. - PAT: FY25 ₹115 crore, Q4 ₹60 crore; standalone PAT down YoY but margins improving. - No long-term debt; treasury of ~₹875 crore as of March 2025. - Talent in GrafTech: Invested ₹282 crore for 9.98% stake; booked MTM losses due to share price decline, viewed as treasury investment. Demand & Industry Outlook: - Accelerating shift to decarbonized steel via EAFs; over 11 million tons of new greenfield EAF capacity in last 18 months, with >100 million tons in pipeline. - Each ton of EAF steel needs 1.5–2 kg electrodes; growth in EAF capacity should expand electrode demand by 52,500–80,000 tons. - Chinese electrode exports and high-grade/ultra-high-power (UHP) electrode capabilities are limited, offering HEG a strategic advantage. - Management expects supply reductions to improve pricing over time. New Strategic Initiatives: - Graphite Anode Plant for Batteries: A ₹1,850 crore greenfield project, targeting EV and energy storage markets, commissioning due April 2027. - First phase (~20,000 tons) to be funded via debt and equity; India’s growing Li-ion battery demand (estimated at 100,000–140,000 tons by 2030) offers strong growth prospects. - Reverse logistics and sourcing relationships with Western/Japanese suppliers (needle coke) established; renewable energy use under consideration. Operational Insights & Risks: - FY25 capacity utilization ~80%; expects similar/utilly higher in FY26. - Forex hedging managed dynamically as export proceeds exceed imports. - Near-term demand remains weak in other steel markets, and electrode prices are currently unsustainably low. - US tariffs impact limited due to diversified export base. Corporate Actions & Outlook: - HEG’s demerger scheme filed; NCLT approval expected by end-2025. - Final dividend recommended at ₹1.80/share (90% payout). - Long-term industry optimism; medium-term margin recovery expected as supply/demand balance improves. - Near-term margins are uncertain; management remains optimistic about industry-wide pricing improvement over time. Key Takeaways: HEG is well-positioned as a low-cost, high-utilization player benefiting from global capacity rationalization and decarbonization trends. Its diversified export footprint and strategic investment in battery materials provide strong growth levers beyond traditional electrodes. While near-term realizations are subdued, the medium-term outlook remains robust, driven by industry capacity cuts, EAF demand, and new battery-related ventures. The company’s financial strength and strategic initiatives are expected to unlock significant value over the coming years.