Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HEG Ltd (BOM:509631, Financial) has completed its expansion from 80,000 to 100,000 tons, making it the largest single-location plant in the Western world.
- India's steel production grew by 6.9%, which positively impacts the demand for HEG Ltd's graphite electrodes.
- The company is long-term debt-free and has a substantial treasury size of nearly INR917 crore as of June 30, 2024.
- HEG Ltd's capacity utilization for Q1 FY25 was close to 80%, indicating efficient use of its expanded capacity.
- The company is optimistic about the mid to long-term prospects of the graphite electrode industry due to global decarbonization efforts and new electric arc furnace capacities being announced.
Negative Points
- HEG Ltd's profit before tax was lower compared to the previous quarter, partly due to a one-time mark-to-market loss on a treasury-related investment.
- Global steel production remained flat, with significant declines in major steel-producing areas like the US, Japan, South Korea, and Russia, impacting the demand for graphite electrodes.
- The electrode pricing continues to remain under pressure due to reduced demand, affecting the company's margins.
- The company is facing near-term margin pressures due to the narrowing spread between electrode prices and needle coke prices.
- The green anode plant project has been delayed by a couple of quarters due to the need to renegotiate power prices and assess the impact of falling lithium-ion battery prices.
Q & A Highlights
Q: What is the CapEx spent so far on the green anode plant and the cash balance in HEG's balance sheet?
A: The total CapEx on the green anode plant is around INR60 crore, with INR30-35 crore spent on land and the rest on leveling, boundary walls, and pre-operative expenses. The cash balance in HEG's books is approximately INR917 crore as of June 30, 2024.
Q: What is the status of the investment in the US stock that is facing potential delisting?
A: The exchange has given a six-month timeline to address the delisting issue. The company is exploring options like reverse stock splits to keep the stock listed. There is no immediate concern regarding this investment.
Q: How has the fall in lithium-ion battery prices affected the anode powder prices and the project's viability?
A: Battery prices have fallen from $85-100 per kWh to $50-60 per kWh. Anode prices have correspondingly dropped to $6,000-7,000 per ton. Despite this, the project remains viable with expected EBITDA margins of 20-25%, depending on power cost negotiations.
Q: What is the future outlook for the graphite electrode demand and HEG's strategic plans?
A: The demand for graphite electrodes is expected to increase significantly due to new electric arc furnace capacities being announced globally. HEG is well-positioned to meet this demand with its expanded capacity and competitive cost structure.
Q: What are the details regarding the GST show cause notice for INR282 crore?
A: The company is currently evaluating the notice and will respond to the authorities. Prima facie, the demand appears incorrect, and the company will keep stakeholders updated on any developments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
