HEG

HEG reported robust financial results for Q1 FY26, with revenue from operations increasing to INR 613 crores from INR 571 crores in the prior year, marking a 7.35% YoY growth. EBITDA saw a substantial rise to INR 154 crores from INR 59 crores, representing a 161% YoY increase. Consolidated net profit after tax grew significantly to INR 105 crores from INR 23 crores, a 356% YoY surge. The company maintained over 90% capacity utilization on its 100,000-ton expanded capacity, contributing to its strong profitability.

The company announced a further capacity expansion for graphite electrodes from 100,000 tons to 115,000 tons, involving a capex of INR 650 crores. This expansion is projected to be completed in 2.5 years, with production expected to commence in January-March 2028. Management emphasized that this organic expansion in India offers a significant cost advantage compared to acquiring older, less efficient plants in Western economies, which are typically 60-70 years old and require substantial modernization.

While global steel production declined by 1.9% in the first half of CY25, HEG remains optimistic about long-term demand for graphite electrodes, driven by the global shift towards Electric Arc Furnace (EAF) steelmaking. The company estimates an incremental demand of 150,000 to 200,000 tons annually by 2030 (excluding China). Current industry utilization (ex-China) is around 60-65%, and management expects pricing to firm up once utilization crosses 80-85%, potentially within the next 2-3 quarters, as current prices are considered to be at the lowest viable levels.

HEG's Greentech platform is progressing, with the anode plant (20,000 tons capacity) expected to be operational by March 2027. For FY26, the existing hydro assets and battery company (RePlus) are projected to generate INR 500-600 crores in revenue and INR 200-225 crores in EBITDA. Other Greentech businesses are anticipated to commence by FY28, contributing to the company's diversification strategy and future growth. The Q1 FY26 results include contributions only from the hydro business.

HEG maintains a debt-free status with a treasury size of nearly INR 977 crores as of June 30, 2025. The company's total capex outflow for anode and graphite projects is estimated at INR 1,000 crores for this year and next, funded through internal accruals and some loans. HEG holds a 10% stake in GrafTech, acquired for strategic reasons due to GrafTech's backward integration into needle coke. Management views this as a safe investment, expecting long-term industry recovery to support GrafTech's financial health, despite its current debt, and is limited by regulatory routes for increasing stake beyond 10%.

The demerger scheme has been filed with stock exchanges and relevant authorities, with NCLT approval anticipated by the end of calendar year 2025. This restructuring is expected to provide clearer visibility into the performance of HEG's core graphite electrode and Greentech businesses. The company is also studying the impact of the recently imposed 25% duty in the U.S. on graphite electrodes, an important market, and hopes for a reasonable settlement, leveraging its diversified sales footprint to minimize impact.