HEG Limited — Q1 FY26 earnings call

Call held 8 Aug 2025

Management summary

HEG reported strong Q1 FY26 results with significant year-on-year growth in revenue, EBITDA, and net profit, driven by high capacity utilization. The company announced a further capacity expansion to 115,000 tons with a capex of INR 650 crores, aiming to leverage its position as a low-cost producer despite challenging global steel market conditions and new US duties. The Greentech business is progressing, with the anode plant expected by March 2027 and FY26 revenue guidance of INR 500-600 crores from existing assets.

Highlights

  • Revenue from operations of INR 613 crores, up 7.35% YoY from INR 571 crores.

  • EBITDA of INR 154 crores, up 161% YoY from INR 59 crores.

  • Standalone Net Profit After Tax of INR 72 crores, up 2300% YoY from INR 3 crores.

  • Consolidated Net Profit After Tax of INR 105 crores, up 356% YoY from INR 23 crores.

  • Maintained 90%+ capacity utilization on the expanded 100,000 tons capacity.

  • Announced capacity expansion from 100,000 tons to 115,000 tons with a capex of INR 650 crores, targeting production by Jan-Mar 2028.

Concerns

  • Global steel production declined by 1.9% YoY in the first 6 months of CY25.

  • Graphite Electrode market continues to face challenging conditions with ex-China utilization at 60-65%.

  • Imposition of 25% duty in the U.S. on graphite electrodes, with impact being studied.

Key financials

  1. Revenue from Operations ₹613 Cr +7.3%YoY
  2. EBITDA ₹154 Cr +161%YoY
  3. Standalone PAT ₹72 Cr +2,300%YoY
  4. Consolidated PAT ₹105 Cr +356%YoY
  5. Operational EBITDA Margin (ex-MTM) 23%
  6. Treasury Size ₹977 Cr

What they filed

Q1 FY27: revenue up 11.1%, net profit up 16.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue568 478 537 613 699 +23%656 +37%603 +12%681 +11%
EBITDA97 67 -61 106 118 +22%143 +113%-148 −143%151 +42%
Net profit82 83 -74 105 143 +74%207 +149%-114 −54%122 +16%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

low confidence
Management is bullish on long-term graphite electrode demand driven by the global transition to Electric Arc Furnace (EAF) steelmaking, estimating 150,000 to 200,000 tons of incremental demand annually by 2030 (excluding China).

Source: Inferred

Capital allocation

high confidence
  • Capex ₹1,000 Cr Graphite expansion funded by internal accruals and some loans; Anode plant funded by HEG equity (INR 750 crores) and financial closure (rest). Interim debt expected.
    • Graphite electrode capacity expansion (15,000 tons) ₹650 Cr
    • Anode plant (20,000 tons) ₹1,800 Cr
    Considering all these, we have recently announced another expansion plan to increase our existing capacity from 100,000 tons to 115,000 tons, which will require a capex of about INR650 crores to be completed in 2.5 years from now... So there is capex of between INR 1,800 crores to INR1,900 crores for the 20,000 tons, for which the HEG has put INR750 crores of equity and the rest we are doing the financial closure. For this expansion, which we are planning, which will be done in next 2, 3 years, this will be done through internal accruals plus some loans... So this year, could we see INR1,000 crores of cash outflow on the capex part, anode and graphite all put together this year and next year? Yes, easily. Could increase. So interim, yes, we will be we are raising we are doing the financial closure for the anode project that is undergoing. For the expansion, we are already have started the paperwork and all. So interim, we will be having certain debt here.
  • Debt Debt disclosed
    The company is long-term debt free and had a treasury size of nearly INR977 crores as on 30th June 2025.
  • Liquidity Cash ₹977 Cr Company is long-term debt free with a treasury size of nearly INR 977 crores as on 30th June 2025.
    The company is long-term debt free and had a treasury size of nearly INR977 crores as on 30th June 2025.

Guidance & targets

Capacity

  • Graphite Electrode Capacity Capacity · Jan-Mar 2028 · High confidence 115,000 tons

    Previously 100,000 tons → 115,000 tons

    Considering all these, we have recently announced another expansion plan to increase our existing capacity from 100,000 tons to 115,000 tons, which will require a capex of about INR650 crores to be completed in 2.5 years from now with expected production in January-March 2028, which will help us to further reduce our costs and increase our market share.

    — Ravi Jhunjhunwala

  • Anode Plant Operationalization Capacity · March '27 · High confidence 20,000 tons
    So on the HEG Greentech thing, like, we have already told, we are setting up the anode plant there, 20,000 tons, that will be operational by March '27, and you can see the revenue after that.

    — Puneet Anand

Capex

  • Graphite Electrode Expansion Capex Capex · 2.5 years · High confidence INR 650 crores
    Considering all these, we have recently announced another expansion plan to increase our existing capacity from 100,000 tons to 115,000 tons, which will require a capex of about INR650 crores to be completed in 2.5 years from now with expected production in January-March 2028, which will help us to further reduce our costs and increase our market share.

    — Ravi Jhunjhunwala

Revenue

  • Greentech Revenue (Hydro + RePlus) Revenue · FY26 · High confidence INR 500-600 crores
    So for the FY '26, you can see consider a revenue of, say, INR500 crores to INR600 crores plus EBITDA of around INR200 crores to INR225 crores in this.

    — Puneet Anand

Profitability

  • Greentech EBITDA (Hydro + RePlus) Profitability · FY26 · High confidence INR 200-225 crores
    So for the FY '26, you can see consider a revenue of, say, INR500 crores to INR600 crores plus EBITDA of around INR200 crores to INR225 crores in this.

    — Puneet Anand

  • Payback for 15k tons expansion Profitability · Medium confidence 4-5 years
    So we are expecting a double-digit IRR on this, and the payback is around lower than between 4 to 5 years.

    — Puneet Anand

Business Commencement

  • Other HEG Greentech businesses Business Commencement · FY28 · Medium confidence Commence operations
    So apart from this, the other businesses, which we have actually announced in HEG Greentech, will take some time. And we feel that by FY '28, the other businesses will commence and then we will see the actual revenue and the EBITDA there.

    — Puneet Anand

Corporate Action

  • Demerger Approval Corporate Action · End of calendar year 2025 · High confidence NCLT approval
    Regarding demerger, the scheme is filed with stock exchanges and all other relevant authorities, after which it will go to NCLT, and we do expect to get NCLT approval by end of the calendar year 2025.

    — Ravi Jhunjhunwala

Capacity Utilization

  • Capacity Utilization Capacity Utilization · Balance three quarters · Medium confidence 85%

    From 90%+ today

    Sir, I would say that this quarter was 90% plus. For the remaining quarters 3 as we book quarter-by-quarter, it's very difficult to answer for more than 1 quarter at a time or two quarters at a time. I think it should be around 85% -- in the region of 85% for the balance three quarters.

    — Manish Gulati

Market context

  • IRR for 15k tons expansion Profitability · Medium confidence Double-digit
    So we are expecting a double-digit IRR on this, and the payback is around lower than between 4 to 5 years.

    — Puneet Anand

What to watch in Q2 FY26

Graphite Electrode Industry Utilization (ex-China)

Next 2-3 quarters
Current 60-65%
Target Improvement towards 80-85%

Why it matters

Key indicator for pricing recovery and HEG's profitability.

The moment all industry capacity utilizations of graphite electrode industry crosses 80%, 85% then of course, there's firming up of prices. So we are a little away from that. Maybe it takes two quarters, three quarters, I don't know.

Risks & concerns

  • Global Steel Production Slowdown

    medium

    Global steel production declined by 1.9% in H1 CY25, impacting demand for graphite electrodes, though long-term EAF transition provides tailwind.

    Management acknowledged

  • US Import Duties on Graphite Electrodes

    medium

    Imposition of 25% duty in the U.S. on graphite electrodes, with the company studying its impact and hoping for a reasonable settlement.

    Management studying

  • Industry Overcapacity and Low Utilization

    medium

    Graphite electrode industry utilization (ex-China) is currently at 60-65%, below the 80-85% needed for pricing power, but market stabilization is expected in 2-3 quarters.

    Management acknowledged

  • GrafTech Financial Health

    medium

    Concerns raised about GrafTech's significant debt and operating cash losses, but management cited debt rescheduling to 2029 and long-term industry recovery as mitigating factors.

    Analyst downplayed

Q&A highlights

5 direct
Rationale for organic capacity expansion vs. inorganic acquisition Direct
So we believe that it is still better to spend 2.5 years and to build more capacity in our own country, where our costs are significantly lower than if we were to acquire any plant in any Western world.

Clarifies strategic capital allocation decision, highlighting cost advantage of domestic expansion over acquiring older, higher-cost international assets.

Asked by Amit Lahoti

Impact of HEG and competitor capacity expansions on industry utilization and pricing Direct
The combination of electric arc furnace-led structural demand growth, supply rationalization by some other industry majors in the world and current unsustainably low prices -- low price levels should gradually lead to market stabilization and pricing recovery.

Addresses concerns about potential oversupply from new capacity, linking it to long-term demand drivers (EAF transition) and expected market stabilization.

Asked by Kirtan Mehta

Risk of GrafTech's debt and potential bankruptcy impacting HEG's investment Partial
But we are hopeful that in next 2, 3 years and 3 years is a very large period of time, we are very hopeful that the entire industry will change. The kind of new EAF plants are coming. So we feel that the pricing and things will change.

Acknowledges the financial stress at GrafTech but expresses confidence in the long-term industry turnaround to mitigate risk, indicating a strategic, long-term view on the investment.

Asked by Rohit

Discrepancy in per-ton capex for HEG's expansion vs. a competitor's Direct
We can only speak about ourselves. We can't speak about somebody else. I mean, I don't know what they are doing and how they are doing. The only thing I can only tell you is that I mean we will not compromise on the equipment. We will not compromise on the cost of the equipment. We are only focusing on the quality.

Explains HEG's focus on quality and not compromising on equipment, implying their capex might be higher due to superior technology or standards, rather than inefficiency.

Asked by Jatin Damania

Impact of US tariffs on Chinese electrodes on HP pricing and HEG Direct
No, I don't think -- if you're talking of the lower grade, what you call HP and not UHP, high power and ultra-high power. So there, with the situation that Europe and America has created for China, Manish will tell you probably in one case, the duty is as high as 100% in some country, Europe or America, I don't know.

Clarifies that tariffs primarily affect lower-grade (HP) electrodes and that HEG's UHP products are less impacted, also noting the competitive advantage for HEG in protected markets.

Asked by Rajesh Majumdar

Why HEG chose to expand its own capacity rather than increasing its stake in GrafTech, given GrafTech's lower valuation Direct
The investment in GrafTech is because we understand this business. But that doesn't mean that we put all our eggs in one basket. So when we are doing an expansion, that is the core business of HEG and we are positive about that.

Explains the rationale behind diversifying capital allocation, emphasizing HEG's core business expansion over increasing a strategic investment, and regulatory limits on stake.

Asked by Rohit

3 min read 6 chapters

Detailed narrative

Strong Financial Performance in Q1 FY26

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.

Strategic Capacity Expansion for Graphite Electrodes

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.

Industry Outlook and Pricing Dynamics

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.

Greentech Business Development and Outlook

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.

Capital Allocation and GrafTech Investment

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%.

Demerger Progress and US Duty Impact

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.

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