HEG

HEG reported robust financial performance for Q2 FY26, with revenue from operations reaching ₹697 crores, marking a 22.7% increase from ₹568 crores in the corresponding quarter of the previous year. EBITDA saw a significant jump of 61.4% year-on-year, climbing to ₹226 crores from ₹140 crores. The company's standalone net profit after tax more than doubled to ₹131 crores (up 111.3% YoY), while consolidated net profit after tax grew 28% to ₹105 crores. HEG remains a long-term debt-free entity, boasting a treasury size of approximately ₹1,167 crores as of September 30, 2025.

The global steel industry continues to face headwinds, with crude steel production declining by 1.5% year-on-year in the first nine months of 2025. China's output fell 2.6% year-on-year, and its finished steel exports surged 9.2% in Q2, intensifying global competition and pressuring international steel prices. The graphite electrode market is characterized by muted customer demand, cautious procurement, and aggressive pricing from Chinese suppliers, leading to margin pressure for producers globally. Management hopes for an increase in steel production and new electric arc furnace (EAF) capacities coming online in the next two to three quarters.

The demerger process for HEG Greentech is progressing, with NCLT approval anticipated by April 2026. HEG Greentech is structured around four strategic pillars: anode material manufacturing (expected operational by Q1 FY28), 100% ownership of 278 MW hydro power assets (Malana and Allain Duhangan), BESS EPC business (expanding from 1 GWh to 6 GWh by Q1 FY27), and IPP (BESS plus Solar, with the first 200 MWh project operational by Q2 FY27 and an additional 1000 MW/2000 MWh tender by Q2 FY28). The EBITDA for HEG Greentech is projected to double in FY27 compared to FY26.

HEG is undertaking a 15,000-ton capacity expansion project with a capital expenditure of ₹650 crores, slated for completion by the end of 2027 and ready for production in Q1 CY28. The company achieved over 90% capacity utilization in the first half of FY26 and aims for 85-90% for the full fiscal year. This high utilization demonstrates operational resilience despite the challenging market conditions. Management noted that the industry's average utilization is currently around 65-70%, with historical trends suggesting prices firm up when utilization crosses 85%.

The recent imposition of a 50% reciprocal duty in the U.S. presents a potential headwind for HEG's competitiveness in that region. Customers in the U.S. are likely to demand prices comparable to local suppliers, which could necessitate HEG absorbing some of the tariff impact. However, HEG's sales to the U.S. constitute only 10-12% of its total sales, and its diversified sales footprint across 35 countries helps mitigate this risk. The company is hopeful that tariffs will eventually settle at a more reasonable level.

Needle coke prices have remained flattish for the past 2-3 quarters, mirroring the stability in electrode prices. Management assured that needle coke availability is not a significant concern for future capacity expansions. Existing refineries have the technology and capability to switch their cokers to produce needle coke when demand for graphite electrodes increases, making it a flexible supply chain. The spread between graphite electrode and needle coke prices has also remained stable, contributing to the current profit figures.