HEG Limited — Q4 FY25 earnings call

Call held 26 May 2025

Management summary

HEG delivered a strong operational Q4 FY25 with a 27% EBITDA margin, despite a significant MTM loss on its GrafTech investment. The company maintained high capacity utilization and is optimistic about future pricing due to global capacity reductions and new EAF demand. Progress on the graphite anode plant is on track, while challenges like unsustainable current prices and new US tariffs remain watch items.

Highlights

  • Q4 FY25 EBITDA margin reached 27%, making it the best operational quarter for the year, with a full year average of 21%.

  • HEG maintained a high capacity utilization of close to 80% for FY25, leveraging its expanded 100,000 tons capacity, significantly higher than international peers.

  • The global graphite electrode industry has seen substantial capacity reductions of 120,000 tons (18% of total capacity ex-China/Russia), which is expected to lead to price firming in the medium term.

  • The new graphite anode plant project is on track for commissioning by April 2027, with Rs. 1850 crores CAPEX, almost 100% of which will be committed in FY26.

  • The company remains long-term debt-free with a treasury size of Rs. 875 crores as of March 31, 2025, and recommended a final dividend of Rs. 1.80 per share.

Concerns

  • HEG incurred a significant mark-to-market (MTM) loss of Rs. 160 crores in Q4 FY25 and Rs. 80 crores for the full year FY25 on its investment in GrafTech International.

  • Management stated that current electrode prices are unsustainable for the industry, leading to significant losses for many international peers.

  • The recent imposition of 10% import duties in the US on electrodes, effective July 9, 2025, poses a potential impact on HEG's export business.

  • Global crude steel production, excluding China, declined by 1.5% in Q1 2025, indicating continued weakness in demand for HEG's products.

Key financials

5 periods

Headline

  • Treasury Size (as of Mar 31, 2025)
    ₹875 Cr

Q4 FY25

  • Revenue
    ₹537 Cr
    YoY -1.8%
  • EBITDA Margin
    27%
  • PBT (excl. MTM loss)
    ₹88 Cr

FY25

  • Revenue
    ₹2,153 Cr
    YoY -10%
  • EBITDA
    ₹388 Cr
    YoY -26.2%
  • EBITDA Margin
    21%
  • PBT (excl. MTM loss)
    ₹228 Cr

Consolidated FY25

  • Net Profit After Tax
    ₹115 Cr
    YoY -63.1%

Standalone FY25

  • Net Profit After Tax
    ₹101 Cr
    YoY -56.5%

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 indicated that they have orders on hand that need to be executed and that their production has gone up, allowing them to gain market share due to their low-cost position and extensive export footprint.

Source: Inferred

Capital allocation

high confidence
  • Capex ₹100 Cr this quarter · ₹1,850 Cr (FY26) planned mix of debt and equity
    • Graphite anode plant ₹1,850 Cr
    The total CAPEX is around Rs. 1850 crores and we would be spending a large amount of that. We would be committing almost 100% within this Financial Year. ... It will be a mix of debt and equity.
  • Debt Net cash ₹875 Cr
    The Company is long-term debt-free and had a treasury size of approximately Rs. 875 crores as on 31st March 2025.
  • Dividend ₹1.8/share (final) Payout ratio 90%
    The board of directors have recommended a 90% of final dividend that is through Rs. 1.80 per equity share of the face value of Rs. 2 each for the Financial Year 2025 subject to the approval of the shareholders at the ensuing AGM.
  • M&A GrafTech International Acquisition · Closed · Consideration ₹[object Object] (cash)

    Investment in a significant player in the electrode industry as part of treasury operation.

    Resulted in a mark-to-market loss of Rs. 160 crores for Q4 FY25 and Rs. 80 crores for full year FY25 due to share price decline.

    Now let me take you through our investment in equity of GrafTech International US, a significant player in the electrode industry. ... As part of our treasury operation, we have invested a total of Rs. 282 crores to buy Rs. 2.57 crore shares of GrafTech, which is 9.98% of their equity at an average price of $1.32 per share. ... As such, as on 31st March 2025, the share was trading at $0.87 dollars per share, because of which we had to fair value them at a closing price and take the hit of MTM, mark-to-market of Rs. 160 crores for the quarter 4 of FY'25 and Rs. 80 crores for the full year of 2024-'25 purely on account of this investment.
  • Liquidity Cash ₹875 Cr The company is long-term debt-free with a substantial treasury size.
    The Company is long-term debt-free and had a treasury size of approximately Rs. 875 crores as on 31st March 2025.

Guidance & targets

Capacity

  • Graphite Anode Plant Commissioning Capacity · April 2027 · High confidence April 2027
    Sir that will be in April 2027.

    — Ankur Khaitan

  • Graphite Anode Plant Capacity Expansion Capacity · next 4-5 years · Medium confidence Double 20,000 tons capacity
    So our first stage, of course, we are starting with 20,000, but we hope that in the same location we will be able to least double that capacity in the next 4 to 5 years.

    — Riju Jhunjhunwala

  • HEG Capacity Utilization Capacity · current year (FY26) · Medium confidence Maintain or increase 80%
    Our capacity utilization for the year 2024-25 was close to 80% based on our expanded capacity of 100,000 tons and we hope to maintain in the current year too, if not increase this a little bit.

    — Ravi Jhunjhunwala

Capex

  • Graphite Anode Plant CAPEX Commitment Capex · FY26 · High confidence Almost 100% of Rs. 1850 crores
    The total CAPEX is around Rs. 1850 crores and we would be spending a large amount of that. We would be committing almost 100% within this Financial Year.

    — Ankur Khaitan

Other

  • Demerger Approval Other · calendar year 2025 · High confidence End of calendar year 2025
    We expect to get all the required approvals by end of calendar year 2025.

    — Ravi Jhunjhunwala

Profitability

  • Electrode Prices Profitability · coming quarters (2-4 quarters) · Low confidence Firming up soon
    We hope these reductions in electrode capacities will help in selling prices firming up soon as the current prices are unsustainable for the industry...

    — Ravi Jhunjhunwala

What to watch in Q1 FY26

Graphite Anode Plant CAPEX Spend

FY26
Current Over Rs. 100 crores spent so far
Target Significant portion of Rs. 1850 crores committed/spent

Why it matters

Tracks the financial commitment and progress of a major new growth project that is key to future diversification.

The total CAPEX is around Rs. 1850 crores and we would be spending a large amount of that. We would be committing almost 100% within this Financial Year.

Risks & concerns

  • Unsustainable current electrode prices

    high

    Management stated that current electrode prices are unsustainable for the industry, leading to significant losses for many international peers, though they hope for price firming up.

    Management acknowledged

  • Mark-to-market loss on GrafTech International investment

    medium

    HEG incurred a Rs. 160 crores MTM loss in Q4 FY25 and Rs. 80 crores for FY25 due to the decline in GrafTech's share price, impacting reported profitability.

    Management acknowledged

  • US import duties on graphite electrodes

    medium

    The recent imposition of 10% import duties in the US, effective July 9, 2025, could impact HEG's export business, with the long-term status of these duties being speculative.

    Management acknowledged

  • Weakness in global crude steel production

    medium

    Global crude steel production, excluding China, declined by 1.5% in Q1 2025, indicating continued weak demand and pricing challenges for HEG's products.

    Management acknowledged

Q&A highlights

6 direct
Graphite Anode Plant Commissioning & CAPEX Direct
Sir that will be in April 2027. ... The total CAPEX is around Rs. 1850 crores and we would be spending a large amount of that. We would be committing almost 100% within this Financial Year.

Provides concrete timelines and financial outlay for a major new growth project, indicating significant capital allocation in the near term.

Asked by Suraj Khaitan

US Tariffs on Graphite Electrodes Direct
No, it is 10%. For the time being, it is 10% not only from India, but from all over the world. So we will have to see, wait and see. I mean, the real date is the 9th of July, when this 10%..until when it is 10%, we never know whether it will come back to zero or it will remain at 10% or... I mean, it's just speculation today.

Identifies a new trade barrier that could impact export competitiveness and introduces uncertainty regarding its long-term application.

Asked by Suraj Khaitan

Sustainability of Q4 EBITDA Margin (27%) Partial
See, it will all depend on the pricing. I mean what can I tell you? I mean, I can't pinpoint the number of 20%, 22%. ... I mean it's a matter of time that we will see, we will start seeing some impact on the pricing.

Analysts are seeking clarity on margin sustainability, but management links it to future pricing recovery, which is still a developing situation.

Asked by Shlok Bhartiya

Impact of China on Electrode Market & Pricing Direct
See the impact of China, if you see, number on the question that you just asked, but just to tell you generally China still does not have the technology and we do compete with China, but very small segment in the market which is the lower part of the segment... So the impact on people like us or Graphite India or the Japanese or Americans is minimal because of Chinese production of electrode and exports.

Clarifies that Chinese competition is not a major threat in HEG's high-grade electrode segment, which is positive for its pricing power and market position.

Asked by Shlok Bhartiya

Potential for Price Appreciation in Electrodes Direct
I hope so. I mean, these closures have just been announced. I mean, it takes some time to even close the plant. But there have been very significant announcements in the last 2, 3 quarters... So it's a very sizable number.

Management expresses optimism about future price increases due to significant global capacity reductions, although acknowledging a time lag for the impact to be fully realized.

Asked by Shlok Bhartiya

Electrode Prices & GrafTech Investment Write-down Partial
You have said this many times in the past, conference call saying current qualified prices are unsustainable. ... But the reason I am asking is because you're putting a substantial amount of confidence in buying 10%, about 10% of GrafTech and just trying to understand like if you see if this continues for a little while, do you see any major write down that Company can incur?

Analyst directly questions the sustainability of prices and potential for further write-downs on the GrafTech investment, a key concern given the recent MTM loss, which management largely addresses by reiterating HEG's competitive position rather than directly on the write-down.

Asked by Kaushal Patel

Needle Coke Price Trends Direct
See, the needle coke prices have been stable. Needle coke prices have been stable in the last 3 quarters. Now they are also, of course, needle coke prices are tied to the electrode prices. So let's say in the next 1 or 2 quarters, we think they should be in the same range because the electrode prices are also going to be in the same range.

Provides insight into raw material cost stability, which is crucial for margin predictability, and its direct linkage to finished product pricing.

Asked by Aryan Sharma

Renewable Energy Sourcing for Power Costs Direct
Yes, we are working on that. ... And there is option available from the Madhya Pradesh Discom that they are ready to sell us renewable energy, but that it costs higher, more than 50 paisa higher. So we have to, in times to come, we will take a call on that, but we remain totally conscious of this fact that going forward, we would start to use more and more renewable.

Highlights management's focus on cost optimization and sustainability through renewable energy, but also reveals current challenges with higher costs for green alternatives.

Asked by Amol Rao

3 min read 7 chapters

Detailed narrative

Q4 FY25 Performance and Full Year Overview

HEG reported a strong operational Q4 FY25 with an EBITDA margin of 27%, which was the highest for the year, contributing to a full-year average of 21%. Excluding a mark-to-market loss on investments, Q4 was the best performing quarter with a PBT of Rs. 88 crores. For the full year FY25, revenue from operations stood at Rs. 2,153 crores, compared to Rs. 2,395 crores in the previous fiscal year. The company delivered an EBITDA of Rs. 388 crores and a consolidated net profit after tax of Rs. 115 crores for FY25.

Graphite Electrode Market Dynamics and Outlook

The global graphite electrode industry has experienced significant capacity reductions, with approximately 120,000 tons (18% of total capacity excluding China and Russia) being shut down or downsized by major players like Resonac, Tokai Carbon, and GrafTech. This consolidation, combined with an anticipated 35-40 million tons of new greenfield electric arc furnace (EAF) capacities expected in the next 18 months, is projected to stabilize demand-supply dynamics. Management believes current electrode prices are unsustainable and hopes for price firming in the coming quarters, potentially within 2-4 quarters.

Graphite Anode Plant Project Update

HEG is progressing with its new graphite anode plant project, targeting commissioning by April 2027. The total CAPEX for this project is estimated at Rs. 1850 crores, with over Rs. 100 crores already spent and almost 100% of the total CAPEX expected to be committed within FY26. The project will be funded through a mix of debt and equity. The plant will start with a capacity of 20,000 tons, with plans to double it in 4-5 years, aiming to capitalize on the 'China Plus One' strategy and a projected domestic demand of 100,000-140,000 tons by 2030.

Investment in GrafTech International

HEG invested Rs. 282 crores to acquire a 9.98% equity stake in GrafTech International. Due to the decline in GrafTech's share price, HEG recorded a mark-to-market loss of Rs. 160 crores in Q4 FY25 and Rs. 80 crores for the full year FY25. This accounting adjustment impacted the reported profitability for the quarter and the fiscal year.

Capacity Utilization, Cost Leadership, and Export Focus

HEG operated at a high capacity utilization of close to 80% for FY25, based on its expanded 100,000 tons capacity, and aims to maintain or increase this level in the current year. The company positions itself as one of the lowest-cost producers globally, benefiting from its large single-location capacity. Exports constitute about two-thirds of its sales, with a diversified sales footprint across more than 25-30 countries, indicating a strong global presence and market penetration.

Capital Structure, Shareholder Returns, and Demerger

The company maintains a strong financial position, being long-term debt-free with a treasury size of approximately Rs. 875 crores as of March 31, 2025. The board recommended a final dividend of Rs. 1.80 per equity share (90% of face value) for FY25. The demerger scheme has been filed with regulatory authorities, and approvals are expected by the end of calendar year 2025, signaling a potential corporate restructuring event.

Raw Material and Power Cost Management

Needle coke prices, a key raw material, have remained stable for the past three quarters and are expected to continue this trend in the near term, which is favorable for cost management. HEG is actively exploring renewable energy options to reduce power costs, including expanding its internal solar capacity (adding another 3 MW to existing 3 MW) and evaluating offers from the state discom, though current renewable options are more expensive by over 50 paisa per unit.

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