# 1. Financial Performance ## A. Key Figures * **Revenue (9M FY26):** **₹1,965 Cr** (+22% YoY) · **Q3 FY26 Revenue:** **₹656 Cr** (+37% YoY) * **EBITDA (9M FY26):** **₹623 Cr** (+58% YoY) * **PAT (9M FY26):** **₹344 Cr** stand-alone (+111%) · **₹455 Cr** consolidated (+141%) ## B. Profitability & Market Dynamics * **Robust Margin Expansion:** EBITDA growth significantly outpaced revenue, indicating strong operating leverage and cost discipline. * **Sustainability Concerns at GrafTech:** Despite **peak price realizations of $4,000**, the entity is reporting **quarterly losses of ~₹5 Cr**, raising questions over unit economics relative to its **$450 Mn net worth**. ## C. Balance Sheet & Capital Structure * **Debt-Free Stance Maintained:** Company remains long-term debt-free with a **treasury balance of ₹1,155 Cr** as of Dec 2025, providing strong financial flexibility. * **Post-Demerger Leverage Path:** HEG Greentech to start with **negligible debt post-separation (Q1 FY27)**, with debt accumulation expected only upon execution of **Gujarat BESS and Maharashtra tenders** after PPA signing. * **Self-Funded Project Deployment:** No debt used for the **th anode business**; funded entirely through internal equity with future financing tied to project milestones. ## D. Cash Flow & Income Composition * **Liquidity-Driven Other Income:** Other income in P&L primarily reflects returns from **HEG’s own liquid assets**, not earnings from associates, underscoring conservative capital deployment. --- # 2. Capacity & Utilization ## A. Key Figures * **Plant Capacity:** **100,000 tons** nameplate (Mandideep) · **~94,000–95,000 tons** practical upper limit * **Utilization Rate:** **85%** (prior quarter) · **89%** (3-quarter average) * **Capacity Expansion:** **+15,000 tons** by **early 2028** ## B. Plant Capacity * **Global Scale Leader:** Operates the world’s largest single-location graphite electrode facility, significantly exceeding peer-scale plants. * **Technical & Market Constraints:** Practical output capped below nameplate due to operational realities and **product mix requirements**, limiting full utilization. ## C. Utilization Rates * **Industry-Leading Utilization:** Achieved highest global capacity utilization rates, underpinned by operational efficiency and customer diversification. * **Volume Growth Trajectory:** Delivered strong volume expansion over recent quarters, reflecting market share gains despite flat global EAF steel production. * **Cost Leverage:** Lower selling expenses linked to reduced sales volumes, though margins remain resilient even amid pricing pressures. ## D. Expansion Progress * **Strategic Capacity Build:** Ongoing expansion on track for early 2028 completion, with long-lead items secured and demand expected to absorb incremental output. * **Demand Outpaces Supply:** Projected global electrode demand of **200,000 tons by 2030** highlights favorable backdrop for future capacity absorption. --- # 3. Demand & Order Book ## A. Key Figures * New EAF Capacity (2024–2030): 110 million tons planned globally (20 million 2024–2025 · 60 million 2026–2028 · 30 million 2029–2030) * **Graphite Electrode Demand (Next 2–3 Years):** **+150,000–200,000 tons** driven by EAF expansion * India’s EAF Capacity Expansion: 70–80 million tons expected, generating +125,000–150,000 tons UHP electrode demand * **EAF Utilization in India:** Current **20 million tons** capacity to reach **70–85% utilization** in 6–12 months, requiring **+25,000–30,000 tons** electrodes ## B. EAF Capacity Growth * **Structural Shift to EAF:** Global steel industry is undergoing a transformative shift from blast furnace to electric arc furnace steelmaking, driven by carbon regulations and climate goals, not overall steel demand growth. * **Replacement, Not Expansion:** New EAF capacity is primarily replacing high-emission blast furnaces—evidenced by ArcelorMittal’s closures—aligning with regulatory pressure to avoid carbon taxes. * **C. S. Leads Transition:** U.S. is the largest EAF market outside China, with **70–72%** of production via EAFs, far above the global average of **40–42%**, signaling deep structural adoption. * **Robust Near-Term Ramp-Up:** Over **2 crore tons** of new EAF capacity commissioned recently, with **5–6 crore tons** more expected by 2028, ensuring sustained demand tailwinds. ## C. Secured Volume * **High Contract Visibility:** **50–60%** of next year’s sales volume already secured, with U.S. contracts locked in for 12 months, providing strong revenue predictability. * **Operational Ramp-Up Underway:** **2 million tons** of new EAF capacity commissioned in the past 6–12 months is in stabilization phase, setting stage for incremental electrode demand. ## D. Customer Visibility * **Demand Outstrips Supply Risk:** With global graphite electrode capacity at **~500,000 tons** and demand rising by **150,000–200,000 tons**, closure of major producers like GrafTech (175,000-ton capacity) is highly unlikely despite investment write-downs. * **Pricing Certainty in Key Markets:** U.S. customers finalize **nearly 100%** of annual electrode requirements upfront—no 2026 price negotiations ongoing—ensuring stable near-term pricing. * **Direct Customer Linkage:** Most EAF expansions are led by HEG’s existing customers, enabling direct project tracking and high-confidence demand forecasting through site-level engagement. * **Consensus on Demand Surge:** Industry-wide projections, including from Graphite India and global peers, confirm strong demand growth, reinforcing the **150,000–200,000 ton** incremental demand outlook. --- # 4. Product & Segment Mix ## A. Key Figures * **Graphite Electrode Mix:** **70%-75%** ultra high power (UHP) * **US & Americas Exposure:** **~20%** of total business ## B. Electrode Product Mix * **Premium Product Focus:** Dominant UHP electrode share reflects strategic positioning in high-margin, technically demanding segments. * **Pricing Transparency:** Management withheld dollar realizations citing competition, though figures can be triangulated via turnover and capacity data. ## C. Greentech Revenue Timing * **Early-Stage Greentech Revenue:** HEG Greentech’s current income is primarily from hydro, with BESS (Replus) contributing **minimal revenue** at this stage. ## D. Associate Contributions * **Associate Earnings vs. Dividends:** Bhilwara Energy’s profits are included in HEG’s P&L, but **no dividends** have been received in recent years. * **Hydro-Centric Associate Model:** BEL’s revenue is anchored in hydropower, supplemented by BESS and **fixed deposit income** from surplus liquidity. * **GrafTech Investment Strategy:** Stake in GrafTech remains under review; any increase subject to investment committee approval, with recent price dip improving entry economics. --- # 5. Cost & Supply Chain ## A. Key Figures * **Power Cost:** **~30%** of total cost in anode business · **<₹5/unit** locked for 5+ years in MP * **Production Time:** **5–7 weeks** (low-grade) · **5–6 months** (high-grade) electrodes * **Capacity Expansion:** **80,000 to 100,000 tons** enabling scale-driven cost decline ## B. Power Cost Advantage * **Structural Cost Edge:** Sustained advantage from India-based operations and centralized large-scale production, insulating HEG from global high-cost peers. * **Long-Term Power Security:** Favorable state-backed power pricing ensures stable and low input costs, a key differentiator in energy-intensive anode manufacturing. ## C. Needle Coke Management * **Stable Input Costs:** Needle coke prices remain flat with minimal cost relief; no significant raw material tailwind observed. * **Effective Price Risk Mitigation:** Quarterly contracts and two-month production cycles allow HEG to lock in coke costs early, avoiding volatility and protecting margins. * **Historical Margin Insight:** Past supernormal margins (2017–18) stemmed from a temporary disconnect between rising electrode prices and lagging coke costs, not replicable today. ## D. Scale Economies * **Cost Leadership via Scale:** Expanding capacity drives down unit costs, reinforcing HEG’s position among the world’s most cost-efficient electrode producers. * **Margin Expansion Driver:** Recent margin gains are primarily due to **higher operating rates** and operating leverage, not raw material gains. --- # 6. Competitive & Market Position ## A. Key Figures * **Export Sales:** **~66%** of total sales · **30–35 countries** served globally * **China UHP Capacity:** **200,000 tons** (50% utilization) · **800,000 tons** total graphite electrode capacity * **Closed Western Plants:** **30,000–40,000 tons** typical capacity · **100,000 tons** scale of Indian plants like HEG ## B. Global Market Share * **Broad-Based Gains:** Market share expanded across **Europe, Middle East, India, and 30+ countries**, with no single dominant geography. * **Competitive Displacement:** Gains likely incremental from **multiple rivals**, including major American and Japanese players, though no primary source identified. * **Fragmented Capture:** Share gains attributed to **small takeovers from various competitors**, reflecting broad competitive weakness rather than a single vulnerability. ## C. China Competition * **Quality Ceiling:** Chinese producers dominate overall graphite electrode output but **lack UHP-grade quality** for advanced markets, limiting high-end penetration. * **Limited UHP Threat:** HEG views Chinese UHP supply as **non-material risk**, supported by **robust incremental global demand** offsetting new supply. * **Opaque Cost Structure:** Chinese UHP pricing remains **economically unexplainable**, with no clear understanding of their cost advantages outside China. ## D. Western Plant Viability * **Structural Cost Edge:** HEG’s Bhopal facility—**last Greenfield plant built globally**—benefits from modern design, scale, and **among the lowest power costs worldwide**. * **Barriers to Restart:** Closed Western plants face **high hurdles to reactivation** due to aging assets, cost inefficiencies, and logistical constraints. * **No New Greenfield Projects:** **Zero new non-Chinese graphite anode Greenfield plants in 50 years**, underscoring extreme technical and operational barriers. --- # 7. Risks & Industry Factors ## A. Key Figures * Steel Production: +10.4% YoY India · +3.1% YoY US · –4% YoY Japan · –2.8% YoY South Korea · –2.6% YoY EU * China Steel Exports: 67→119 Mn MT (+78%, record high) * **US Tariff on Electrodes:** Reduced from **50% to 18%** (next quarter: **18% for Indian exporters**) * **GrafTech Cash Cost:** **$3,700/ton** production cost ## B. Pricing Pressure * **Global Pricing Headwinds:** Graphite electrode markets under pressure from weak demand, cautious buying, and aggressive Chinese steel exports enabling **destructive pricing dynamics**. * **Pricing Recovery Potential:** Rising global demand and uneconomic restarts of Western plants may support **improved realizations**, despite near-term volatility. * **Trade Actions Mount:** US Section 232 duties reflect growing protectionism; however, tariff relief (down to 18%) and input-based duty offsets are **mitigating structural risks** for compliant exporters. ## C. Demand Absorption * **Regional Divergence Deepens:** Stagnant or declining steel output in key developed markets (EU, Japan, Korea) contrasts with **resilient Indian demand** driven by infrastructure and autos. * **Capacity-Demand Mismatch Risk:** New steel and electrode capacity additions (10–15% in US/EU) face uncertainty amid **low utilization (50–55%)** and unclear demand catalysts. * **China’s Dual Impact:** Despite a 5% drop in domestic steel production over five years, surging exports absorb excess supply, while **domestic absorption of new Chinese electrode capacity** limits immediate global oversupply. * **Quality Lag Supports Premium Producers:** Persistent challenges in achieving reliable UHP-grade electrodes from Chinese mills provide a **structural advantage for established players**. ## D. Trade Tariffs * **Tariff Impact Contained:** US duty reduction to 18% and **dutiable value adjustments for US-sourced inputs** significantly soften the blow; company plans to absorb costs to **protect global market share**. * **EAF Expansion Driven by Decarbonization:** Shift toward electric arc furnaces—emitting **one-fifth the CO₂** of blast furnaces—underpins long-term electrode demand growth, despite cyclical headwinds. * **Global Watch on China’s "Anti-Involution" Campaign:** Western producers eye policy efforts to curb overcapacity as a potential **inflection point for global pricing stability**. --- # 8. Guidance & Outlook ## A. Pricing Expectations * **Pricing Stability Maintained:** Realizations expected to remain **more or less similar** to recent quarters, with no major changes anticipated for electrodes and needle coke over the next two quarters. * **Tariff Impact Contained:** Despite an **18% US import tariff**, management affirmed it can absorb the cost without exiting the market, underscoring long-term strategic commitment. ## B. Greentech Ramp-up * **Revenue Timeline Set:** HEG Greentech (BESS, IPP, anode) to commence **significant revenue contribution from Q1 FY28**, with peak impact expected in **FY29**. ## C. Long-term Demand * **Structural Growth Drivers Intact:** Medium-term fundamentals supported by **disciplined supply**, rising EAF adoption, and improving utilization, despite near-term overcapacity and low realizations. * **EAF Expansion to Boost Demand:** **40–50 million tons of new EAF capacity** expected by 2028 (down from prior 60M estimate), with **~200,000 tons of incremental graphite electrode demand** projected by 2030 (ex-China), signaling strong long-term tailwinds.