HEG Advanced Materials Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Sharp sequential recovery, YoY growth: Standalone EBITDA swung from a Q4 FY26 loss of INR126 crores to a profit of INR211 crores, up 38% YoY, driven by better realizations and cost management despite marginally lower volumes.
• Pricing power is returning, but with a lag: Two global competitors announced steep price hikes, and HEG intends to follow suit, though the benefit will only show from October onwards due to a 3-4 month booking cycle.
• Anode and Greentech build-out is now a material, multi-year story: With ~70% of anode contracts closing soon and a clear path to INR1,500+ crores in revenue by year 3 at a 35% EBITDA margin, the Greentech segment is targeting a 4-digit EBITDA by 2030.
• Margins defended, not yet guided higher: Management commits to maintaining current margins (28-29% including other income) and having higher margins than peers, but declined to quantify the net impact of upcoming price hikes versus rising needle coke costs.
• What to watch next quarter: The quantum of price hikes actually booked for H2 delivery, the NCLT order on the demerger, and the finalization of U.S. trade duty outcomes, which could redirect significant volumes.

Pricing & Realization

• Competitor-led price momentum: An American and a Japanese competitor announced steep increases in the last 6-7 weeks, one between \$600-\$1,200 per ton and the other \$930, citing higher costs. HEG states its costs have also risen and it will follow suit.
• The lag is structural: HEG is booked 3-4 months ahead, so new, higher prices will only reflect from October onwards. The company is currently selling electrodes made with lower-cost needle coke inventory, creating a temporary margin tailwind.
• Cost catch-up looms: Needle coke prices are rising, but the impact on HEG's P&L is 3-5 months away due to existing stock and a 1.5-month manufacturing cycle. The company is unbooked for that period and intends to raise prices to cover the increase and, if possible, expand margins.
• Global, not regional, improvement: Price increases are happening across all markets, though the quantum differs by region. Management declined to specify a dollar-per-ton figure or a percentage hike, calling it "very risky on a call."

Ravi Jhunjhunwala: "There are only 3, 4 of us in the world. So 2 of them have already announced their intent. They have given the numbers. They are all available in the public domain. So apart from these 2, 3 companies that we spoke about, then there is only we and our Indian colleagues. So obviously, so we will follow suit."

Demand & Operating Environment

• Steel production ex-China is resilient: Global steel output fell 0.7% YoY in H1 CY26, but production outside China grew 2.1%, with India up 7.1%, the US up 6.3%, and Germany up 9%. The contraction is bottoming out.
• Chinese exports remain a pressure point: Exports stayed at historically elevated levels of 5.5 crore tons, triggering defensive trade measures across the US, EU, and India. Management disputes analyst estimates of Chinese graphite electrode supply, claiming it is "much less, maybe half" of the 200 Kt figure cited.
• EAF capacity build-out is the structural demand thesis: Management is tracking each new facility and states that the ~6 crore metric tons of new EAF capacity expected for 2026-2028 is "all happening." With no new blast furnaces in Europe or the US, graphite electrode demand is tied to this EAF growth.
• Geopolitics added cost friction: The Middle East war impacted energy prices, shipping costs, and transit times, contributing to higher freight and energy costs that were felt across raw materials like needle coke.
• Utilization is near its practical ceiling: The plant operated at 91%+ utilization. Management sees no headroom beyond 94-95%, as ideal conditions to reach 100% never exist. The commitment is to produce at 90-95% "come what may."

Ravi Jhunjhunwala: "We are tracking each and every new facility. And whatever we have been talking about in terms of new capacity for the last 2 years, we are very happy to say that they're all happening."

U.S. Market & Trade Risk

• Trade duty timeline is set: Countervailing duty results are expected by end of July, and anti-dumping results by end of September. HEG states it has not engaged in dumping.
• U.S. exposure is ~10% of business: Management is committed to retaining the American market, where prices are higher than most others, even if it means losing some market share.
• Volume derisking is credible: If unreasonable duties are imposed, management states it would not be difficult to absorb that volume in alternate markets, given the global demand picture.

Ravi Jhunjhunwala: "And believe me, I mean, we will retain America. I mean American prices are higher than most of the others. We might lose some sort of a market share, but we're not going to leave that country."

Greentech & Diversification

Anode Project

• Contracting is nearly complete: ~70% of the 20,000-ton anode capacity will be under long-term contract with top-tier global players within the next 1-1.5 months.
• Capex is largely spent: 40% of the INR2,200 crores project cost is already incurred, with 90% of payments done by FY27 and the balance 10% in Q1 FY28. Commercial production starts in Q1 FY28.
• Revenue and margin path is explicit: 40-50% utilization in year 1 yields INR600-700 crores, scaling to over INR1,200 crores in year 2 and INR1,500-1,600 crores in year 3, all at a targeted 35% EBITDA margin. A quick decision was made to expand to 30,000 tons at INR800 crores capex, with the facility coming up by 2029.

Renewable Energy

• Hydro project acquisition: HEG acquired the 75 MW project from partner Statkraft, where 30% of work is already done, targeting completion in ~2.5 years (2029).
• Solar project: A 300 MW DC C&I project is set to start operations in the next 18 months.
• Combined EBITDA contribution: The new hydro and solar projects are expected to add another INR200 crores of EBITDA.

Riju Jhunjhunwala: "So basically, in a nutshell HEG Greentech, we can safely say by the year 2030, we should be aiming at a 4-digit EBITDA between all the businesses combined."

Demerger & Corporate Structure

• NCLT order is the next catalyst: The composite scheme of arrangement for the demerger is progressing, and the NCLT has reserved its order. The company is awaiting pronouncement and will hold a dedicated investor call to explain the HEG Advanced Materials business once the order is received.
• Greentech share issuance: ~13 crores new shares are being issued to Singularity, the promoter, and RSWM Limited, bringing the post-consolidation share count to ~32.9 crores. No further fresh issuance is planned.
• Malana Power stake buy: The 49% stake of Statkraft in Malana Power was acquired for ~INR1,200 crores, funded 50% by commercial banks and 50% by a family office and BEL.

Margins & Cost Structure

• Q1 margin bridge: Standalone EBITDA margin improved to 29% from 23% YoY. The swing was driven by better realization and product/geographical mix, which more than offset the impact of marginally lower volumes.
• The needle coke lag is a temporary shield: The company carries 3-4 months of needle coke stock bought at lower prices, while selling at higher realized prices. This benefit will unwind as higher-cost needle coke enters the P&L towards the end of the year.
• Commitment is to defend, not yet to guide expansion: Management commits to maintaining margins at the current 28-29% level (including other income) and to having a higher margin than any competitor, but stopped short of quantifying the net expansion potential from price hikes.

Ravi Jhunjhunwala: "I can only tell you that we'll be able to maintain the margins that we are now talking about. And we will have a higher margin than anybody else."

Guidance & Commitments

Key Metrics