HEG Limited (HEG) Q3 FY2026 Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to HEG Limited's Q3 FY '26 Results Conference Call organized by SKP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. I'm pleased to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited. We have with us: Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO; and Mr. Riju Jhunjhunwala, Vice Chairman; along with their colleagues, Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; Mr. Ravi Tripathi, CFO. We also have Mr. Basant Jain, Joint MD and CEO, Bhilwara Energy Limited; Mr. Ankur Khaitan, MD and CEO, TACC Limited; Mr. Hiren Pravin Shah, MD and CEO, RePlus; Mr. Puneet Anand, Group CSO; and Mr. Salil Bawa, Group Head, Investor Relations. We'll have the opening remarks from Mr. Jhunjhunwala followed by a Q&A session. Thank you, and over to you, Raviji.

Thank you, and good afternoon, friends, and welcome to our financial results conference call for Q3 financial year '25-'26. I would like to begin by setting the context on the global steel market as its underlying trends are critical for understanding the demand conditions for the graphite electrode industry. As per the latest data published by the World Steel Association, global steel production declined by about 2% year-on-year in calendar year 2025, falling to 1,804 million tonnes, which is 1.8 billion tonnes from 1,841 million tonnes in 2024, reflecting a challenging macroeconomic environment and subdued demand across major steel producing regions. China, which is the world's largest steel producer, also recorded a 4.4% year-on-year decline in 2025, with crude steel production reducing from 1,005 million metric tonnes to 961 million metric tonnes. While China steel production has declined by approximately 7.5% over the last 5 years, its steel exports have increased sharply over the same period, rising from -- rising by 78% from 67 million tonnes to 190 million tonnes in 2025 over these 6 years, significantly intensifying competitive pressures across global steel and downstream markets. In contrast, India continued to outperform with crude steel production increasing by 10.4% Y-o-Y, supported by strong infrastructure spending, resilient automotive demand and ongoing capacity additions. Among other major regions, the United States recorded a 3.1% Y-o-Y increase in crude steel production, while Japan's output declined by 4% and South Korea declined by 2.8%. European Union, EU, remained under significant pressure with steel production declining by 2.6% on Y-o-Y basis due to very high energy costs and weak industrial activity. Against this backdrop, the global graphite electrode market continued to face challenging conditions, with customer demand remaining muted due to cautious procurement behavior and sustained pricing pressure, particularly from elevated steel export out of China. And the demand conditions remained uneven across all the regions. While near-term visibility remains limited, disciplined supply, improving utilization trends in certain markets and the continued shifts from electric arc furnace steelmaking provide support to the medium-term industry fundamentals. In this environment, our focus on operational efficiency, cost discipline and customer diversification enabled us to deliver a resilient performance during the quarter, demonstrating the strength of our moto. We continue to operate at the highest capacity utilizations in the industry all around the world at 85% in previous quarter and 89% in the last 3 quarters combined, both of which are highest in the graphite industry worldwide. Just to remind you, we have the single location largest facility in the world at a place called Mandideep near Bhopal with a capacity of 100,000 tonnes. Combined with a cost structure, which is amongst the lowest, positions us as one of the most efficient and cost-efficient graphite electrode manufacturers globally. Just to reiterate that these numbers are based on our -- just to reiterate, these numbers are based on our expanded capacity of 100,000 tonnes and not 80,000 tonnes, which was the case until '23-'24, reflecting a gain in the market share at a time when the electrode arc furnace-based steel production is more or less flat. Looking ahead, the global transition towards low-emission EAF steelmaking continues to accelerate, driven by climate goals and regulatory momentum. We once again reiterate that this transition is expected to generate incremental graphite electrode demand of approximately 200,000 tonnes by 2030, excluding China, reinforcing the industry's long-term growth potential. To the best of our knowledge, about 20 million tonnes of new greenfield electric arc furnace capacities have already been added in the calendar years 2024 and 2025. And we believe another 60 million tonnes would be added between calendar years 2026 to 2028, which is not too long in the next 3 years, 60 million tonnes, and another 30 million tonnes between 2029 and 2030, taking the total new greenfield electric arc furnace capacity by 110 million tonnes. It has never happened in the history that the steel industry has added 110 million tonnes in the last 20, 30, 40 years probably. This would increase the worldwide electrode demand by approximately 200,000 tonnes compared to what it was till calendar year 2025. Construction activity of our recently announced expansion by a further 15,000 tonnes is progressing as per schedule, and we stand by our earlier target of completing this by early 2028, which will position us well to cater to the incremental electrode demand all over the world. I once again reiterate that for the last many years, our exports have constituted around 2/3 of our total sales to more than 30, 35 countries, covering almost the entire geography. Our composite scheme of arrangement is on track. The NCLT bench at Indore has heard the matter and reserved its order on the first motion application. We expect to receive the order within the next 1 or 2 weeks. Upon receipt of this order and in accordance with its directions, we will initiate the process of issuing notices and convening meetings of our shareholders and creditors to seek their approval for the scheme. Once the approval process is completed, we will find the second motion petition. We anticipate that this entire scheme will be approved by NCLT by Q1 2027. With that, I would now like to invite our CFO, Ravi Tripathi, to present the financial quarters -- for financial results for the matter for the quarter, and then we'll open up for Q&A. Thanks. Ravi, over to you.

Thank you, sir. Good afternoon, everyone. I will briefly walk you through the company's operating and financial performance for the period ended 31st December 2025. For the 9 months ended December 2025, revenue from operations stood at INR 1,965 crores compared to INR 1,616 crores in the same period of last year. For Q3 FY '26, revenue was INR 656 crores versus INR 4,477 crores in the corresponding quarter of the previous year. EBITDA for the 9-month period was INR 623 crores, up from INR 393 crores of the previous year. On a stand-alone basis, profit after tax for the 9 months of FY '26 was INR 344 crores compared to INR 163 crores in the same period of last year. On a consolidated basis, profit after tax stood at INR 455 crores as against INR 189 crores in the previous year. Our balance sheet remains strong. The company continues to remain long-term debt-free and maintain a treasury balance of approximately INR 1,155 crores as of 31st December 2025. Looking ahead, we are confident that any improvement in the industry can significantly boost our profits. The detailed presentation has been uploaded on the company's website as well as with the stock exchange for your reference. We would now be happy to take your questions. Thank you for your time. Over to you, Navinji.

In the meantime, I'll just have an announcement. We just spoke about this NCLT order, which is supposed to be -- which was supposed to be coming very soon. We have just a minute ago got it -- we got this in our hand right now.

[Operator Instructions] The first question is from Rohan Khera from Singularity Asset Management.

Congratulations for declaring great results. I'm very happy to see the utilization that you -- the company has been able to clock. I have 3 quick questions. Number one, if Ravi, you can repeat the statement that you made about the NCLT order that just before the Q&A started? Second is, I wanted to understand -- get a sense of the realization that the company has been clocking in this quarter? And what is the overall realization that is expected for the full year in dollar terms for the graphite electrodes? And third question is, if you can indicate the product mix of the graphite electrodes between ultra-high power and high power, please?

See, the first figure that you are talking about, I mean, obviously, it's a competitive world, and we don't want to give any number. But it's not very difficult. I mean we know the turnover, you know the capacity utilization. We know the total capacity of the plant. It's not very difficult to calculate that. But don't please ask me to give that number. And your second question was?

Sir, about the product mix between ultra-high power and high...

It is more or less in the region of 70%, 75% ultra-high power.

Got it. And sir, the statement that you just made on the NCLT that you got some intimation about a minute ago.

We just got that. I mean, as I was just saying that we are expecting it soon, it just so happened that while we were speaking, the order came.

The next question is from Ahmed Madha from Unifi Capital.

My question is on the volume growth. So is it fair to expect our 9-month volumes would have grown by about 20%?

I gave you the utilization rate and our capacity is 100,000 tonnes. So it's very simple to calculate from there.

Okay. So I'm assuming 20% plus/minus. Why I'm asking this is, I just want to understand if we have improved our volumes by, say, 18,000 to 20,000 tonnes, where have we gained market share from either is it from the Japanese competitors or the Chinese players because GrafTech has improved volumes about 6%, graphite has improved by a few percentages. So I'm just trying to understand from which players, which sort of geography have we gained market share and in which end market, Europe or Middle East or whatever or India, which geographies you have gained market share? If you can just give some sense?

See there are only 4, 5 major regions in the world. And U.S. is the only country which produces more than 70%, 72% of their total steel through electric arc furnace. So that is by far the single largest market after China. And then rest everybody is like 30%, 35%, 40%. Europe is about 40% -- about 45% to 50%. So we have gained market share everywhere. I mean there's no one specific region that we are catering to. We have been catering to more than 30, 35 countries all over the place. So wherever the market is, I mean, we have gained a little bit of market share.

And I would like to add from which sort of players have we gained share from? Is it fair to assume you will gain from Japanese players or Chinese players?

There are only basically 3 or 4 bigger players in this industry now. I mean there's an American company, there is a Japanese company and then there are a couple of very small companies. So it's very difficult to give you a particular name because everybody sells a little more in 1 area, a little less in another area. So, obviously, we probably have gained from each one of them a little bit here and there.

Okay. Sure. And in terms of your annual pricing arrangement, would you like to give some sense despite -- I mean, all the tariffs and everything, is it fair to assume a broad realization will remain more or less the same or from whatever arrangements or the contracts we have put in for some of the geographies?

See, a lot of these orders have been negotiated on a 12-month basis, especially in U.S. And in other countries, some companies negotiate on a quarterly basis, others do it on a 6-monthly basis. So it's not easy to give one simple answer to that. But yes, I mean, we are -- I could safely say that at least 50% to 60% of whatever volume that we are going to sell in the next year, we have settled everything for the 50%, 60% kind of a number.

Got it. And for that, the pricing sense will be more or less similar to what we have done last few quarters or that will be...

Yes, more or less the same. Yes, you are right.

Okay. Got it. And another question was with the -- still with 18% tariff, I'm not sure how much disadvantage or advantage we have compared to other competitors in U.S. market. So for our business mix overall, we have spoken about, I think, 20% in U.S., Americas. So that sort of number should sustain in U.S.? Or will there be a significant business mix shift for us for different geographies for 2026?

Our product mix is not going to change much here and there. I mean it could be a couple of percent plus/minus, but not more than that. So we are not going to lose market share in any part of the world because of any reason. And whether it is U.S. or Europe or Southeast Asia or wherever, of course, to the extent that we'll have to still pay 18% duty, to that extent, there will be a hit. But we don't want to -- for the long-term basis, we don't want to lose a customer. So we will absorb that cost.

The next question is from Rajesh from 360 ONE Capital.

So, sir, I was wondering about the investment in GrafTech. Now it is worth half the value that we invested in. And the state GrafTech is going in, in another 2 quarters, that company may actually close down partially from what I understand. Is that a correct assessment, first of all? And secondly, what do we do with the investment?

No, we don't think so. I mean, there is no scope for any company in this industry to close down because with the kind of growth in the electrode demand that we are talking about, we are talking about 150,000 to 200,000 tonnes increase in the demand of electrodes in a market where the total production capacity is not more than 500,000 tonnes. So we are not anticipating any situation where any one of us is going to go out of business. I mean something or the other will have to happen to every one of us. Otherwise, I mean, if you are talking about 175,000 tonne company, which is what GrafTech is, closing down, you're talking about what, about 30% of the total world capacity going out of business. So that will...

I'm not talking about full closure, I'm talking about partial closure because as per GrafTech cost -- cash cost of production, it is somewhere around $3,700. And from next quarter, the U.S. tariff is also going to come down to 18% for Indian exporters. And they've mentioned in the call that, that would lead to lower realizations coming going forward. So does that mean that the company has a net...

No, no. For U.S. -- you see U.S. customers generally decide everything, practically 100% of their needs at the beginning of the year for the whole year. So the prices and the quantities and everything is more or less frozen for the whole of 2026. So there is no negotiation happening right now in America, especially.

Okay. But assuming prices to remain where they were and they are already at the kind of peak realization of $4,000 and they're still making about $65 million losses every quarter, it can -- I don't see it coming down significantly. So that is a dire scenario for a company with a net worth of just about $450 million. That's what I thought that maybe some capacity -- because we've seen it even in Asia Pac that some capacities have gone down -- got slowed. Is it possible that some capacity of GrafTech gets closed?

I don't see that. I mean if you heard their conference call and if you saw all their reports, they are saying the same thing. Everybody is saying the same thing that the demand of electrode is likely to increase by 150,000 to 200,000 tonnes in the next 2, 3 years. And as I gave you the figure recently, in the last 2, 3 years, capacity of 20 million tonnes of new electric arc furnaces have already been added. So that 20 million tonne additional capacity means about 30,000 tonnes of demand. In the next 2 years, we have the data for each company, each location of the new plants which are coming in, let's say, U.S. U.S. is the main country where more and more and more electric arc furnaces are being built because U.S. is the only one place where 70% plus steel is produced through electric arc furnace, minus without U.S., that average is about 40%, 42%. And as I said, 20 million tonnes has already been added in the last 2 years, between now and end of '28, which is only 2.5, 3 years away, we have a list of at least 25 million to 30 million tonnes, which are coming. And we more or less know which plant is going to be commissioned in which month, in which quarter in the next 2 years. And so at least this 20 million plus 30 million, which is likely to come in the next 2, 2.5 years is 100% coming because where 15%, 20%, 30% or 50% work has already happened at the site and these companies committed millions of dollars of investments. So 20%, 30%, 40% investment has already committed. The work has started. Orders have been placed for all the equipment. So all these are bound to come. And unless there is a total U-turn in the world towards carbon emissions and everything, it is not likely to happen. And all this additional EAF, electric arc furnaces, are only coming because of the carbon emission. As you know, the same steel produced through electric arc furnace versus the blast furnace emits 1/5 the carbon. That's the only reason why new and more and more electric arc furnaces are coming. So that story is not going to go away anytime soon. That's a different point that 100 -- it is possible instead of 100 million, 80 million will come. But for this industry, even 80 million or even 70 million tonnes of new electric arc furnace resulting into a demand -- additional demand of 125,000 to 150,000 tonnes is a very big -- huge number.

I understand that. In the GrafTech call, they also mentioned that China has a capacity of 800 kt, of which nearly 200 kt odd is coming in the UHP market. And that is also operating at about 50% utilization. So is it possible that the additional demand gets filled by Chinese electrodes? That was my related question actually.

See, China, of course, produces much more than the rest of the world producers in terms of electrodes, but they are still pretty far away from producing the correct -- the right ultra-high power electrodes that we talk about. So while they are taking away the market share from all of us on the small-sized electrodes, what we call non-ultra-high power, but they are very far away from meeting the quality standards that we are able to meet or Americans are able to meet or the Germans or Japanese, all the Western players, so to say. So that risk is not there, at least in the foreseeable future.

Right, sir. So last question on this. So do we increase our investments in -- because you already invested about INR 283 crores at a much higher level. So do we increase our investment in GrafTech or we stay put? Or what is the final decision?

We are staying put. I mean as -- when we took this view and started buying some shares of GrafTech, we were very clear that we are in it for a long haul. And we -- you see till that last Friday when the results were declared, these shares were $1.9 -- $19. And it went up from current level of $7 to $19 over the last 6, 9 months. So these bumps will keep coming in any industry. But we are really -- we are here for -- on a long-term basis. We are not bothered about this. Neither we were going to sell at $1.8 or $18, nor we are going to sell at the current price at $17.

The next question is from Rohit from ithoughtpms.

Congratulations on really very strong numbers and congratulations on the demerger as well. Sir, my first question was, so can you just help us understand how we are -- given where we are in the cycle and you've been talking about it in the last earnings calls in terms of realizations being really low, but you continuously posted very good margins. So I mean, if you can really share some more insights on what is enabling us? Because if you look at the Indian peer and even if you look at some of the Chinese company numbers, whatever is available, everybody is -- we used to say GrafTech, but we are sort of clear outlier in this. So what has really happened in this cycle that has enabled us to do this kind of divergence, if you can please share that, that will be really, really useful?

How do you wanted me to respond to that question, I don't know. I mean I cannot talk about my competitors. And obviously, the facts are facts. I mean you know what is their annual revenue, you know the price of electrode. And by that, you know what is the tonnage that they have sold and what is the tonnage that we have sold. Obviously, there's a difference in cost of production. I mean that's the advantage of a plant in India versus a plant in Germany or France or Japan. And the second thing is, if you look at all the graphite players, which is GrafTech and the Japanese company, Resonac and 2 of us in India, we have, by far, the single largest plant at 1 location. Our plant is 100,000 tonnes. The average of other plants will be like 50,000, 55,000 tonnes. And except Graphite India, who has a plant in India, all other plants are either in Germany or France or Italy or U.S. or Spain, Japan. So, obviously, we have a cost advantage being in India. And the size, when you are talking of a 100,000 tonne plant located in India versus a 50,000 tonnes average in Germany or France or U.S. or Japan, it makes a huge difference.

Got it. So the other question was, sir, I mean, if I look at the realizations, you yourself mentioned the realizations have been at pretty low numbers for many quarters now. And if you look at the utilization for the industry also, it is much lower. Even GrafTech in this call, they mentioned that they don't see any uptick in realization and extremely competitive market is continuing. And you also mentioned that for '26, you don't see much change in realizations. So, I mean, given that there is this consistent overcapacity in the industry despite shutdowns, how do you see the -- I mean, at the same time, you've been saying that this additional 30,000 tonnes of electrode market has been there and another 30,000, 35,000 electrode market is going to come in the next 2 years. So -- but still the pricing is still challenged. So, I mean, what is your sense on that?

You see this 20 million tonnes new electric arc furnace capacities have just been finished, let's say, in the last 6 months, 9 months, 12 months. And that's a number which everybody knows. I mean we can give you the names on -- if we speak to you one-to-one. We can give you the names of this 20 million tonnes in the country and the size and everything. So -- and being steel industry, I mean, when you put up a 20 million tonne new capacity, it takes 2 months, 3 months, 6 months to stabilize to reach 80%, 90%, 95%. So gradually, the capacity utilizations are increasing. And as I said, this year and '28 -- between now and '28, 2, 2.5 years, again, we have a list of 30 million tonnes. We know the names, we know the country, we know the locations. And we practically know at what stage is Plant A, Plant B, Plant C, Plant D, because most of these investments and new capacities are being added by our existing customers. Practically, there is no new steel company emerging anywhere in the world. So all these expansions are happening by all the established names, which are already our customers. So -- and since we are a regular supplier to them, we keep meeting them at their work locations. So we know more or less whether they are coming in July of 2026 or '27 or '28 or whatever. So even if it is 20 million tonnes instead of 30 million tonnes, it's fine. I mean these things will happen. Six months here and there, delays are bound to occur in any case. So 20 million tonnes has already come in, which will, let's say, stabilize more and more this year and another 20 million tonnes, if not 30 million tonnes is coming in the next 2, 3 years. So every tonne means -- I mean, you need more or less 1.5 to 2 kilos. So 1 million tonne means 1,500 to 2,000 additional tonnes of electrodes required. So if you're talking of 20 million, 25 million tonnes, you're usually talking of 20,000 to 35,000 tonnes of new demand. And at the plants which have been closed down in the last 3, 4 years, it will be very difficult to restart those plants. After closure of 2, 3 years in the Western world to restart that plant is not going to be very easy. And especially, you'll be surprised when I tell you that HEG, we came with this plant in Bhopal in 1976, which is exactly 50 years today. This is the last new greenfield plant put up anywhere in the world. So all these plants that we are talking about, the American company and the European companies and the Japanese companies, they are much, much older than 1976. So it's not easy to -- it's easy to close these plants because of their cost structure, because of their size. Again, I mean, if you go through the list of the plants which have closed down in the last 2, 3 years, they are all in the region of 30,000, 35,000, 40,000 tonnes. So it's simple to calculate a 30,000, 40,000 tonne plant in Germany or Japan or U.S. or France, their cost versus 100,000 tonne plant in India. We -- and in fact, despite everything that we spoke about, we just announced about 6, 9 months ago that we are adding another 15,000 tonnes. And the work has already started. We have already placed most of the long-term delivery items. And we are ready -- we should be ready by middle to end of 2028, between 2, 2.5 years from now. So as we keep adding more and more capacity, obviously, our cost per tonne keeps coming down. And we have this advantage of 1 large plant and that large plant being in India versus Germany versus Japan versus U.S. This is a very -- this is an inherent advantage of any plant in India.

Right. So 1 more question was, sir, as this new addition sort of comes through in terms of end customers putting in new plants and both the Indian players almost now at peak utilization, if you will. So do you see that being a very big reason or that could be one contributing reason for the realization to start inching up because as you said, all the other plants are losing money and it doesn't make sense to run those plants at these kind of realizations? So does that then probably lead to an improvement in realization at some time as these new plants come in sometime this year and in the next couple of years?

Yes, exactly. I mean, obviously, the demand has to increase. I mean this 20 million tonnes, which is already in operation, it may take another 6 months, 9 months, 12 months to reach 70%, 80%, 85% capacity utilization. So this 20 million itself will require 25,000 to 30,000 tonnes of electrodes. And then we are talking about another 30 million, 35 million tonnes before 2028.

Right. And the capacity that we are putting in or even what the other Indian company is putting in, would that not sort of put a break on the price increases because we will have those volumes to sort of cater to. So, I mean, we can continue to gain more market share and outsize the other players. So what is your sense on that?

Manish, would you answer that?

Yes, sir. See, like Chairman said, so the demand which is coming is much larger than what we are adding. So we are talking about 200,000 tonnes coming up to 2030 and the plant which we are building today that 15,000 additional capacity is going to come on stream in the first quarter, early 2028. So by that time, a couple of more electric arc furnace plant would have come up. And we also think that this is -- for the last 2, 3 years, the steel has been stagnant and declining in some regions, and there will be a turnaround. So we expect that this 15,000 would easily get absorbed.

And if you follow some of our international competitors and even Graphite India, you will probably hear the same thing. Everybody is talking about the same 20 million tonnes, 30 million tonnes demand increasing by 50,000, 100,000 tonnes. So everybody has the data from the same source. And basically, the source is all our customers themselves.

Right. And sir, sorry, one more question on GrafTech, if I can. So, I mean you mentioned to a previous question that you don't see them going under. And -- I mean -- but just from their survivability or for them to make even a decent amount of profits, the realizations have to significantly go up from where they are right now. So, I mean, while -- by -- I mean, I understand that it's not like a year or even 2 years that you're looking at, this is a long-term investment and we're looking at the overall industry dynamics. But I mean, clearly, they are an inefficient player given where they are located. So how do you see the survivability or let's not say survivability, but then making even like at least half your margins or half your tough margins for get peak margins? So, I mean -- because the costs are what they are, right? I mean you can't change them, you can't change where their plants are located. So...

We should not be talking about them, honestly, about the cost that is you missed their con call, which happened a few days back. So you are on the wrong con call with this question. We can't say yes, of course, prices should go up for everybody. The prices prevalent today are one of the lowest. All these are very right. We have a big plant at 1 place. So, of course, our costs are lower, that too in India. But I think we should -- we would like to avoid answering questions on competitors' costs and all that.

We move to the next question. The next question is from Varun Pinto from Negen Capital.

Congratulations on a wonderful set of results. I just had a few questions regarding the bookkeeping. So currently, the dividends that we get from like the hydropower assets, in which segment is that reported? Does that come under the share of profit and loss from the associates?

Yes. My colleague is going to answer that question. Puneet?

So Puneet Anand this side. So BEL, which owns the hydro asset, hasn't given any dividend to HEG in the last couple of years. Whenever the revenue will come, the revenue will be shown in the other income. So the profit you see on the associate is the profit which Bhilwara Energy has made. And since it's an associate, so we show a proportionate profit in consolidated financials of HEG.

Understood. But then the revenue that comes under -- or the share of profit that comes from Bhilwara technically from the power business only, right?

So currently, yes, Bhilwara Energy, largest revenue is coming from the hydro assets. Apart from that, we have the best company underneath that, which will generate the profits in the coming quarters. Plus since Bhilwara Energy is also sitting with liquid money cash, there is other income coming in Bhilwara Energy because of that, which has been in FDs and all.

Understood. Understood. So currently, the other income that we are seeing in the P&L, what does that include?

So other income, which you see in the P&L is primarily the income of the liquidity and liquid assets which we have in HEG per se. Ravi -- yes, sorry.

And sir, like the currently, like apart from the hydropower assets, if you're looking at the HEG Greentech business, we have the energy storage, the best for the IPP and the best for the commercial and industrial use, right? Currently, do we have any sort of revenue from that business?

So currently, the revenue largely is coming from -- yes, we have revenue from our best company, which is RePlus. But it is not significant compared to the hydro revenue which we are making. You will see the right numbers of revenues and our IPP business, C&I and the best tender, which we have already won and in which we are being declared as L1 from, say, quarter 1 of FY '28, HEG Greentech will also hold the anode business, which will also contribute in the revenue.

But that will come in probably FY '29, right?

So our plant is getting commissioned by quarter 1 of FY '28. And so we have assumed a certain capacity utilization in FY '28. But yes, the peak revenue will come from FY '29, but you will see a contribution from TACC also in FY '28.

Understood, sir. And sir, lastly, like post the demerger, will there be any debt in the Greentech business?

Surely, there will be a debt, the debt which we will be securing for -- doing our projects, which is the anode, the CNI and IPP, they will be having the debt. So I think in January, we did a detailed presentation on HEG Greentech, where we mentioned the entire project, which we will be doing in coming 2 to 4 quarters and the subsequent debt along with that.

Understood, sir. Can you just call out the number, what could be the debt in the Greentech business post the demerger?

Post the -- so if you ask me post the demerger, which will be done by quarter 1 of FY '27, the debt will be negligible there. Once the demerger is done, it will be not -- it will be negligible. There will be no debt there per se. But once the company is created and all the projects will be on full go, that time, the debt will be coming. So, for example, the best tender, which we have won for Gujarat and the Maharashtra tender where we are L1, whenever those projects have been -- our PPA has been signed, then money will be mobilized for that. Likewise, in anode also today, we haven't taken any debt per se today as on date. There is a contribution of a large equity from the company. We are utilizing that. But we will be doing it in the next -- once the scheme has been done, the money and deployment.

The next question is from Ahmed Madha from Unifi Capital.

My question was on your remarks regarding the Chinese supply, right? I mean if I quote from GrafTech's con call, they spoke about 2.5 lakh, 3 lakh tonnes of UHP coming out of China. So in our conversation, we have always spoken about 5 major suppliers, probably having about 6 lakh, 6.5 lakh tonnes. What are your thoughts on the Chinese supply, which probably we should account for in terms of supply dynamics. So aren't we competing with Chinese players in Europe and other markets?

Manish, will you take that?

Yes, sir. Let me answer this. Actually, most of the capacity, which is in China is geared towards the non-UHP grade. We agree, yes, there are 1 or 2 companies which are now making UHP products. But to achieve that kind of consistency and reliability does take time. And at the same time, China is definitely working towards increasing their own electric arc furnace production. So some of this capacity we hope will be absorbed inside China. And outside China, as you have seen from our results itself, that HEG is also a very competitive company. So we are not as much -- we don't worried about their impact of their UHP on us and this because we can also see the commensurate demand coming. So it's not that the demand is -- the electrode demand is going to be stagnant and somebody will -- Chinese will eat into everybody's share that we don't really agree. There's demand also coming within China and from outside China to the extent of 200,000 tonnes.

And in terms of -- if I just look at the segmental profitability of the electrode business, excluding the other income, et cetera, the margins have improved over the last 3 quarters. I'm assuming there is a component of operating leverage with higher production.

That's true.

Is there any advantage on raw material cost?

Not really. It's very, very marginal because the key raw material is needle coke and prices have been pretty much consistent, but takes a while for the high cost -- slightly higher cost inventory to go away. So there's a marginal drop in the consumed raw material. And what you see improvement in margins is basically coming from our operating levels, nothing else, and the size. I mean now that we can add another 20,000 tonnes from 80,000 to 100, that gives us a cost advantage.

The next question is from Amit Lahoti from Emkay.

Congratulations on a good set of numbers. Many of my questions have been answered. So as we have settled contract for half of the volumes for this year, would it be fair to take third quarter spreads as the baseline assumption for electrode and needle coke pricing? So basically, just in terms of gross spreads, if they can sustain in the coming quarters?

Amit, for the next 2 quarters, we just assume a similar price. There's no -- not -- don't expect any uptick in that. So it is just going to be very, very similar, very, very similar. Of course, everybody hopes for a price increase. But for the next 2 quarters, we don't see it happening.

Right. Got it. And then we did, of course, have about 50% tariff impact to U.S. even if we take, let's say, 10% as the share of your exports into U.S., there has been a significant impact from that perspective. So now with that going down to 18%, how much of incremental delta are we looking at? If you can quantify some numbers in terms of how much the impact was and then how much it will be in the coming quarter?

You have to keep this -- just a minute, Manish, just a minute. In fine prints, if you see the tariff, how it is applied, there's a provision that -- let's say, I'm just giving you an example. If you are selling electrodes to somebody in America at X dollars and if you are buying your raw material or anything from America for Y dollars. So that Y dollars [Foreign Language]. So for duty calculation, they are exempting the portion of the cost that we have already imported from U.S. So whatever is the selling price of electrode [Foreign Language] that portion will be reduced. So to that extent, you save the duty. And now that duty has come down from 50% to 18%, we are quite all right. I mean, of course, if this was the case of 50%, then it will have a severe hit on our bottom line. But with 18%, we are not really -- of course, it will hit the profit, but it is not going to be very -- it's not going to be significant.

Okay. But even with the duty hit, which was clearly there for the third quarter in entirety and given that the performance of our peers like Graphite India and GrafTech, it has been affected by prices. Our performance has been pretty resilient. So to that extent, how much of the tariff impact goes away now, if you can quantify that bit?

[Foreign Language] you know more or less how many tonnes we are selling in America. You know more or less the price. And I gave you the formula, if you are importing something from U.S., that is exempted. So 18% is still 18%, but that number is not staggering. I mean, of course, it will hit the bottom line to some extent, but we can very easily absorb that. We are a long-term player. We are not looking at the next 12 months only. I mean, we don't want to vacate the market because there is a duty.

Right. And then just one housekeeping question on other expenses. There is a positive delta sequentially with cost reduction in other expenses. So what exactly is it coming from? And then is it sustainable going forward?

Ravi is answering this. CFO will answer this. Go ahead.

In other expenses, the -- as compared to previous quarter, it is reduced mainly because of the slightly sales reduced. And that proportion, the selling cost is also reduced. That's why the other expenses is lower than the previous quarter.

Yes, because you're selling also as a cost by way of commissions and all that. So as you can see, the top line -- the reduction in top line, so there's slight less volumes which translated into sales. And that is what you see the corresponding difference in the other expenses also.

The next question is from Satyan Wadhwa from Profusion Investment Advisors.

I have 2 questions. One, like you were talking about China. So how competitive are their prices versus us? And what is their cost structure, like I'm sure you would know. And secondly, how are the contracts for needle coke structured? So if tomorrow, electrode prices were to go up 20%, would the needle coke company try and claim their pound of flesh? Or is that a contract linked to oil prices?

See, the needle coke is being contracted quarter-by-quarter. And it's a process of 2 months for making an electrode. So we are also on the basis of whatever we book in the market, we make sure that the cost of that required needle coke is already locked so that if prices go up and down, so we don't take a hit. So that is, let's say, generally, we wouldn't like to take a call for more than 6 months. But yes, some markets we can. So that we take care of making sure that the cost is frozen. We know it exactly. Of course, when prices go up for everybody, when the graphite electrode industry will make money, of course, needle coke suppliers will not be left behind. They will also increase. But first, it has to come from the market. First, electrode prices have to go up.

Right. I'm just trying to understand like the last cycle that happened in 2017, '18, right, when electrode prices just shot up, then needle coke lagged quite a lot and then they kind of went up. So you had this super normal margins for a little while and then they compressed because needle coke prices shot up despite oil prices...

So super normal margins came from the simple fact that the kind of products we have, which takes 2 months to make. So there are certain inventories in the system, certain finished goods, certain work in progress, certain raw materials waiting because it's all getting imported coming from outside India, something on high seas. So when the electrode take suddenly shot up, we didn't get a cushion. And it worked the other way around 2 years later when the electrode markets fell, we took a big -- everybody in the graphite industry had to take a big NRV hit.

Right, right.

Because of the nature of the industry, nature of the product.

Okay. Understood. And what about the Chinese UHP makers? Like in the last cycle, they weren't really doing any UHP. So now they've got into the UHP market, how competitive is that cost versus our cost in India?

See, we -- I mean no one else outside China has been able to really explain how Chinese price their products because if you sit with a piece of paper, it doesn't work out for any product. So we can't help it, we can just speak for ourselves that we are a competitive company, a large plant, and we have all the wherewithal, the quality, the customer base, the costing, and we can find it out.

The next question is from Rohan Baranwal from Arihant Capital.

Most of my questions have been answered.

The next question is from [indiscernible] from Marshmallow Capital.

Fantastic set of numbers. And I always enjoy your call given how detailed and how patient you answer all my questions -- all our questions. So my question is on the steel capacity that you mentioned is coming up in Europe and U.S. over the next 5 years, right? I'm not able to reconcile that data with the current capacity utilization there. So the capacity utilization of steel is, I believe, between 60% to 65% right now, which means you have a lot of capacity lying idle. And even though new capacity will come and the numbers that we are discussing is, let's say, quite large in context of the current capacity already there. We're talking about 10%, 15% extra capacity coming. So where will the demand from, right? Without the steel demand coming through, we will not be able to utilize our -- I mean the incremental electrode capacity also -- or the incremental electrode demand would not come. So the capacity addition is fine, but it is coming at a time when the utilization itself is low. So how sure are we of the utilization for the new capacity and the existing capacity is a question that I'm not able to reconcile with the capacity coming online?

No, it is pretty clear. I'll tell you what it is. I mean, basically, what is happening is -- and as a preamble to that, you see the same steel which is produced through electric arc furnace and the same steel which is produced through the blast furnace, the carbon emission on the blast furnace steel is between 4 to 5x of the same steel which is produced through the electric arc furnace. So now for the last 3, 4 years, ever since everybody in the world, every country in the world is concentrating very strongly, very seriously to reduce carbon emission. So there is this huge movement which is happening for the last 2, 3 years. And in which context I just said that about 20 million tonnes of the new electric arc furnaces through electric -- through 20 million tonnes of steel capacity through electric arc furnaces have come up in the last 12 months in the calendar year 2025, another 25 million to 30 million are on the way between now and 2028. So these are not additional capacity. So they are coming in place of blast furnaces because a country like America will not allow you to produce steel in huge volumes where the carbon emission is 5x compared to the same steel produced through electric arc furnace. So we are replacing the old blast furnace route through the electric arc furnace. So the demand of steel, we are not saying demand of steel is going to go up by 200,000, 300,000 tonnes -- 2 million, 3 million tonnes. We are talking of demand of electrodes going up because there will be more electric arc furnaces, which will be replacing the existing blast furnaces.

So you mean see that with this capacity addition that is coming for electric arc furnace across the Western world, we are seeing an equivalent capacity of blast furnace shutting down as well, is it?

Exactly. Exactly. That is exactly what is happening. If you go through some communication and on the websites of some of these companies like, let's say, ArcelorMittal, I don't know the exact -- I don't remember the exact number, but they are doing exactly this. They're closing the blast furnaces and replacing them by the new electric arc furnaces because there is a big carbon tax that every steel company has to pay to the government as a penalty if you keep polluting the atmosphere 5x more by producing that steel through blast furnaces. So the steel capacity is not increasing, but equivalent amount of blast furnace steel is being closed.

Understood. Okay. So that was helpful, sir. And I mean, given your exposure to the Western steel company, do you have any commentary on -- because in your initial comments, you talked about how Chinese steel production is coming down, but the exports have gone up significantly. So how do we see this anti-involution campaign that's happening there? Do they see their impact? And how do you -- is there any thought on how that might evolve over the next couple of years?

Manish?

Yes. I didn't hear the question clearly where the voice was not very clear to me. Can you please repeat it once more? Sorry about that. What were you mentioning? Are you mentioning CBAM? What exactly are you mentioning?

So over the last 4 years, we have seen the Chinese steel production coming down. We have seen the exports go up over the last...

That's right.

Right? So in your conversation with your current customers, I mean there is talk of anti-involution going on in China in terms of curbing destructive price reduction, and you can see the impact in, let's say, chemicals. Is there any clarity on if you see export reduction or pricing improvement of steel coming from China?

Okay. Now, I have clearly understood. You see that the last 5 years, the production has declined by 7.5% in China. The problem is, as you keep hearing in the news also reading everywhere that the housing demand has gone down a lot, that real estate consumption of steel has gone down. So despite a reduction in their production, their exports have gone up by 78% from 67 million metric tonnes to 119 million, which are a record high. Now about the pricing, the destructive pricing, et cetera, you see -- like, for example, EU has a duty on -- you know that Section 232. They have a severe duty on Chinese steel. Now EU has introduced a CBAM. So a lot of the Chinese steel was finding its way into EU. EU was importing almost 27 million metric tonnes. And obviously, most of that was blast furnace based. So if they put that additional carbon tax on that to that extent, they will protect their EU industry. Similarly, there is some duty on Chinese imports into India. So the other countries, when they are seeing low-priced steel hitting their own domestic industry, they are, of course, raising their safeguards in whatever way possible, like the Section 232 in U.S., like a CBAM in EU, like something like a safeguard in India. So, I mean, whatever -- we can't say, but so far, we have not seen this destructive or the word which you use evolutionary. We have not seen that in steel. But yes, we are, of course, observing how each country is trying to protect their own industry from the onslaught of Chinese steel exports.

[Operator Instructions] Next question is from [indiscernible].

All my questions were answered. Basically, I wanted to ask something about company's interest to increase its stake in GrafTech since Graphite is also having some stake in the company. Any view on that?

Can you repeat your question, please?

So it's basically about GrafTech. We have some stake -- do we plan to increase since the prices come much lower? And even Graphite has taken some stake in that company since the prices crashed the off. Is there any scope of increasing the stake it much cheaper?

So what was the last line you said? Is there any...

Scope of increasing the stake. That's what he meant. Do you want to increase your stake because the prices have fallen to that level?

Yes, yes.

So I don't think we should talk about it publicly.

So basically, it's -- we have an investment committee who takes the decision on this investment. So more than that, we can't discuss anything on...

The next question is from Manan Poladia from MKP Securities.

My question is on the graphite anode business. I think in the last call for the demerger, you had referred to some margins based on power costs and you've spoken about our power cost being significantly better than our competitors globally. I was wondering if you could throw some color on that and provide some clarity, I think that would be great, sir?

Riju, this side. So last time we had spoken in detail about that in the anode project, almost 30% of the cost is power cost. And the state government of MP has given us a real good deal in which our power prices will remain lower than INR 5, significantly probably lower than INR 5 for at least 5 years from today. So that itself, I mean, we don't see anywhere, whether it is China or anywhere else in the world where you would find cheaper power than this today. So that should be a good advantage to us. And that starts -- that power subsidy for us starts from the day of commencement of operations, not from today. So we'll have a good 5 years to take advantage of that, less than INR 5.

Right. Just a quick follow-up on that. You had also spoken about how you are seeing like [indiscernible].

We seem to have lost time for that participant. We'll move to the next question. The next question is from Rohit from ithought Portfolio Management.

Yes. Sir, just 1 question. So what is the peak utilization that we can do in terms of the capacity? Is it like 100%? Or I mean, what is the correct -- practical peak that we can do from the current capacity, 100,000 tonnes?

I mean, obviously, theoretically, anybody -- everybody can go to 100,000 tonnes, but it's a fairly complicated -- it's a very complicated technology. And that's the reason that our plant was established in 1976, exactly 50 years ago. And there has not been a new greenfield plant of this product anywhere in the world, except China. So the technology is very, very complicated. And just to give you a feel of what the complexity that you're talking about, some of the electrode -- the minimum time that you take to produce a small-size electrode, low-grade electrode is 5 to 7 weeks. And the longest time that you take is as high as 5 to 6 months. And so that is the complexity of the technology. So if you are producing something where the process is like 2 to 5 or 6 months, anything goes wrong on any particular day or on any of the 5 or 6 different processes that we have to handle, it becomes a scrap. And that is the only reason that there has not been any new plant in the last 50 years.

I just want to add 1 point here that you see 100,000 tonnes, of course, can be made. But sometimes you don't get the ideal -- the product mix you like from the market. Of course, if I limit ourselves to reduce a couple of sizes, we can, of course, do 100,000 tonnes. But just to answer your question or try hazarding a guess because we will also -- I'm also going to see next year how far we can push ourselves. But probably 94,000, 95,000 might be in real working conditions. That is the -- I think, but we have to try. We're already at a 90,000 level. Now we'll see how far we can push ourselves to 94,000 or 95,000 subject to a certain product mix.

All the very best for the coming years.

Thank you very much. We'll have to take that as the last question. I would now like to hand the conference over to Mr. Jhunjhunwala for any closing comments.

Thank you, friends, for joining us on this call today. It's probably been the longest call in the last 2, 3, 4 years and a lot of probing questions and every -- all of you seem to be extremely well informed about this industry. So thanks a lot, and I look forward to meeting and speaking to you once again in 3 months' time. Thank you.

Thank you very much. On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.