HEG Limited ($HEG)

Ladies and gentlemen, good day, and welcome to the HEG Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajesh Majumdar 360 ONE1. Please go ahead.

Yes. Good afternoon, everyone, and welcome to the Q4 FY '26 HEG Limited Earnings Conference Call. We have with us today the management team represented by Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO; and Mr. Riju Jhunjhunwala, our Vice Chairman; Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; Mr. Ravi Tripathi, CFO, HEG Limited; Mr. Puneet Anand, Group CFO; Mr. Salil Bawa, Group Head, Investor Relations. Apart from this, we have HEG Greentech team as well for any queries on that. With much ado about on this, I hand over the call to Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO. Over to you, sir.

Thank you, Rajesh, and good afternoon, everyone, and welcome to our financial results conference call for the fourth quarter and full year 2526. Let me begin this discussion with some broader industry contracts for text. According to World Steel Association, global crude steel production in Q1, January, March 2026, stood at around 459 million tonnes, marking a decline of roughly 2% year-on-year, while registering a sequential recovery of about 8% versus Q4 of last year. This is mainly China driven. We have seen this phenomena of higher production in the last quarter of the year by China, a lot of times in the past. And this normally tapers down to more reasonable levels as we come to H2. China typically follows a cyclical production pattern with output moderating in Q3 and Q4 to align with environmental and policy targets, which is close to about 1 billion tonnes of steel production, followed by a strong restart in Q1, practically every year. Excluding China, global steel production stood at approximately 212 million tonnes in Q1 2026, which is a decline of about 1.3% over Q4 2025. Among some key steel producing regions, India continues to be a standout performer, recording around 5% quarter-on-quarter growth, supported by strong infrastructure and construction activities. The U.S. to saw a modest growth driven by steady industrial demand, while Europe remained relatively muted. Japan, Brazil and several other large steel-producing countries were broadly flat to slightly negative, reflecting ongoing softness. China continues to face domestic demand pressure, resulting in elevated export levels. Chinese steel exports are now running at over about 100 million tonnes on an annual basis, which continues to impact global pricing and drive increased trade protection measures worldwide. At the same time, current geopolitical tensions amongst amidst conflicts in the Middle East are contributing to volatility in the energy markets and supply chains. We are clearly witnessing an acceleration in the regionalization of steel trade, driven by rising protectionist measures globally in response to structural overcapacity, particularly in China. Measures such as Section 232 in U.S. antidumping, safeguard actions in Canada, Mexico, India, Brazil and similar steps across other regions are reshaping freight flows. In Europe, carbon border adjustment mechanism generally called CBAM is a key structural change. By imposing a carbon tax on imports of steel, it incentivizes lower emission steel production or exports, which is only possible through electric arc furnaces. In parallel, the EU's upcoming tariff rate quota regime coming as early as first of July 2026. It's expected to further restrict steel imports into and thus increased its own steel production, which has seen a decline constantly quarter-after-quarter. This is particularly significant for electrical furnace steelmaking. Excluding China, about 50% of steel is already produced through electrical arc furnace, which -- and the share is expected to rise further, given its significantly lower carbon intensity compared to blast furnace basic office and furnace roots. Under CBAM, reduced exports of steel to Europe are expected to increase favored electric arc furnace-based steel due to its carbon footprint advantage. As a result, we expect a structural and positive change in electric arc furnace steel production with a strong pipeline of new capacity additions of electric car furnaces globally. This directly supports long-term demand of -- demand growth of graphite electrodes. To the best of our knowledge, about 20 million tonnes of new greenfield electric arc furnaces have already been -- have already been commissioned in the last 12 to 18 months all over the world. And we believe an additional 60 million tonnes are at different stages of implementation, which should be in production by 2028 and another about 30 million tonnes by 2030. The total new installation of electric arc furnaces all over the world, except China, would thus be a little over 100 million tonnes. This kind of growth in electric car furnace-based industry is unprecedented in the history of the steel industry and is expected to translate into incremental electrode demand of around 200,000 tonnes by 2030, excluding China. And we are very well placed to meet some of this new demand with our recent expansion from 80,000 to 100,000 tonnes. And as you are aware, we have already announced our next expansion to 115,000 tonnes, which is likely to be operational by early 2028. In this backdrop, our focus on operational efficiencies cost discipline and customer diversification has enabled us to deliver a resilient performance during this quarter. We continue to operate at healthy utilization levels, which is probably the highest all over the world, averaging more than 90% for the whole year as well as the past 3, 4 immediate quarters. And this is based on our expanded capacity of 100,000 tonnes, reflecting strong operational efficiency, low cost and disciplined planning. At our plant near Bhopal remains the largest single site location of electrode plants anywhere in the world with a capacity of 100,000 tonnes, which makes us 1 of the most competitive cost companies due to its size and location in India. Looking ahead, we remain confident of the long-term growth opportunity for our company. Construction of the additional 15,000 tonnes expansion is progressing as planned, and we continue to target completion by early 2028. This will further strengthen our ability to serve incremental global demand at a competitive cost. To summarize, while near-term conditions remain mixed, the structural shift toward electric arc furnace steelmaking supported by decarbonization policies and trade realignments in the world, continues to strengthen the long-term demand outlook for electrodes. And with our scale, cost leadership and high utilization levels, we believe HEG is very well positioned to benefit from this transition. I would like to clarify a point on our investment on -- in GrafTech. I'd like to reaffirm that our position remains unchanged. This was undertaken as a deliberate long-term investment, and our conviction continues to be anchored in the structural foundations fundamentals of this business rather than near-term market movements. Cyclical volatility is intrinsic to this industry and interim fluctuations in no way alter our outlook or our results. We remain fully committed to this investment, and we are confident in the long-term value it will create for our stakeholders. We are pleased to inform that the composite scheme of arrangement is progressing well. The NCLT convened meeting of the equity shareholders, secured creditors and unsecured creditors of HEG are scheduled for Tuesday, 5th May to seek their approval of the same. Subject to shareholders, creditors and other regulatory rules, we anticipate that the scheme could be approved by the NCLT sometime in the second quarter of this financial year. With that, I would now like to hand over to our CFO, Ravi Tripathi, to take you through the financial performance for the quarter, after which, we will open the floor to the question and answers.

Thank you sir. Good afternoon, everyone. Thank you for joining us. I will briefly explain our performance for the quarter end and for the full year ended 31st March 2026. Compared to last year, we have shown strong growth in volume as well as in revenue. Our sales volume increased by 20%, which helped our revenue growth from INR 2,153 crores to INR 2,569 crores. Total income also increased to INR 2,660 crores from INR 2,279 crores. Our EBITDA increased from INR 388 crores to INR 497 crores, with margins increasing from 17% to 19%. Our operating margins remained stable in the range of 15% to 20% during the year with more than 90% capacity utilization during the year. PBT has increased from INR 148 crores to INR 246 crores, which is a growth of 66%. Net profit also increased from INR 101 crores to INR 181 crores. This improvement came from higher volumes, better entrant input costs and focused monitoring on fixed costs. The company remains financially strong with no long-term debt as of 31 March 2026. It had a rigor of around INR 792 crores. Coming the quarterly performance. We reported a loss of INR 189 crores. This is mainly attributable to unrealized losses arising from share value and impact on foreign investments and rapid depreciation of rupee, which led to 5% within this quarter. These are entirely unrealized losses, and we have taken impact of them in the books as per the applicable Indian accounting standards. Excluding the unrealized losses, our operating margins for the -- and is reasonably comparable with the previous quarters. The Board of Directors has recommended a final dividend of INR 3.4 per equity share, face value of INR 2, subject to shareholder approval at the upcoming annual agenda meeting. For more details, the full presentation is available on the company's website and the stock exchange. We are now happy to take your questions. Thank you. Over to you, Rajesh ji.

[Operator Instructions] Our first question comes from the line of Amit Lahoti from Aditya Birla Capital.

Good afternoon. Thanks for the opportunity. My first question is on pricing. So during the quarter, GrafTech announced a price hike, and we're getting a sense that there is a growing customer acceptance around the price hike given that the electrode cost is now less than 1% of the steel prices. So if you could quantify how much price hikes we are looking to take starting from this financial year? And then is there a similar cost increase for coke as well?

Manish, will you -- would you take this question?

Yes, sir. I mean, as you know, we book orders, let's say, 3 to 6 months. So as we speak, we are about booked almost until September and for the unbooked orders, we are definitely looking at price increase, but it depends from region to region, how much price we can get and also I would say that we already have some increase in cost due to the energy, freights. So the price increase is very necessary if we done. How much will be the quantum where it'll be 300, 400, 500 is very difficult to say at this stage how much every region, steel companies are able to absorb and also what our competitors are doing at this stage. But definitely towards H2, there has to be -- our aim is to have price increase not only to protect our margins, but to help improve further.

Okay. But does it implicitly mean that we are going to have some cost impact in the first half of the year even before the price hike?

It will be there, but not to that extent because you see some of these energy prices and because of our longer product cycle, let's say, for example gas prices are going to go improve today. But when they will actual products are made in 2 months and get shipped. So there will be a lag in that. But yes, certainly, there will be some price increase -- I mean some cost increase, sorry.

Okay. My second question is on Green Tech, particularly for TACC, where are we in terms of customer qualification process and how fast can we ramp up once it gets commissioned. Basically, my question is, are there any technology or qualification bottlenecks that are left to be resolved over the next 6 to 12 months?

No, he doesn't seem to be there. You go ahead.

Okay. So in terms of the customer acquisition, I mean, you are aware that we had set up -- for sampling, et cetera, more than 18 months back, and you'll be very happy to know that we've made very, very good progress with all the leading OEMs across the world because Indian cell capacity is delayed recedes. But we are actively working with all the Indian ones as well as the companies like LG, Panasonic, et cetera. We are in different stages of sampling. But those sampling works are going extremely well as well as the plant commissioning. There is no change in the plant commissioning date from April. And we hope that in the first year itself, we'll be able to have a decent 40% to 60% kind of capacity utilization because of the customer existing acquisitions that are going on right now. So there are no issues on technology that we are facing currently.

Your next question comes from the line of Rajesh Majumdar from 360 ONE.

Yes. I want to know the sales volume for the quarter and why the revenue was lower. Is it because of lower realizations or lower sales volume?

Yes. Rajesh ji, about this Q4 is slightly less volume to the tune of, I guess, about 1,000 tonnes and some depression in price, but that is only because of our regional sales mix, we are shipping to 40 countries. So which lots, which customers, where they will, but there is no depression in price per se because in the market -- it's just because of our seismic and order mix, which goes quarter-on-quarter. So this quarter, we had some low price orders going which dragged down price a little bit. But that's in April at June, you will see it quickly coming back up. So it's very dear. So that did cause some debt and operating profits.

Just a related question, is there any disruption because of the Middle East and what proportion of sales are we selling there?

Annually, we do about 20% sales in Middle East and MENA region, Middle East, North Africa. Yes, absolutely, there's a disruption, the order which we had from all these customers like Kuwait and Saudi, and they all have to be postponed. So instead, we had orders from other customers. So they have been given precedents. So they are going now. And as soon as the Strait of Hormuz opens and business normalizes, the pending orders which we are holding for Middle East, they will also quickly be shipped.

And sir, 1 more question from my side is that we've seen a huge rally in crude oil, so that will impact the needle coke prices. So -- as you've come until September, you said on your contractual side, are you covered for the needle coke side as well. How much are you covered for? And how much will that cost increase percolate to us from which half? And will the price increase happened simultaneously with that? Yes.

You see, we are covered for needle coke purchases -- I mean needle coke shipments starting from the origin till end of June. So by the time they are -- they make 45 days to arrive and our electrode product processing is another 45 days. So it safely covers our costs until September from the needle coke side, however, it doesn't protect us from the other materials, which we get from India doesn't protect us from energy. But purely on the needle coke side, we remain protected until September.

Okay. And sir, one strategic question, 1 last question from my side is that do you see the rise in gas and energy prices as an impediment to the electric arc furnace and the CBAM team because as I understand that the energy requirement in electric arc furnace is almost nearly 3x more than that of a blast prices, yes.

You see these allergy prices actually depends in Europe, et cetera, how much -- see, the power is a major cost for electric arc furnace steel plant. So that energy and the mix of power generation they have in Europe and U.S., I don't think it will cause any direct hit to electric arc furnace steel making economics because they are -- it depends on power at what price they can get the power in their country. So there may be some indirect connection, but there are gas-based power plants, but they're more in Middle East rather than in U.S. or Europe. So we think there's some marginal impact, but it doesn't change anything actually.

And CBAM is on track. There is no derangement of that?

CBAM is applied already actually was that we will see a reduction in steel imports in EU, which will encourage the local steel plants to run at a higher utilization and higher demand from -- from Europe.

Just to add that these European steel companies basically have no option. I mean, as you all know, electrical furnace emits about 25%, 30% of carbon as compared to the same steel produced through furnace. So with the CBAM and ex-euro per ton, demand -- I mean, duties and everything that Europe is applying now from first of July, whether the cost is hit or x plus something, they will have no option. I mean there is no way that they can pay that kind of CBAM and still be able to export their steel. So they'll have to shift from blast furnaces to electric arc furnace. I mean Europe is already 50%, 55%. And Europe is adding at least 25 million to 30 million tonnes of electric arc furnaces. Some of them have already come in. Some of them are under construction. So by 2030, according to our information, and we believe this figure is more or less accurate because we are exporting 70% of our products to all parts of the world. So people are always on the road, meeting this customer here and that customer there. So close to 100 million tonnes of new electric arc furnaces are scheduled to come in, out of which '20, '22 are already in operation, and we believe about 30 million tonnes is going to be operational within '26, '27 and '28 and another 30 million, 35 million tonnes in 2028 and '30. So that adds up to about 100 million tonnes. That will require a lot of electric and accept our expansion, there's nobody who have even announced anything as yet. It takes 2 to 3 years to even make a small brownfield expansion, as you know, in our case.

The next question comes from the line of Ahmed Madha from Unifi Capital.

Just picking up from the questions you answered before my turn, for Q4, if you can quantify what was the sales volume we have coated 94 percentage capacity utilization, but in terms of sales volume compared to last quarter has been -- how many thousand tonnes have been impacted because of logistics or any other region.

Yes. Did I say 1,000 tonnes almost between Q3 and Q4, hardly 1,000 tonnes got impacted because these orders -- when these orders had to be postponed.

But -- and we postponed -- divert -- you will divert it here and there. You are not...

See most of it -- most of the postponements were diverted and there is a impact of only $1,000 less in Q4 compared to Q3.

And Manish, as you were telling me, I mean, because the situation is so desperate -- see, the steel companies in the Middle East are desperately placed as far as the raw material everything is concerned, they don't want to close their plant. And they are prepared to pay $200, $300 extra for electrodes to be sent by road, instead of $20, $30 costs that we were incurring to take the electrodes to any Middle Eastern countries. I believe there is a way that you can take the electrode to some Middle East in port by ocean. Then it takes as much as $200 to $300 to track it down to the location of the plant, and they are prepared to pay for that. I mean obviously, $300 per tonne of electrode means nothing to them, rather than closing the steel plant.

Correct. Sure. Got it. And in terms of pricing, as you said, you are already booked in September, but I'm assuming for September contracts you will be probably doing now or maybe may have a few months on the line. So in that the renewed committed volumes, do you see any significant price increase? Or are you already into those conversations of increasing the price. If we can probably give some qualitative and quantitative commentary from the same?

See for all the new inquiries we are receiving, we are pricing it accordingly. We are taking into account how much our costs have increased and some price increase was anyway necessary. So we are -- with every all inquiries don't come in 1 go, they keep coming every 2 days, 3 days, 1 week, 10 days, every customer has their own buying wave. So we are offering increased prices in the market. And we are quite hopeful that some amount of the price increase should get absorbed and see the industry should be willing to do that. But it also depends on what our peer group is doing, how much seriously we are pursuing the price increase. So we will -- but we have started offering increased prices for the uncommitted volumes.

Our next question comes from the line of [ Kartikeya Kumar Pandey ].

And sir, although I understand the old investment rationale and the tailwinds, the multiyear tailwind that we have. But from -- I always -- so needle coke capacity supply is a constraint that we have in our industry. Now that capacity, the demand for that is from our industry as well as from the anode industry. Now when we are saying that we are adding 120 kt of incremental demand so -- and again, there are reports of around 100 kt of demand from anodes. Now somewhere down the line, the old math is not adding up to the existing needle coke capacity. And then there are no recent capacity additions also happening in the needle coke industry. So I just wanted to understand how are we going to fulfill the 120 kt of demand, given the carat are also not backward like West player. So some light on that from your side.

I'll tell you a little bit. I mean it is motivating me to tell you something which somebody asked and we didn't answer that question very clearly. The only reason that we decided to invest whatever we invested to buy GrafTech shares was primarily because that is the only graphite company in the world, who is 75% to 80% backward integrated. I'm talking of GrafTech. That's the only graphite company who has a graphite -- who has a needle coke plant of its own to the extent of about 75% of their own capacity. So if you go back to 5 years ago, 6 years ago, when the electrode prices went up by 3, 4, 5x over a period of time, the same thing happened with needle coke. And the needle coke prices went up from about $1,000 to about $4,000 in a matter of 5, 6, 7 quarters. GrafTech was the only company which had about 80% of the captive requirement was -- is being met by their own coke plant. So while they made a lot of money like all the other graphite companies made because of price increase on electronics, but they were in a unique position that they made an additional $2,000 to $3,000 for -- on the needle coke, while people like us or the Japanese or Graphite India and anybody else except GrafTech had to buy needle coke at about $3,000 to $4,000 higher than what it used to be in a matter of less than a year. So our logic of buying these shares about 2 years ago, 1.5 years ago, was simply this that if and when we see the same time and the same days as we saw 5, 6 years ago, when electrode prices will go up and backed up by needle coke, while all of us -- all others, except GrafTech will make a lot of money in electrodes but this is the only company in a unique situation that they will not only make money on electrodes. They'll also make a lot of money on the needle coke. So this was a very simple logic, for which we invested. And of course, I mean in the stock market, you can never be 100% right, so you can never be 100% wrong. So at the price when we started buying, it was -- it looked like a steel and it did go up by 30%, 40%, and we decided not to sell, and it went down by 30%, 40%. It has recovered a lot in the last 2, 3 months. But again, it's just a matter of time. I mean, as soon as we see some uptick and some of these 100 million tonnes of electric arc furnaces starting operations, which some of this has already started. As soon as we see that, we see a shortage of electrodes we see -- if there is a shortage of election be a short-term needle coke for sure. That was the simple reason that we were looking at. We went ahead and invested that money.

Understood. Sir, but according to GrafTech the 120 kt of extra demand that we have seen, so if I'm not wrong, we have mentioned that currently of around 650 kt, 1/3 has already been supplied by Chinese players. Now, this is not what I am saying. I guess this is -- GrafTech is saying, and this is in the USD market. So I mean all the quality issues are there, but what do you read from this? Because incrementally like can we get market share in this 120 kt or like Chinese players are also increasing its share...

What you -- what is this 120,000 tonnes supply that you're talking about?

No, sir, if you go to GrafTech's commentary in the annual report, they are mentioning that around 1/3 of existing 650 kt of demand that is there in the graphite electrode market currently is met by Chinese player, that is bringing our overall capacity utilization of the industry to 60% to 65%. Now my question is that what's dropping them from doing the same in the incremental 120 kt of capacity that's required.

See -- sir can I answer the question.

Go ahead. Go ahead.

Is what you're saying, what the committee can say what they have their own reasons and logic to say that 120,000 tonnes of UHP is being supplied from the Chinese, which is fine. You see in China is exporting a lot of electrodes. And predominantly, they are all the high-power grade. But yes, we will not deny that they do not export UHP electric, they do export UHP electrodes of almost the same order. We believe it's probably 100,000 out of the 4,000 -- 400,000 they export and in the low-power furnaces and sizes that to mostly up to 24 inches. We are definitely doing that. And -- of course, in their con call talks about China, they're talking about impact on them. So they talk about China. They also talk about India. The capacity utilization, they are earning whatever is written there, 65 or something in the last quarter, but please remember, HEVs running at 90% plus. So they have to explain for themselves and we have to talk about ourselves. So they're explaining they have to explain to their stakeholders why they are at this. So they are giving this reason, which is fine, which is totally fine. But you are saying what is stopping them see, if you're talking about HEG, we have a very -- I would say, a very cost competitive plant because of our size and our location being in India. And so our tactics are lower -- so we -- in our calls, we don't mention that because of Chinese, so many USV exports, we have been dented.

Sir, we have the next question coming from the line of Mr. Manan Poladia from MKP Securities.

So first question on, again, the quarterly number that's come out. You said there are unrealized losses in the investment and that's been the reason driving the loss. If you could like quantitatively tell us if we pull out the asset loss and the loss on the ForEx instrument. Is there a shipping cost hit also that is largely other expenses jump that has happened this quarter. And secondly, if you could tell me from your contracts when you have a fixed price contract, say, 6 months ahead, is there a force we close within it above a certain level of oil price or shipping prices per sale?.

No, I'll answer the last question first. You see particularly in Middle East, where freight was shot up from $20, $30 to more than $300. Of course, we had to tell our customers, and we did send letters of force out there will never be impacted. See some little bit cost increase, it is expected that supplier will bear. So anything out of the ordinary, of course, we have the right to go to our customers and tell them. And we did that for Middle East. And they are taking material FOB Mumbai and they're paying for the extra freight. But we -- the freight have also increased for U.S. and Europe, but we are not yet of the order when we go back and reach our contract or request them because it is still absorbable. See, once you book 6-month contract, there are some costs which will go up and down throughout the execution of the order. It can go up 5%. So it is expected. It sometimes gets lower because for us, needle coke pictures, energy -- I mean, electrical power, they're all -- they are our major costs. So during a course of 6 months when we come in to a certain price, unless something goes really wrong, we don't usually approach our customers and ask them for a price increase because they can do it likewise. Suppose they keep track of our essential raw materials, and if the price goes down the shaft, they don't come back to us for a reregulation of the contract. So we try to do as much visibility we have. If we have a 3-month, 6-month our needle coke is tied up and electrical power is tied up, then we take a safe call as to how much, but during the course of time, some increased decrease does happen.

Right, sir. On the first question with the other expenses?

Ravi Tripathi, our CFO, will answer.

Yes. In other expenses, if you see -- if you compare with the previous quarter, and you can see that we have added the -- whatever the -- losses we have added in the other expenses. That's why the other 1 is looking higher as compared to the previous quarter.

Sir, that's in your note, I'm just apart from that, there is a still large jump that has not been disclosed in the note. If you could just quantify some of that for us?

So the -- that some impact of the exchange gain loss in the quarter due to the rapid rupee depreciation. As I said in my initial opening remarks, that approx 5% depreciated teen quarter. That impact is also is there. So that's why the other expenses is higher as compared to the previous quarter.

Your next question comes from the line of Mr. Raj Kiran Gandhi, from SBI Mutual Fund.

Sir, possible to quantify this FX loss, which is reflected in other expenses.

Yes. This is -- Raj see, this FX loss is completely the unrealized loss that -- in the range of INR 35 crores to INR 40 crores within the quarter.

Okay. Got it. And given the rupee has depreciated further from the quarter end, so we should expect something next quarter as well? And where when will this reverse because, as you mentioned, this is unrealized?

Yes, sir. In case the rupee suppose is a vision definitely, this will rebus. You can see some drivers in the next quarter.

Okay. Got it. And any particular reason, let's say, even if on the gross margin side itself, if I were to look on a per tonne basis, there has been some contraction Q-on-Q. So any particular reason for that? Or it's...

Yes, yes, we explained that see when this war happens, all these orders needed to be shuffled up and down. There were some Middle East orders, which didn't go and some other orders, which went. So quarter-on-quarter, there's always a slight movement up and down. And because of this war thing, the Middle East orders had to be postponed until the situation normalizes and some other orders, so it depends which orders are going in which particular quarter. So it's not a cause of concern, and you will see that coming up in April to June. We're very hopeful that by the time these issues will get resolved, but Middle East is next door, and we'll start pushing material as soon as the situation is clear.

Got it. Got it. So mix turn adverse in the sense when Middle East I presume is a better margin geography. So next -- better.

Yes. Logistics costs are much lower for Middle East.

But the prices can be different. I mean, we can't talk about which area...

Sure, sure, sure. And just in terms of your CapEx, how much of it is rupee denominated or -- and how much is FX denominated? I'm just trying to presume because of the sharp depreciation in rupee, maybe over time, how much of realization benefit can come to EBITDA?

No, our -- we gained by rupee depreciation for sure. I mean our foreign exchange outgo is only on account of needle coke, which is a smaller part compared to the total realization. So obviously, we are a net exporter. So we -- depreciation.

Right. So just trying to understand what is like ex of RM, how much of our cost dollar-denominated, which will also then go up along with depend then I'm just trying to understand net-net, how much benefit will retain of rupee depreciation -- overtime -- near term...

No, we don't want to talk about specific numbers.

Sure. Sure. Perfect.

The next question comes from the line of Aejas Lakhani from Unify AMC.

So I wanted to understand that given that needle coke is also being used in batteries, and this is again premium or super premium narrate material. I want to understand a little bit more about the raw material sourcing and availability and capacities globally. So one is, could you talk about where do you procure your needle coke from? What is that manufacturers capacity? Are they adding capacity? Globally is needle coke capacity editions taking place. Only to understand broadly that if the demand for needle coke gets repivoted more towards the battery side will -- what kind of scarcity that could do for decarbonization in year? That's broadly what I'm trying understand.

So I'll take this question. See, about 4, 5 years ago, when the electrode suddenly went into a serious shortage and the prices went up by 3, 4x and so did the needle coke, I mean, obviously. So at that time, obviously, we talk to all our 3, 4 suppliers of needle coke. So firstly, needle coke is also a very technology-based product. And I don't think there has been any new greenfield needle coke plant for anywhere in the world in the last 70, 80 years. And there has not been any new entrant in this last 70, 80 years. And there are only 3, 4 suppliers in the world from Japan and U.S. And -- so what we realized at that time 5 years ago when the needle coke prices went up by 3, 4x, so did the electrode price, at that time, we realized that what the price that we can pay for needle coke, the battery guys cannot pay because I believe in the battery, needle coke is one of the maybe 7, 8, 9 things, which goes as part of their raw material. And so we hope we can be replaced by 1 of these 6, 7 other raw materials that we can mix, but for graphite electrode, there is nothing that you can do. You have to only use this particular needle coke, which is produced by these 3, 4 companies. So at that time also, while we could pay whatever sharp increase happens in the needle coke price, the battery guys could not pay that kind of a price. They had an option to replace Video something else. And that something else probably is 3 or 5, 6 different raw materials. So if they were using, let's say, time 12%, 15% of needle coke, we replaced this 10%, 15% of needle coke by other 4, 5 products that they were mixing in any case. And needle coke capacities have not gone up. I mean just like graphite electrodes, if you see the last 40, 50 years of the graphite industry in the world, except HEG, there has not been any new expansion anywhere else in the world, whether it's India or in Europe or America or Japan. On the contrary, there is -- the capacities have shrunk in the last 4, 5 years. So to that extent, there was no need for the needle cook guys also to expand. I mean they could not sell whatever they were producing for the last 5, 7 years.

Sorry, sir, if I understand the last bit correctly, you said that the needle coke suppliers were not able to sell their desired quantity for the last 4, 5 years?

Yes. That's why -- I mean it's the were underutilized for a while, so it's not that battery and electrodes are using exactly the same kind of product. There is anode-grade coke which all these companies also make so that the needle coke per se, there's lakhs and lakhs of tonnes of demand in -- for the battery coke. So had it been true that needle coke suppliers would be running more than full. What we have seen when the capacity utilized -- GE industry was down in the last, 1 or 2 years. They had extra capacity to make. There's abundant planned needle coke, which clearly shows that it was not exactly going to the battery applications.

The next question comes from the line of Meta -- Mutual fund.

Just one follow-up question again on needle coke. You mentioned that we haven't seen any material increase in...

So may be lost. We have the next question which is coming from the line of Mr. Ronak Agarwal from IFR PMS.

GrafTech has taken a price hike of around $600, $1,200. So by the end of this current financial year for FY '28 volumes, can we expect a full price hike to be seen in our volumes also?

Everybody is talking about uncommitted volumes, sorry.

Yes. I hope by GrafTech or we announcing that we are taking a rise of $600, $1,200. I wish the market behaved -- the market accepts whatever we are talking about. I mean it's one thing to say that I want to do this and there's always the other side who negotiates with you. And in this business, as you know very well, it's a very long process-driven industry. Some products take -- the minimum time taken to produce electrode is about 2, 2.5 months and the longest time takes as much as 4 to 5 months. So obviously, in this kind of a business, we have to take orders at least for the next 3 to 6 months. Otherwise, we can't even meet the delivery schedules. And then if you are exporting 70% to more than 30 countries, it takes time for the products to reach America. America will take like 40, 45 days to reach. So we are committed on a certain price for a certain period of time. And similarly, we are also committed to buy needle coke for a certain period of time at a fixed price. So there's a time lag between when you announce that you are taking a price increase and the time that you start getting it.

The next question comes from the line of Rohit from Marshall Capital.

Commentary is always very helpful to understand the industry as a whole. On needle coke specifically, we mentioned that we have supplies to June, which will last us to September given how the manufacturing works. But is there any indication as to with the Middle Eastern crisis going on, how much of an increase we are seeing in needle coke prices right now? Because I'm guessing some amount of negotiation would have begun for the next shipment, right?

So far, there is no indication. We've not heard from them. And maybe in the month of June or maybe by 15 June or something when we actually sit down and discuss the next quarter's contracts. I don't know what they will come up with.

Understood. But with the crude price increase and there is a needle coke raw material derivative, there should be a price increase. Is that correct?

Yes, it eventually comes from oil. It comes from decant oil. So when oil goes up, of course, they are impacted. And we'll see how the oil prices are behaving. They might come down, they might stay where they are. So probably the right time when we'll come to actually know of it will be sometime in the middle of June.

The second question is, in the opening commentary, Chairman, sir spoke about the regionalization of trade even in our industry, right? So how -- I mean, so there is a lot of protective measures, including the CBAM measures in Europe against steel imports. And then there is talk of countervailing and antidumping duties in U.S. against India and Chinese imports, which apparently they expect to see an outcome by September. So in this increasing regionalization that's happening, how do you see our volumes over the next 2, 3 years? Do you think it would affect our volume that we can export or it won't impact us because of our cost competitiveness?

I think...

It all depends upon how the whole thing goes. I mean we -- I mean, obviously, we have taken a very strong law firm from India, and we have taken a very strong law firm in U.S. And they've taken all the data and everything from us. And we'll know in the next 4, 5 months as to what happens, but we don't think that we are doing something seriously wrong, at least in America, where our pricing is amongst the highest. So -- but it's a matter of legalities. I mean, we'll see what happens. But the whole world is becoming very protective as we have seen in the last 10, 15 years. All I can say is that we are the lowest cost producer. So to some extent, if they are -- if these duties or taxes, whatever you want to call, that's at a reasonable level, we can probably absorb it.

Understood. That was helpful, sir. And the price increase you spoke about, I mean, the primary driver of price increase for us in the graphite electrode industry would be driven by the cost increases related to what's happening in Middle East, right? There is no other reason why there's a price increase? Or is there something else driving the price increase?

No, their costs are higher than ours. So it's not just the Middle East problem. I mean even before the Middle East problem, if you go through the quarterly results of all the meaning that there are only 2, 3 international companies. So they have been losing money pretty big time even before the war.

So I mean my confusion is more around why now, right? So what you've been seeing has been going on for 3, 4 years probably. But around this time, is the crisis more a coincident? Or is it the -- I mean, is it the nut that the market needed to increase prices? Why this year? And will it continue over the next year? Is it difficult to answer these questions given the volatility?

What exactly was your question when you said why now?

No. So what you said about -- see, capacity has been -- the supply has been shutting down in the industry over the last 3, 4 years. The losses in GrafTech and the Japanese players has been going on for 2, 3, 4 years. But we are seeing finally price increases potentially happening now in the graphite space. So what is driving the price increases to happen this year? And will it continue over the next year? Or is it too difficult to answer this question?

Graphite electrode industry was looking for a price rise not from now for the last almost 2 years because this is unsustainable for them. for our peer group, incurring losses quarter-by-quarter was unsustainable. So everybody was hoping for things to turn around and price rises to happen. But if you say why now, probably the last on the camels back that now with this additional Middle East thing war, it's not totally unsustainable for them. So I think this was the right time. If not now, then when it's like that. But as you said, while about the timing, then I should say that all of us, including HEG, were looking for a price increase to happen for last quite a few quarters, and it didn't happen. And overall, over and above, now there's a Middle East situation, rise in energy, rise in freight. So the last on the back.

The next question comes from Akhilash.

So my first question is on the utilization of graphite electrodes. So how much exactly it has been for the fourth quarter? Because as we say the volume is only impacted by 1,000 tonnes, but it does not reconcile with the Q3 numbers because in Q3, we had said that 85% utilization is there. So on my numbers, it is coming at around 2,500 tonnes for the quarter difference. So can you please explain that?

See the capacity utilization when you say we are talking about production, how much we produce and then the sales-wise. So if you strictly talk about capacity utilization on production, actually, it's 95% for the quarter. And sales-wise, it is less than that. Overall, for the year, it is more than 90%.

Okay. So on production-wise, 2,500 tonnes of number, the difference what I'm getting is correct. So on the sales volume, we are down 1,000 tonnes.

Around 1,000 tonnes, absolutely.

Okay. Sure. And the second question is that why other income has gone down during the quarter? Does it only constitute the interest income or any other part of income is also included in this? And how should we see it going ahead on a quarter-on-quarter basis?

Yes. The other income in the income in the quarter is lower due to the loss in the fair value loss, which we have classified in the other expenses. That's why the income is coming in the quarter is lower side as compared to the previous quarter. And going forward, it will be in the same line as we are in the previous quarter.

Okay. And lastly, sir, from my end, last quarter in Q3, we had guided for the s EBITDA margin of around 22% for the next couple of quarters in Q4 because of all these Middle East crises, we could not sustain that kind of margin. So how should we see it now going ahead for the quarters and for FY '27, '28, if you could shed some light on that?

According to me, in the first 2 quarters, April to June, July to September, see, all along these quarters, we have been, as Ravi Tripathi said, we have been between 15% to 20%, and we have closed this year also at 20%. Now these 2 quarters where we have committed volumes should be around -- again, around maybe around 17%, 18% or something. I can't hazard a guess depends upon what happens in the balance of the quarter should be around that number. Si, if you want to correct me, please go ahead.

These are correct. So the range will be -- the EBITDA range will be the 20%, we can say, for the next first quarter and second quarter.

And for the full year, it will be more than 20% -- is it good to say...

Yes.

Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to Mr. Ravi Jhunjhunwala for closing comments.

So I guess if there is no further questions, so let me thank all of you for taking so much of interest and asking us some very, very probing queries. And this forces us to think about answering all these things, which will -- a couple of things maybe we would not think about otherwise. So thank you very much, and I hope you continue to ask us these uncomfortable questions, and we are able to satisfy you. Thank you very much, and I look forward to meeting you again in 3 months' time. Thanks.

Thank you, members of the management. On behalf of HEG Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.