Captains Speak     

Published: February 28, 2025
Updated: February 28, 2025

HEG Ltd

Demerger plan back on track

Our much-awaited demerger scheme, which has been delayed for the last few months, is now in the process. Papers have been refiled with SEBI and we hope to get all the required approvals by the end of this year.” Stating this at a conference call organised to discuss the performance of the company during Q3 of fiscal 2025, Ravi Jhunjhunwala, Chairman and Managing Direc tor of HEG, added that “with strong technological capabili ties, operational efficiencies and remarkable market reach, we are confident of navigating indus try shifts and creating long-term value for our shareholders.

HEG Ltd, a leading manufac turer of graphite electrodes, had filed an exchange notification on May 22, 2024 “for demerger of the company’s graphite business into a new company and at the same time merging Bhilwara En ergy with the remaining HEG”, which will be turned into a plat form for the green energy busi ness, hydro and wind energy, ad vanced carbon business and other opportunities in new age businesses.

According to Punit Anand, Chief Strategy Officer, HEG, the prime objective of this demerger exercise is to unlock value for shareholders. The demerger will route in a share swap ratio of 1:1. This means that every existing shareholder of HEG will get one share of the new company for every one share of HEG held. And in the case of merger of Bhilwara Energy with HEG, shareholders of Bhilwara will get eight shares of HEG for 35 equity shares of Bhilwara.

NEW PATHS

Maintained Mr Jhunjhunwala, “The existing company and the new company will script new paths as two independent, publicly listed companies. Of course, underly ing growth drivers, risk profile and capital allocation requirements are fundamentally different in the graph ite business as compared to the green energy business.” According to Mr Anand, the list ing of the new company will be done by the end of this year.

Referring to the global steel situ ation, Mr Jhunjhunwala maintained that “global crude steel production for the full calendar year 2024 totalled about 1,883 million tonnes, making a 0.8% decline from 2023. However, excluding China, world production reached 878 million tonnes, showing a very insignificant growth of 0.2% as per the recent data published by the World Steel Association.”

He continued, “Steel production across major regions saw some mixed results. While the US, Japan, Korea and Russia dropped between 2.5% and 7%, Mexico declined by 16.5%. On the other hand, India con tinued its growth trajectory with production rising by 6.3% to close to 150 million tonnes, supported by robust infra structure and a strong automotive sector. Germany and Tur key posted positive gains of 5.2% and 9.4%.

CHINA FACTOR

“Meanwhile, China, by far the world’s single largest steel producer, saw a decline of 1.7%, producing 1.005 billion tonnes in 2024. However, Chinese steel exports surged in 2024 due to a slowdown in domestic demand there, reaching 111 million tonnes — the highest in the past 8 years — resulting in reduction of steel production in other parts of the world except China, which has a direct bearing on the graphite electrode demand in the markets we serve,” he noted.

As far as HEG is concerned, Mr Jhunjhunwala said that “having stabilised our plant operations post-expansion to 100,000 tonnes, we were still able to operate our plant at about 80% capacity utilisation with a base level of 100,000 tonnes, which was 81% last year (2023-24) for the first 3 quarters at a capacity of 80,000 tonnes. So practically, what I’m saying is that our capacity utilisation remains 80% at 100,000 tonnes versus 80% at 80,000 tonnes, which used to be a year ago. From all available public data, we can safely say that this is by far the highest capacity utilisation amongst all the graphite electrode companies in the West ern world.”

Pointing out that “electrode pricing remains under pres sure due to subdued demand, while needle coke prices have been stable for the past 2-3 quarters, which obviously results in narrowing of the profit spread,” he added, “How ever, we believe that we remain the lowest-cost producer in the world or a little bit better even after expansion. Despite

near-term challenges, we remain highly optimistic about our industry’s medium- to long-term outlook. The decarbonisation shift is irreversible, and we have been track ing projects all over the world, with a total of close to 100 mmt of steel, which are coming up with up new greenfield electric arc furnaces worldwide.”

DEMAND BACK

He continued, “While margins may remain under pres sure in the coming quarters, in our view, we should start seeing a demand recovery in the second half of the current year with some new capacities of electric arc furnaces com ing into operation in different geographies of the world. And as you know, we have been exporting about two-thirds of our production to more than 30 countries for a long time. And we believe that we are fairly well-positioned to capital ise on this increased demand.”

He added, “As you may have seen, some of our peer group companies in the Western world have recently an nounced a price increase for new orders in the region of 15 20%. And we do hope prices will start improving gradually as the current price levels are not sustainable for some high cost producers.”

Referring to the impact of US President Trump’s tariff policy, Mr Jhunjhunwala said that as yet no final picture is available. “But if there is be any additional duty, we will have to pay it because we cannot ignore a huge American market for our graphite electrodes,” he concluded.