What do HEG Ltd’s Q4 FY19 Results Reveal?

India’s Graphite Electrodes (GE) producer, HEG Limited has released its results for its last quarter of FY18-19 ended Mar’19.

Key Highlights:

• Company’s revenue rose by 4.2% y-o-y basis to INR 1,346.7 crore
• Net profit fell 17.3% to INR 524.4 crore against Q4 FY18
• EBITDA down by 17.1% to INR 788.1 crore
• Margins were 58.5% in Q4 FY19 against last fiscal year’s Q4 margins of 73.6%.

As per the company’s CEO and COO, Mr. Manish Gulati, company’s margins suffered due to higher needle costs. In Q4 FY19, Indian GE prices have come down against last quarter but have remained almost at the same level against Q4 FY18. Also for the ongoing fiscal year, as needle coke suppliers increase their prices every six months, the price negotiations for Jul-Dec’19 will happen in the month of Jun’19 which will then help in the future forecast of current fiscal’s margins.

There is increased imports of Chinese GE in Indian market but majority imports are of non-UHP and HP grade and thus the company’s UHP grade GE sales volume have not been impacted much. On the other hand, HEG’s HP grade GE sales which is about 20-25% of the company’s product portfolio has suffered a setback due to the Chinese imports.

The price difference between non-UHP grade Indian GE and that of China currently is at around USD 4,000- 5,000/MT. But in terms of non-UHP grade GE quality, while few Chinese players supply decent quality, others export those products whose quality can’t be compared with the Indian counterparts.

In terms of demand, India’s domestic steel demand continues to remain healthy and the management is expecting to achieve 90% of its capacity utilization in coming quarters.
In terms of demand-supply mismatch, Mr. Gulati commented that last year company’s steel customers were in anxiety amid a shortage of electrodes which compelled them to buy more than what they required. For instance, companies who had two months stock in reserve started stocking for the next 4-5 months and they also committed a lot because of the anxiety. However, the situation will correct in the next 2-3 months and then demand will be equal to supply.