Good day, ladies and gentlemen. Welcome to the HEG Limited's Q1 FY2022 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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, over to you, sir. Good afternoon, ladies and gentlemen. It is my pleasure 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 of HEG Limited, along with his colleagues, Mr. Manish Gulati, Executive Director, Mr. Om Prakash Ajmera, Group CFO, and Mr. Gulshan Kumar Sakhuja, CFO. We'll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Over to you, Mr. Jhunjhunwala. Thank you. Good afternoon, Navin, and good afternoon, friends, and welcome to our Q1 financial year 2020 phone call. In comparison with last quarter's results, HEG's performance this quarter was stronger, supported by improved global steel sector growth, which resulted in increase in demand for graphite electrodes and firming up of prices. As per the recent data released by World Steel Association, global crude steel production between January-June surpassed a little over 1,000 million tons for the calendar year 2021 for six months, which was up by a strong 14% compared to 2020. Steel production ex-China was up about 18%, while China increased by 11% compared to 2020. Friends, this is probably after a very long time that the rest of the world's steel production has grown more than China. Just this morning, we got the July data of Chinese steel production, which shows a further fall of about 8% compared to June. Again, after a very long time that we see a reduction in Chinese steel production month-on-month. Chinese government continues to discourage export of steel to other parts of the world. To this effect, in addition to removing a 13% VAT rebate for exports, which they have already implemented from 1st of July, they are seriously mulling over a proposal to put an export duty on steel exports. As you are all aware, any reduction in exports of steel from China helps the other part of the rest of the world, which incidentally produces about 47%-48% of its total steel through electric arc furnace, which is our customer base. The Chinese government continues to put in place stringent environmental measures to limit the country's carbon emission levels, which is directly supporting electric arc furnace capacity to replace polluting blast furnace capacity. Electric arc furnace steel still constitutes only 12% of Chinese steel production, which is two times of what it used to be in 2016, and which, as per the Chinese government's announcement, is likely to be around 20% by 2025. Again, this has to be seen in the backdrop where the rest of the world, even today, produces about 47% of their steel through electric arc furnace. Especially in the U.S., we are seeing a very strong growth where between 12 million-15 million tons of additional new electric arc furnaces are under construction, and most of them are likely to be ready by end of next calendar year. Now coming to India. As per WSA, Indian crude steel production registered a growth of about 31% in the first six months, January-June, comparing with the same period last year when steel production was obviously at a record low level due to nationwide lockdown because of COVID. India continues to maintain its position as the second-largest producer of steel in the world after China. Despite the second wave of COVID-19, the Indian steel industry performed exceptionally well and has been operating at a very high capacity utilization level and has yielded record margins in the last couple of quarters. Steel prices in India and worldwide are at record high levels and are expected to continue to remain strong, driven by robust demand and also driven by a reduction of Chinese steel exports to the rest of the world. In this backdrop, globally and global efforts to reduce carbon emissions coupled with increased scrap generation in China, we believe that the electric arc furnace steel production in the world will grow at a CAGR of anywhere between 3%-5% in the medium run, driving ultra-high power electric demand. The electrode prices improved for both UHP and non-UHP grades in Q1 2021/2022, and we expect them to strengthen in the coming quarters due to robust demand arising from the increased steel production through EAF. In fact, in the last quarter, we have seen the first six months annual level of about 105 million tons of electric arc furnace production on a pro rata basis for a quarter, which is more or less what we had seen at the highest level of 2017/2018. Needle coke prices are also rising in line with the electrode prices. However, our entire old high-cost inventories, both for electrodes and needle cokes, are totally over now, and we look forward to improved operating margins during the rest of the quarters for the current year. Friends, our expansion to increase capacities from 80,000 tons to 100,000 tons is going on at full steam, and we are confident of completing it by the end of 2022 and be ready with commercial production from early 2023. This will increase our capacity to 100,000 tons under one roof, which would be around 35%-40% higher than the next largest plant. As you are aware, any capacity expansions, even brownfields, does take a very long time in our business. Until now, we have not heard anyone else announcing any capacity enhancements in the short-t erm. I will now hand over the floor to CFO Gulshan to take you through the financial numbers, and then we'll all be very happy to answer any queries that you may have. Over to Gulshan. Thank you, sir. Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the quarter ended 30th June 2021. For the quarter ended June 2021, HEG recorded a revenue from operations of INR 414 crore as against INR 380 crore in the previous quarter and INR 233 crore in the corresponding quarter of the last financial year. EBITDA, including other income, stood at INR 94 crore in the quarter as against INR 20 crore in the previous quarter and INR 35 crore in the corresponding quarter of the last financial year. The company recorded a net profit after tax of INR 55.8 crore in the quarter, as against a loss of INR 6.8 crore in the previous quarter and a profit of INR 10.76 crore in the corresponding quarter of the last financial year. The company, in accordance with the amended provisions of corporate social responsibility, which mandate incurring of 2% of the average profit of three financial years, has incurred expenditure amounting to INR 6.15 crores during the quarter ended 30th June 2021, and INR 34.85 crores during the quarter ended 31st March 2021, and INR 41.86 crores during the financial year ended 31st March 2021, which has been included under the head other expenses in the published results. The company is eligible for various export incentives on the exports made. The Central Government of India had announced a new scheme of Remission of Duties and Taxes on Export Products, which has replaced the existing MEIS scheme with effect from 1st January 2021. As the rates under RODTEP have not been announced till date, the income on account of export incentives under the new scheme has not been recognized for the quarter ended 31st March 2021 and 30th June 2021. Moving towards the expansion. Our Chairman had just said the same is going on at full swing. There was a few month delay due to COVID, and we expect the expansion project to be completed in the quarter October to December 2022, and we will be ready with the commercial production from early 2023. The company is a long-term debt-free and having a trading size of approximately INR 1,500 crore as on 30th June 2021. We would like to address any questions or queries you have in your mind. Thank you. Over to Navin. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and onw on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Before we take the first question, a reminder to the participants, if you have a question, please press star then 1 on your touchtone telephone. The first question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead. Sir, thank you for the opportunity, and thank you for the detailed initial commentary. My first question is again regarding the global update in electrode sector. If you could just update us on the supply side. You talked about the demand side, but on the supply side, especially the smaller players which had mushroomed in China, what is the update on the supply on that front, sir? You see, Sonali, while Manish will give you a detailed answer, we have been explaining this in the past also, that we do compete with China in about 30%-35% of our production, which is called non-ultra-high power. When it comes to the rest of our production, which is 65%-70%, we still don't compete with them, and we don't see them in the world market where we are exporting our UHP. Again, even in the non-UHP where China is a player, there are several countries where there have been very substantial anti-dumping duties. It's not a very new development, they have been there in some of these countries for a long time. U.S. has been having it for the last maybe five, six years. We have information that EU has initiated the same very recently in the last three, four months. There again, we all know the China Plus One and the anti-China feeling that everybody has currently. Even in that sector where we do compete with China, which is about 1/3 of our production, we don't see that threat very seriously. Manish, if you want to add anything. Yes, sir. I just wanted to add here, Sonali, all the Western producers, if you take the Showa Denko and then the GrafTech and the Tokai Carbon, none of them are increasing capacity. On the contrary, Showa Denko just closed their plant in Meitingen and affecting their capacity to the extent of 40,000 tons. The main Western producers, which includes Showa Denko, GrafTech, the two small Japanese, and our Indian competitors, none of them is increasing capacity. Because of which, the capacity utilizations, because of increase in demand, which were about 65% as an industry, the western electrode industry, is now moving up to more than 80%. Around 80%-83% is what is going to be the global electrode industry capacity utilization. That is how you see the firming up of prices, because the demand is increasing, and everybody's capacity utilization is going up. Once they reach their 80% level, the prices start to firm up. The other part, Chairman Mr. Jhunjhunwala has already explained that, of course, there is a lot of talk about these very small electrode plants coming up in China, who will be using the coal tar-based pitch needle coke. We really don't see that as a threat to the main Western producers and also to us. As I just mentioned, while the rest of the world produced about 27% of its steel through EAF, until four years ago, China was at 6%, and now they have doubled to 12%. They want to reach about 20% by 2025. 6% going to 25% is almost like more than a four times increase. You have to keep that in mind when you're talking about four times, you're talking of a country like China, where the percentages are very misleading. The base number is already so high, that 50 million tons of electric arc furnace, which they were doing about four years ago, is currently at about 100, 110, and this is likely to be 200 million. Again, most of it is non-UHP. Thank you, sir. We just had Sonali Salgaonkar, her line disconnected. I'll join her back. Ma'am, you may go ahead with your question. Yes. Thank you, sir. My second question is regarding the pricing of electrodes. Sir, if you could help us with the approximate quantum of price increase that we have seen in Q1 FY2022? Manish? Sir, I would say it was somewhere, if you ask a specific number, between 15%-20% is what we are seeing between Q4 and Q1. Understand, sir. Going forward, we are optimistic about the outlook for this. Yes Because of the demand centers opening up, right? Yes. Sir, thirdly, on the needle coke, we mentioned that we have liquidated majority of our higher cost needle coke inventory in Q1. Going forward, should we expect to get the benefit of the lower cost inventory? Yes, that's right. That will be helpful in improving the margins. Yes. Understand. Sir, the needle coke, is it growing in tandem with the electrodes, the prices? The prices still are enough electrode prices to protect the margin. Yes, they are also growing quarter by quarter. As electrode prices improve quarter by quarter, the needle coke prices are also increasing quarter by quarter. Since we are out of that high cost issue, which we were carrying for the last six quarters. Now at least we should have a decent operating margin after considering the hike in needle coke prices. Got it, sir. Sir, what is our capacity utilization in Q1 FY2022? Now more than 85%. Okay. Even right now, as we speak in July and August, sir, it's still sustaining at 80% + level? Yes. It still continues to be more than 85%. Got it, sir. Sir, lastly, our other non-operating income has declined materially on a Y-O-Y basis, almost half year-on-year. Sir, how should we look at it, and should we expect that to normalize over the coming quarters? Yeah. Gulshan, just take it over and explain. Yeah. Sonali, if you see this other income on quarter-on-quarter basis, it is coming INR 22 crores as against INR 25 crores in the last quarter. This is on account of that, if you see in the market scenario, the rate of interest is going down and vis-à-vis that the income from the invest rates, the trading size that we have been maintaining in our books of accounts, that is also getting reduced over a period of time. That's where if you see the INR 25 crores to INR 22 crores, that reduction is on account of lower rate of interest on our treasury. This is on account of that reason. Secondly, Sonali, you have to keep in mind this INR 1,200 crore expansion that we are doing. It's all from internal approvals. Obviously, as it comes to a close, we keep reducing the treasury. Yes, sir. Got it. Sir, last question from my side. Sir, you gave an update on the timelines of the CapEx. Any change in the expected outlay in FY2022? Sir, I guess you had mentioned of the INR 12 billion, about INR 5 billion-INR 6 billion outlay in FY2022, and the rest in FY2023 and FY2024. Are we maintaining this? Yes, I think INR 5 billion. Yeah. There is no change in the outlay. Got it, sir. That's it from my side. Thank you. Thank you. A reminder to the participants, if you wish to ask a question, please press star, then one on your touchtone telephone. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Namaskar, Ravi Sir, and thank you for the opportunity. Most welcome. Sir, firstly, sir, can you repeat the China production number, sir, month-on-month, which you articulated in your opening remarks for the month of June and July? The steel production number. We got this data only this morning, which suggests a drop of about 8% steel production compared to June. This figure is for July, 8% below in July compared to June. Month-on-month, 8% reduction, sir. Yeah. If you remember, if you have been tracking, they imposed certain restrictions which commenced on the first of July, where they removed the 13% VAT on export of steel. Obviously to that extent, the exports of steel must have come down. Secondly, they are also contemplating very seriously putting up an export duty. Going forward, we think that to the extent that their exports will come down substantially, there will be some correction in their own production also. Again, to remind you, every drop of export of steel from China to the rest of the world helps our industry tremendously because 47% of that steel is produced through the electric arc furnace in the rest of the world. Right. Sir, if we take the entire China volume, what percentage is through the EAF route and how much is from the blast furnace? China in 2016 was only 5% against world's 47%. Today? That is where they started focusing so much on the carbon emissions. I'm just taking out of the context, but it's a published data, nothing to hide there. Blast furnace steel industry constitutes the single largest industry polluter in China. That one particular sector of blast furnace constitutes as much as 18% of industrial pollution in China. If one particular industry is as much as 18% of pollution, and the numbers in China are, let's say, 10 times of India, or the whole world on one side and China on one side, at least on the steel. That's created a lot of hue and cry in China about the pollution. That is where they took some very drastic steps by closing down about 150 million tons of blast furnaces in 2017/2018. With the result, their exports practically came down to half from about 120 million tons to 55 million-60 million tons. As I said just now, any drop of Chinese steel outside of China helps the other part of the world to produce more steel, and they produce close to 50% through electric arc furnace. That is how the electrode demand shot up two, three years ago. This is what we are seeing right now, because now China is going one step ahead and they've removed the VAT refund of 13%. On top of that, there is a likelihood of putting up an export duty. Mm-hmm. Current mix is 50% from EAF route and 50% from the blast furnace with the reduction in the blast furnace capacity. No, I'm talking the 47%, I'm talking about the rest of the world, not China. China even today is only 12%, 13%, which is likely to go to 25% by 2025. Okay. The current demand is from the European steel manufacturer. There, I think the EAF route has the highest percentage. Yeah. All the rest of the world minus China produces 47%. Okay. U.S. is about 70%-75%. EU is about 40%-45%. The whole world is about 47%. Right. Sir, this carbon emission part of the story, there is also some carbon tax that has been incorporated in the steel trade in the European nation. All these are the positive factors for the EAF route to gain traction. Absolutely. These carbon taxes are now coming in vogue and they're getting more and more expensive by the day. Right. These taxes are pertaining to the steel manufacturers that are coming out with blast furnace only or for the EAF route also there are some percentage? See, every industry has some pollution issues. We are only comparing blast furnace versus electric arc furnace. Okay. It's a stated fact that for each ton of steel that you produce through the blast furnace, you're polluting the atmosphere by about four times. Okay. The same ton of steel through electric arc furnace, let's say if it is one, the blast furnace is about four. Correct. Sir, coming to our story now, sir. Our export mix is 65% is export and 35% is domestic. Domestically, sir, I think so Tata Steel BSL and Essar Steel are the only two main buyers of EAF route, and our electrodes or other players also. No, in addition to these two, you forgot the three giants JSW, JSPL and JSL. Right. I was coming to the JSL from the stainless steel part of the process. Sir, the requirement of in steel manufacturing through the scrap route, which JSL is doing, Jindal Stainless, how is that requirement differs, sir, from the same to go for carbon steel and stainless steel per ton requirement? Manish, would you answer that? Yeah. See, stainless steel is about 1 million ton production, and we are talking about the India total production of more than 100 million tons. Stainless steel is a niche product, but the main demand of steel is from the carbon steel, which is used for construction, and also then again, automotive. Stainless steel is a very small portion even worldwide. I can tell you the worldwide capacity of total stainless steel making is about 50 million tons, and 1 million tons is in India, which is the stainless and one, two small this thing. The main demand for graphite electrodes and all this comes from the non-stainless steel. Stainless steel is a very small segment, just like special alloy steels are. I was only looking for what is the proportion required, say, in their steel making process. See, in their steelmaking process, they have to use stainless steel scrap, whilst the others use a variety of the DRI, the normal- Correct carbon scrap, et cetera. I'm talking about our electrode consumption in proportion to stainless steel and the carbon steel. If you could give me the percentage? Yeah, sure. I can provide that. Let's say, about 10%, I would say, of our electrode business would come from the stainless steel. We have some customer like Jindal Stainless in India, and we have a couple of customers, one in Spain, one in U.S. We are catering to the stainless steel segment. Let's say out of our total volumes, if I make a rough estimate, it would be 10% or less than 10%. At 10%. Mr. Kapoor- Yeah, I'll come in the queue. Thank you very much. We take the next question from the line of [Arvind Mani] from Wellington Management. Please go ahead. We have just lost the line for the current participant, Mr. [Mani]. We will take the question back from Mr. Saket Kapoor from Kapoor & Company. Over to you, sir. Yeah. Thank you. Sir, I was coming to the raw material basket, sir. If we take our raw material basket, what percent goes to the needle coke, sir? If you could give the current environment for needle coke production, and new capacities that are in the anvil and the geographies where they are expecting. Can I answer, sir? Yeah. Manish, tell him. Yeah. See, if you look at the main needle coke suppliers in the world, which is Phillips 66, the Mitsubishi, the Sumitomo. There is no increase on their side. What is happening is, wherever you're listening about this increase is in China, and within China, the coal tar-based and not the petroleum-based. We have not seen any capacity expansions coming from the main needle coke suppliers, but there are coal tar-based pitch plants pitch coke plants coming up in China, and that is to support their own electrode industry, because where are they going to get the coke from? Eventually, the petroleum-based needle coke is limited, both by supply, by technology, and so the next best substitute, or not exactly a substitute, but a poorer substitute is coal tar-based pitch needle coke. Sir, I didn't get the last part. Okay. I was saying that the main producers, the names I said, we have not heard from them doing any capacity additions. Whatever capacity of the needle coke which you listen is coming from China, and I should specify that all the plants which are coming up in China, barring the three companies, most of them are coal tar-based pitch needle coke. It's not petroleum-based needle coke, which you can use for the higher diameters, the large diameter UHP electrodes. What I'm saying is the capacity additions in needle pitch coke, which is happening in China, is to cater to their own increasing demand for electrodes. It's like a captive. They will be using those pitch cokes for making graphite electrodes in China. Okay. Sir, with our expanded capacity, 20,000 tons, which will come up next financial year, I think the 2023. Yeah How is our raw material requirement going to get secured, and what is the ratio, sir, to create, say, 1 ton of electrodes, how much of needle coke is required? That is one on one. You can just assume because there are other things also which go into it, but eventually, if you take the raw material to the last finished product, the relationship is one on one. 1 ton of needle coke makes one ton of electrodes. That is the thumb rule. Okay. For the expanded capacity, we will be securing that? Yeah. We'll have to secure. Otherwise, how are we going to make electrodes? It is a global marketplace. It is the same with every company. The way they will source it, the same way we will source it. We are going to be 50 years in the business. We have ongoing relationship with all the needle coke suppliers in the world. Yeah, we don't see any problem. I mean, just with everybody. Yeah, like 80%, 85%. May I please request you to rejoin the queue for your follow-up, as we have people waiting for their turn. I would have finished my points now. Anyway, I will come in the queue. Thank you, sir. We take the next question from the line of [Arvind Mani] from Wellington Management. Please go ahead. Yes. Hi. Good afternoon. I read an SD article that talked about the announced capacity expansion in China, and there's been 18 blast furnace capacity announcements while there's been 43 coal-fired power plants. That coal-fired power plant capacity amounts to 35 million tons. When you think about, let's say 2025 and growing capacity to, let's say, 20%-25% as EAF, how do you see these shorter term kind of data points, and how would you interpret them? The long-term trend is very clearly towards electric arc furnaces, because blast furnaces are such a big polluter, 18% of the pollution in China is coming only from the steel industry. They have to control it. I'm sure you have seen this news that China is trying to make only as much steel in 2021 as they have made in the last year. They have made a proportion that 1.5 million tons should close down to have 1 million ton of new capacity. These kind of data points which you are mentioning, that you heard that some new blast furnaces have come up, are actually, I would call them an aberration because the way China works, I mean, the way they still, for years and years, they could have gradually gravitated towards electric arc furnace, but they are now slowly doing it. Every year they sound more and more serious about it, because it's becoming a problem for them. This year they will say they have put a clampdown on production, that 2021 production should be equal to 2020. If you see the first seven months, January to July, they've grown by 8%, which clearly means that in the next four months, they have to actually clamp down and bring it down. July was the first month when actually they were 8% down. If you're interested in figures, I can tell you that the July output, actually, they forced to be down by 8% versus June on production controls. Understood. Thank you so much. Thank you. Reminder to the participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Vishal Chandak from DAM Capital. Please go ahead. Hi. Thank you very much for the opportunity. My question is with respect to electric arc furnaces. How the change in regulations regarding scrap- Sir, I'm really sorry to interrupt. May I please request you to speak a bit louder? Your question is not clearly audible. Is it okay now? Yes, sir. Thank you. Please continue. Sure. My question was with respect to availability of scrap for electric arc furnaces, given the change in rules regarding scrap procurement in China that have been relaxed.n A lot of scrap is getting diverted to China. Do you see that as a threat to the long-term sourcing of scrap for electric arc furnaces in the Western world? Right now, all these steps are actually positive. Why they have done away with the duty on import of scrap, et cetera, is just to support the electric arc furnace industry there. If you look at their statistics, their own scrap generation is now going to go up by 300. It's going to reach a level of 300 million metric tons, and that will be at 2025. That is the time they are trying to make their year production also at 20%. It's actually a positive when you say. Electric arc furnaces are that way, depending upon country to country and depending upon availability of scrap, electric arc furnaces have the capability to use direct reduced iron, which is DRI. Still, electric arc furnaces are still much less polluting than the blast furnaces. The balancing of scrap versus the electric arc furnace steel production will happen in only this way, that right now China is trying to promote electric arc furnaces, so they abolish the duties on scrap because they want more scrap to come in. That will not choke the rest of the world on scrap, because their own scrap generation is rising rapidly year- after- year. Sure. Thank you, sir. See, Vishal, there are lots of studies, and it doesn't sound normal to people like us living in India, but there are studies which say that it takes about 50 years for a country to grow to a stage where they start pulling down their buildings. They are saying that early 1980s was the time when China really started to become industrious, and the new Beijing, the new Guangzhou, and the new Shanghais got built. It takes about 40-50 years before you start pulling down all those buildings because they are no more considered to be safe. That is how 2025, 2030 year comes in, that by that time they will have a totally new Beijing, they'll have a totally new Shanghai. All the new buildings, everything that you've been seeing in the last 20 years will be pulled down, and there'll be a totally new Shanghai. This is what happened in New York and Washington and all these large countries in the world. Again, DRI is a substitute. Until the time you don't have enough scrap, you depend upon the DRI. Right, sir. What this essentially can also mean is that once you see a huge influx of scrap, the Chinese government would be planning to set up larger electric arc furnace compared to those half a million, quarter million arc furnaces that they are setting up right now. Because that kind of scrap is getting. No, they are already putting in 2, 3 million ton scraps, I mean, electric arc furnaces. Just like what you have in U.S. and Europe and India. Yeah. Got it. Thank you. Thank you very much. Thank you. A reminder to the participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Navin Agrawal from SKP Securities. Please go ahead. Hi, Ravi. Hello. Okay, there are a couple of questions. The proportion of needle coke that's used for graphite electrodes and lithium-ion, can this expand? Because the needle coke to GE ratio has been between 2.25:1. Can this expand for lithium-ion batteries and GEs? No. I'll give you both answers. I mean, the coke that goes to lithium-ion is not the same coke which goes to the graphite industry. The companies who are making needle coke in the world, the four or five companies, for them, these are two different products, produced at two different places. Number one. You said the ratio is 2.25. What was that? Sorry, I didn't get that. The ratio for needle coke to GE is? It's 1:1, as Manish just said. 1:1. Okay. You need one ton of coke to produce one ton of electrodes. Okay. If you can give us some idea on the pricing for the next couple of quarters for graphite electrodes. I know this is something that we normally don't discuss. Okay. We can't give the numbers, but all we can say is that the previous quarter prices were about 15%-20% higher, and the current quarters are also higher. I mean, let's say more or less in the same proportion. Okay. Okay, I'll just come back in case I have another question. Janice, please go ahead, take the other. Sure. Thanks. Reminder to participants, if you have a question, please press star then one. The next question is from the line of[audio distortion] Go ahead. Yeah. Thank you, sir. Sir, I was thinking about this raw material basket. If you could give the breakup between needle coke and other component which constitute the raw material basket for us. Needle coke by far is the largest, and the second largest cost is electrical power. Okay, sir. That is getting in the power and fuel or in the cost of material consumed? Yes. Gulshan, where does? Yes. It's part of power and fuel. Power and fuel goes into, and the cost of material consumed, INR 160 is majority contributed by the needle coke only. No, it's the other raw material also. Not only needle coke. Quality is needle coke. That's what he's saying. Okay. What has been the price trend, sir? As you have seen the 15%-20% increase in the price of electrodes, how have the prices of needle coke behaved? See, these two things go hand in hand. More or less, you see the same kind of an increase. When the electrode prices go up, the needle coke prices also go up, more or less in that same region. Of course, the two bases are very different. Two? Didn't get you. The base level prices are very different when you start from there. Right, sir. Sir, as per our order booking, we are back to back securing the needle coke requirements. Yeah. The spread will be maintained going forward for the coming quarter also. Yes. Coming quarter and the next couple of quarters, yes. It's a very difficult question to answer because you can never match the two. You can imagine we are importing all the raw materials. You're not importing something today that you are going to deliver in September or August. What we are buying today will be received, produced and delivered in October, November, December. It's very difficult to match the two. The prices of coke today can be X, but once we receive it from U.K., Japan, and U.S. and produce electrode and send it back to U.S., Europe, and Japan, it's a matter of four, five months. Obviously, there is a time lag between them. Everybody is taking a risk of that time. Yes, to the extent possible, you want to match. Okay. Sir, we have also seen for this quarter, the employee cost also going up, although on a base of INR 15 crore to now INR 18 crore. What should be the annual trend for it? Yeah. Manish? We did a wage settlement due to which you have seen some increase because a majority of the wage settlement with workers falls in the first year. That is one thing. We have made provisions also for CMD commissions, et cetera. This year we gave increment also. Last year, we did not give any increment because the company was not doing good. Still, if you look at our last five, six year data, it's going to be one of the lowest numbers still this year in 2021/2022. Right. Sir, out of this breakup of investment of INR 1,507 crores, what portion is attributed towards Bhilwara Energy? Sir, any update with the change in policy with the hydroelectricity generation or any change in the stance of government where we can look for divesting this stake or any update or you would like to share? One thing I would like to clearly say over here, the INR 1,500 crore does not include that investment of INR 300 crore that we had with the Bhilwara Energy. This INR 1,500 crore is a complete raising size of HEG that we have invested in a different papers in the debt market. It does not include the investment of INR 350 crore of Bhilwara Energy. All right. Sir, any update on the same, sir, of monetizing that or any change in the policy that we are expecting going forward? Anything material on it? How has been the performance of the power plant there? At the current moment, we are not even thinking about that. It's a great investment. It's a great sector to be in. When the coal prices will keep going up and when the power prices keep going up, and in hydro, as you know, once you have repaid your debt, your cost of production is very marginal. It's a great investment to be in hydro. Sir, currently, what is our ownership in that company? It's 49%. 49%? Yeah. The remaining is being held by? Remaining is held by 5% by International Finance Corporation, and rest of the equity is owned by promoter group, other companies. Right. Okay, sir. Thank you, sir, for answering. One hypothetical question. What it actually takes up to set up this needle coke facility? We have been in this business for such a long time, and what it takes to be integrated in that form to set up needle coke, the type of investment, and the raw material input for the same? If you could dwell on it, that's the last question. You see, the main thing what it takes is the technology. There are only three, four players in the world, and the world has not seen any additional player in the last 40, 50 years. It's exactly like graphite. Anybody can put 1 billion or $2 million investment and put up a graphite plant. The issue is not about the money. Issue is about the availability of technology. HEG was absolutely the last new entrant in the graphite business, let's say 50 years. It's exactly 50 years ago. We came in this business in 1976. It's exactly the same story. I mean, the technology is very scarce, and it is in the hands of only three, four companies. It's not easy to copy that technology. Does it make any kind of a significant sense for you when you are expanding capacity and when the world is moving towards EAF route to have some sort of capacity then in the country with the existing player, so that a win-win situation can be established between the producer and the consumer. Can something in that line be contemplated with the change of stance in the steel production because of this carbon emissions cropping up all across the globe? No. As I said, everybody will be very keen to do that. Every graphite company would be very keen to have backward integration. The question is: where do you get the knowhow from? I'm talking about the existing player, collaborating with the existing player. Have anything carved out that it will improve our metrics going forward, and would be also a win situation for the producer? One of the three, four companies in the world are prepared to even talk about it. That's what I'm saying. Okay. It's like a graphite business. I mean, we are not interested to give this knowhow to anybody else. It's exactly the same story. Correct. Okay. Thank you for all the answers, sir, and thank you for the opening remarks just commenting on the steel industry. Thank you. Thank you. The next question is from the line of [Arvind Mani] from Wellington Management. Please go ahead. Yes, hi. Based on commentary from other companies exporting from India and other markets, shipping seems to be a very big challenge for you in terms of availability as well as high freight rates. How are you dealing with that, and has it kind of impacted your business, or is there a chance of any impact going forward with maybe tighter capacity continuing? See, we continue to face this shortage of containers, I mean, the whole world is grappling with it. It is definitely hurting the export community. To us, at least the value of goods are much higher than the freight we pay. For lower value of goods, it is catastrophic what is happening. The freights to some of the sectors, mainly I would say Americas, the U.S., Canada, Mexico, and Europe, from India, they've increased manifold. Like they have gone two times, three times, there's no stopping where they're going. The rates from India to Southeast Asian countries and Middle East are still subdued. It's a 10%-15% increase quarter-on-quarter. We are struggling with this, we hope. We are talking to shipping lines. They say this situation will last at least until the end of the year, because the trade routes have become completely skewed. There's lot of containers are available between China and U.S., and rest of the world is struggling to get them. It was a coupling of the COVID and the pent-up demand after COVID, that the trade gets skewed. Also, mergers of some major shipping lines have also contributed to this. This is not a normal situation. As the shipping lines say, the freights will eventually. We'll have to bear with this one or two more quarters, they'll start to cool down. That's what we think. Today, yes, it's a huge issue arranging containers even. Do you bill your customers on a FOB or CIF basis? No, the customers have to be given FOB. Just like HEG buys all the raw materials, we calculate what we get on our factory doors. For us, if we are supplying to U.S., I have to go by the market because there are internal suppliers sitting there. If I, let's say, add $200, $300 freight cost onto them, I'll immediately lose. In Europe, they have so many graphite plants. These costs, everything up or down is on us. The advantage is on us. The disadvantage is also on us in exports. For the consumer, it is the landed price at their factory. Understood. Inventory levels at this point in time in, let's say, June, July, August, you find are reasonable of end product? Of end product. Not being evacuated. At our works or in the supply chain or with customers? No, at your company. At the record low levels, I would say. Record low levels of inventory. Less than a month. I mean, the electrodes are just getting made and getting shipped. Thank you very much. Thank you. Thank you. The next question is from the line of Navin Agrawal from SKP Securities. Please go ahead. Apologies, Raviji, for not being clear with my last question. The question was on with regard to the cost price basis. Currently, the needle coke to graphite electrode ratio is about 2.5:1. Going forward, can we expect this to expand or contract? This 2.5:1, I mean, I think, do you mean like needle coke being 30% of our product cost? 30% 35% of our product cost. Is that what you mean you're dividing that 2.5:1? Yes. Historically, this stays there historically this way, that needle coke comprises 30% to 35% of the product cost. Barring this ups and downs, market up and down, which come in between, like we saw in the last six quarters. That's when the balance changes. Otherwise, it stays in a stable market, 30% to 35% is our needle coke cost. Only if there's a deviation, it would be in the short-t erm. Otherwise, more or less it would continue along this line. Yes. It's needle coke, and then the power, and then the other things. Thank you very much, Raviji. Thank you. Ladies and gentlemen, thank you very much. That was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Ravi Jhunjhunwala for his closing remarks. Over to you, sir. Thank you everyone for your serious interest in pursuing with us every quarter. I hope to meet you and to come out with some better results compared to what you are seeing right now, and look forward to seeing you again. Thank you very much. On behalf of SKP Securities, this concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you. Thank you.