Good day, ladies and gentlemen, welcome to the HEG Limited Q4 and FY 2023 Earnings Call, organized by SKP Securities Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the management's opening remarks. For any assistance during the conference call, please turn your operator by pressing star and 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's my pleasure to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call, the leadership team at HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director, and CEO, and Mr. Riju Jhunjhunwala, Vice Chairman, along with their colleagues, Mr. Manish Gulati, Executive Director, and Mr. Gulshan Kumar Sakhuja, CFO. We'll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Over to you, Raviji. Thank you, Navin. Friends, good afternoon, and welcome to our financial results conference call for the fourth quarter and full fiscal year 2022-2023. As per World Steel Association recent report, the global steel industry is poised for a demand rebound this year with a projected growth rate of about 2.3%. Going forward, in 2024, the industry is expected to sustain its growth trajectory with a forecast increase of 1.7%. These projections indicate a positive outlook for the global steel market, signaling opportunities for continued development in the years to come. In the January-March quarter, global crude steel production reached about 462 million tons, representing 0.5% increase compared to the same period of last year. Among the top key 10 steel-producing countries, only two, which is China and India, saw an increase of steel production in January, March over the same period last year. While China's production grew by 7.4%, India also increased by about 3%. On the other hand, other large steel-producing countries like Japan, U.S., Russia, South Korea, Brazil, and Turkey, all experienced a decline during this period. However, on a medium to long-term basis, we see a big positive for our products as the entire world continues to focus on decarbonization and reduction of greenhouse gas emissions. As the World Steel Association, again, electric arc furnace share of steel production, ex-China, has gone up from 44% in 2015 to 49% in 2022, which is a substantial increase. Steel produced by electric arc furnace emits one-fourth carbon as compared to same steel produced by the blast furnaces. We have seen several announcements by large steel companies, especially in the U.S. and Western Europe, announcing new greenfield capacities for steel production only through electric arc furnace. Out of such announcements of about 25 million tons coming from U.S. alone, which already produces 70% of its steels through electric arc furnace. Out of this 25 million tons, 7 million tons has already come on stream, and the balance, 18 million tons, would be operational in the next 2 years, adding to further electrode demand. Similar new electric arc furnace capacities have also been announced by steel companies in EU, replacing about 16 million tons capacities from blast furnace to electric arc furnace. All this augurs well for the graphite industry. This is a very encouraging sign, especially for us at HEG, as except ours, no new capacities in electrode industry have been announced by any existing graphite player. While we are more or less ready with our current expansion from 80,000 tons to 100,000 tons, in the next couple of weeks, trial runs are already at the final stage. Out of five operations which go into electrode making, four have been already operating for the past couple of months, the last one is more or less at the final stage of operation. It's not a matter of months now, it's a matter of weeks. It could be as early as next week or at the most, another 2, 3 weeks. Similarly, China, which only produced 5% of its steel through electric arc furnace till about 5 years ago, is currently at a level of 12% and is aiming to reach 20% in the next few years. We believe electric arc furnace will grow at a CAGR of about 3% in the next decade, which would straight away translate into a substantial increase in electrode demand. In the short term, the outlook of the steel industry appears to be bearish. Steel demand is still being impacted by the fear of global recession, but the medium to long-term growth path, especially for the electric arc furnace industry, to which we cater, is very clear. In In the current year, due to current geopolitical situation, steel production is likely to be stagnant, which might impact the demand of electrodes. We maintain a fairly strong and unwavering belief in the long-term growth potential of the electrode industry, particularly due to the ongoing and serious decarbonization efforts by major steelmaking countries in the Western world. We at HEG have been operating the single largest plant under one roof in the world, with a capacity of 80,000 tons for a long time now, and with our expansion to 100,000 tons very soon going to be in operation, we are in a very good position to take advantage of all the growth and demand for the electrodes, as I just spoke about. This expansion showcases our unwavering dedication to technological innovation, placing us at the forefront of the industry with some of the best and latest equipment and technologies we have put under one roof. We look forward to the successful completion of this project and enhanced capabilities, cost, as well as quality and cost competitiveness, which it will bring to our operations. Our extensive global market reach, which we have diligently cultivated over the past 25 years, enables us to export two-thirds of our production to more than 35 countries. This long-standing presence in the international markets further strengthens our confidence in HEG's ability to thrive and seize opportunities in the electrode industry, which is waiting for us in the next 3 years. Now, about our new subsidiary, TACC. Our new project for graphite anode is progressing well, and we are just about to start our pilot plant, which will facilitate trials, et cetera. The location has been decided, the land acquisition is under process, and we expect to complete the first phase of the project to make 10,000 tons of anode by mid-2025, exactly 2 years from now. The fourth quarter and full year fiscal 2022-2023 have been satisfying for us. We have achieved strong financial results. Our capacity utilization has been amongst the highest in the world, driven by our commitment to innovation, customer satisfaction and operations efficiency. We remain confident in our ability to navigate challenges and seize opportunities to create long-term value for our shareholders. Friends, I pass on the floor to our CFO, Gulshan, who will take us through the financial figures. Following that, our Vice Chairman Riju and Executive Director Manish and I will be delighted to address any queries and questions that you may have regarding electrodes and graphite anode. Thank you. 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 year ending 31st March 2023. For the year ended 31st March 2023, HEG recorded revenue from operations of INR 2,467 crores as against INR 2,201 crores in the previous financial year. The revenue for the fourth quarter of FY 2023 was INR 617 crore, as against INR 673 crore in the corresponding quarter of previous FY. During the year ended 31st March 2023, the company delivered an EBITDA of INR 729 crores, as against INR 607 crores in the previous financial year. The company, on a standalone basis, recorded a net profit after tax of INR 456 crore in FY 2023, as against INR 391 crore in the previous financial year. On a consolidated basis, the net profit after tax is INR 532 crores in the FY 2023, as against INR 431 in the FY 2022. The company is long-term debt-free and has a treasury size of nearly INR 1,000 crores as on 31st March 2023. The board of directors has recommended a 425% of final dividend, that is INR 42.50 per equity share of the face value of INR 10 each for the financial year 2022-2023, subject to the approval of shareholder at the ensuing AGM. To take up more questions from the participants, the detailed presentation has been uploaded on the company's website and on the stock exchange. Now, we would like to address any questions or queries you have in your mind. Thank you. Over to Navin. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Our participants are requested to use handsets when asking a question and limit themselves to two questions per participant. You may join the queue again if time permitting. We will take your follow-up questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vipul Srivastava from Quest Capital. Please go ahead. Hi. My question was regarding the EAF plants coming up in U.S. Based on the annual reports, currently, U.S. contributes 10% to our sales. Can we expect that number to increase in coming years? You see, in the last four years, if you have followed our data, I mean, obviously, a lot of this data is not public. We have more or less increased our sales in U.S. by at least 2.5-3 times. We always had this in mind, as I said in my opening remarks. U.S. produces 70-72% of its total steel through electric arc furnace, and U.S. is the single largest producer of electric arc furnace steel, and obviously, thereby, the single largest consumer of electrode. We have been focusing on U.S. for a long time, and, as I said, our, we've increased our sales substantially in the last 3-4 years. Oh, got it, got it. My second question was regarding the anode CapEx, which HEG is doing. Currently, there are many companies in the U.S. which are working on silicon anode batteries, which are completely free of graphite. Does that pose a substantial risk to our business? Because and some companies are also commercializing it, so if that happens, that could be a big risk. What are your views on that? Riju, will you take that question? Yeah. Riju? Can you repeat the question again once exactly, please? Thank you. Yeah. What I was saying was that there are companies in U.S. which are working on silicon anode batteries. Basically, these anodes are completely free of graphite and entirely made of silicon. If that happens and commercialization occurs, that will pose a substantial business risk to our CapEx, right, which we are doing. Any views on that? Basically, I mean, what you are saying is partially correct. There is absolutely no company, I believe, today, which is working on 100% silicon as a replacement for anodes. For Enphase Energy, they have also commercialized it. There are a lot of projects happening, but still, I think for the next 10 to 15 years, graphite anode will be the primary distinct driver for the anode part in terms of any lithium-ion battery. We are targeting really four business segments. EV is only one business segment that we are targeting for the lithium-ion battery. The second, which will require more amount of graphite per ton, is the BESS space, the energy storage space. Over there, again, the standardized graphite use is there for the anode side. The third also, which is going to be a big business potential for our new capacity, is the green hydrogen business. Wherever there is an electrolyzer in green hydrogen business, you need this bipolar plates, which are made out of anode powder itself. As, you know, as far as the market goes, as far as the cell manufacturing goes, there is absolutely huge capacity, and people today are talking about 25%, 10% mixing of silicon. All these technologies are evolving. The basic technology will remain that graphite is an integral part of the anode side, and in all these four business segments. Really, capacity-wise, if you ask, then, you know, looking at 10,000 tons is just a conservative start. We can really go up to a much bigger level, especially if we have all the support that we need today as HEG from the state government and from the central government. Right. Right. Got it. One final question from the graphite business. GrafTech did a console, and in there they told that they were facing issues as far as U.S. steel companies are concerned, related to inventory. U.S. steel companies are having very high inventories. What is HEG's assessment on the cloud? Do we expect it to improve in coming quarters, or will it sustain? Any views on that? No. You see, I would not like to comment on what my competitors have said. As I said, we have been focusing on U.S. for a very long time, and our sales have been increasing year after year, and they have gone up by, like, two and a half, three times in the last five years. We continue to expand our sales. Thanks, thanks. Thank you. Any participants who wish to ask a question at this time, may please press star and one. A reminder to our participants, please press star and one to ask a question. Next question is from the line of Tejrang Larna from Suniti Securities. Please go ahead. If you could make us understand that during the before the COVID, China announced that they will enter aggressively into conversion of blast furnaces into electric arc furnace, and the progression was pretty slow, and a lot of electrode capacity that has come up in China, even before EAF capacities getting materialized. So in last 2 years, we are also seeing a lot of dumping that is coming from China in the global market. So what is your sense when you are saying that they will progressively grow from 11%-12% to almost 20% over the next few years, if they have already guided How do you see, you know, the scenario from China's side in terms of electrodes that they are dumping in the world market? Whether that has slowed, or when do you expect that, you know, they'll progressively focus on their domestic market rather than the export market per se? That will be really helpful for us to understand. Okay. I'll. There are two, three things I'd like to explain here. If you remember 2017, 2018, when suddenly the export, when suddenly the world market for electrode became absolutely crazy, and the demand and everything suddenly boomed, it was on the basis that the Chinese government had announced their intention that their electric arc furnace capacity was only 5%, and they said they would like to increase it to 20% in 5 years. To put it into perspective, China produces close to 53%-54% of the total world steel. That part of the world, which produced 53%-54% of the total world steel, was only producing 5% through electric arc furnace. Everybody else except China, which produced 47% of the world's steel, was doing about 43%, 44%, 45% through electric arc furnace. Putting that into perspective, the demand for electrode in China is going to boom. The 5% has already become 12 in 3, 4 years' time, which is already two and a half times of what they were doing only 5 years ago. From 12, now they are still on the path to go to 20. A couple of things happened. As soon as those announcements were made, the existing graphite companies in China obviously had to increase capacity. They were seeing an increase in electrode demand of 4 times, from 5% to 20%. At the same time, that 5%-20%, I mean, it was a very, very difficult thing to achieve in just 4, 5 years. It is at 12%. That continuously grows year after year because China is also part of the world, and China is also seeing the advantages of decarbonization, and that is where the electric arc furnaces came in. Secondly, on the technology side, while we do compete with China on about 25% of our production, which is the non-UHP, but on the balance, 65%-70%, which is the ultra-high power, we are still far ahead of China as far as the quality is concerned. That will continue for a long time. The gap between the Chinese quality and our quality, the technology that the rest of the world has and which China doesn't have, will continue for quite a long time. We don't see any problem at all. Just again, to repeat what I just said in my opening remarks, we have not seen the kind of growth in the last 30, 40 years in capacities of electric arc furnace. At least I have not seen in the last 35, 40 years, new capacities to the tune of 40, 50 million tons being added on electric arc furnace. Again, to put into perspective, a very simple thumb rule, for 1 million tons of new electric arc furnace, you need about $1 billion of investment. If we are talking about 50, 55 million tons, which have already been announced between Europe and America, all in the last about 12 to 18 months, we are talking about $50 billion to $ 55 billion of investment, which even America and Europe have not seen in this sector for a very long time. In that context, our expansion, which is now more or less on stream, it's a matter of another week, 10 days, 2 weeks, is very timely. We may have to struggle for the next 6 months, may have to struggle for next 12 months, maybe 15 months, but except us, there is no new capacities which have been announced. We have increased our capacity of the plant from 10,000 tons to 100,000 tons in a matter of last 20-25 years. We have done it 3-4 times in the past 20 years. With all the knowledge and all the information about which equipment to purchase, which is the best supplier for that, any brownfield expansion will take minimum 2.5-3 years to anybody. The equipment suppliers take 2 years to deliver equipment. Even if somebody was to announce, even if there's an existing company which announces an expansion at their existing site, it will take at least 2.5-3 years to build that. We are very bullish because of whatever I just said. Our expansion is extremely timely, and we are in a great position to take advantage of whatever new demand is occurring, and 7-8 million tons of new electric arc furnace has already been established in America. I just said, in the next 2 years, this 7 is going to become 20-25 million tons. If there are new capacities to the tune of 20-25 million tons of electric arc furnace, it easily translates into an additional demand of about 40,000 tons. Our expansion is only 20,000 tons. Got it. Yeah, that was very insightful, sir. Sir, this, if, you know, my understanding is right, of late, we have seen good correction in the needle coke prices as well, from roughly $2,300 to $1,800. How it is going to impact our margins, you know, broadly say in next maybe 2 or 3 quarters, per se, if you could guide us, it will be helpful? You see, still, as electrode industry is linked to electric arc furnace, needle coke industry is directly related to graphite industry. Just like as I said, if the electric arc furnace increases its capacity, the demand of electrode grows. Exactly the same thing, if the graphite electrode industry does well and the demand for electrode increases, needle coke demand increases. It's a matter of, we are very directly connected. We saw four years ago when the electrode prices went crazy, the obviously, the needle coke prices also went crazy. It is, it's a relationship of supplier and customer. For them, graphite industry is as important as for us, electric arc furnaces. Obviously, if the electrode industry does extremely well and the prices start going up, it is obvious the needle coke prices will also keep going up. Sir, needle coke has also got some connection to do with this EV also, not those, demand mixes and all? Not much. Not really? I mean, yeah, it is. I mean, a part of that is what you are saying is absolutely right. Like, I mean, to tell you in a different way, I mean, for us, needle coke is a lifeline. If we don't have needle coke, we can't produce electrode, the dry power electrode. It's not the case in battery. It is not a lifeline from there for them. They may use needle coke if it is available at a particular price, but if the needle coke is not available at a particular price, they have several other options. Needle coke is one of the many raw materials which they have an option, whereas for us, we have no option. If we don't have needle coke, we don't have electrode. For us, sir, if I understand it right, the volume growth, you know, that is the one thing which you are anyway ascribing, that is going to go up, the utilization levels are going to go up because of the additional demand which is going to be created globally. That's one. Second is this spread that you maintain between electrodes and this needle coke. You know, recently we have seen the needle coke prices have corrected. Will that have some impact on our margins, you know, immediately, maybe, coming into this quarter, maybe next quarter? Oh, you see, as I said, it's very, very directly connected. If the electrode prices drop, the needle coke prices will also drop. Okay. When it comes to margin, I mean, the margin gets corrected because of reduction or increase in the needle coke price. We saw this very much in 2018, 2017, when the electrode prices went up by very crazy numbers. The needle coke prices also went up in the similar manner, but the margin for electrode, in fact, went up, it wouldn't go down. Okay, got it. Got it. Thank you very much, sir, and all the very best. Thank you. Thank you. A reminder to participants, please press star and one to ask a question. The next question is from the line of Avik Shah from MK Ventures. Please go ahead. Yeah, hello sir. Good afternoon. Yeah, please. Sir, what has been the capacity utilization in the last quarter in FY 2023? Manish, will you take these operational questions? Last quarter, it is about, I mean, in high seventies, above mid-seventies, I would say. That has been the capacity utilization. Okay. Sir, with the new capacity coming in, what will be, like, our capacity utilization going ahead in FY 2024? Like, market will be able to absorb the excess supply, or will we see any margin contractions because of the excess supply? I mean, see, then, of course, we add capacity. I mean, right now, of course, this first quarter has almost gone in April to June. In the next few weeks when we are ready, we will start counting, calling ourselves 100,000 tons from, let's say, maybe July onwards. Capacity utilization for the whole year, here we are aiming, or we anticipate the additional demand to come in towards the later half of the year. That's what everybody says, and everybody thinks that 2024, we should see the return of demand. We internally think that, in this year, we, if we count ourselves as 100,000 tons, let's say for the whole year, we should be maybe around 70 or something. It's just our internal thing. That's our aim, because we expect the market to start to come back towards the later half of the year or later our last quarter, that's March 2024. Okay. Sir, are we, like, planning to be aggressive with the excess capacity, or we'll try to maintain our margins going ahead? I mean, of course, we're not going to go to the level that, I mean, we will just work with the margins, of course. We, our effort will be both in a balanced way, that we give time for the market to absorb the tonnage, and at the same time, taking care of the margins as well. We'll not being aggressive either ways. We'll just take a very balanced, because market would need some time for the additional capacity to get absorbed. Right. We are not very hasty about it. Suppose we have 100,000 tons, so we are aiming to sell all of that 100,000 tons. We'd rather go gradually, slowly, and wait for the demand to rise and then the rest will get naturally absorbed. Right. Right. Regarding the new success which has been announced in anodes, what kind of technology, collaboration or expertise will we need? Will it be in-house or are we looking at some partnerships? I'll have Aman share the answers. Most of the technology is pretty standard, the most important technology as far as that this is concerned, which is graphitizing the product. That is something that companies only like HEG and some other companies present in the graphite electrode space can have. That particular thing of graphitizing anode is probably more complicated than graphitizing our graphite electrode itself. That, I mean, with our rich experience of the last 40 years in that particular segment, we have a huge competitive advantage as far as that particular side of technology is concerned. Rest of the technology is pretty standard, we are trying to match the kind of, you know, best in the world along with the best in cost. It will be a mixed hybrid. It won't be like 1 EPC contract. It will be a hybrid mix of Indian machinery, some Chinese machinery, some European ones, and then the electric furnaces, which we will develop ourselves in India with HEG partnerships inside there. Okay. What kind of revenue and margins are we expecting from the anode business? I mean, we can't really talk about the revenue and margins, but let's say 10,000 ton plant, even at an average of around $9,000-$10,000 per ton should be your revenue. The margins, really, 2 years down the line, what they will be, what they won't be, given whatever the raw material prices is, competition is, demand is, everything. We have assumed a reasonable, at least a 25% contribution margin in this particular business. Okay, sir. What has been the trend in the 2 months, regarding the prices of graphite electrodes and needle? Like, how have been they moving, and how do you see them in the next quarter? The price is under pressure, which is very natural for it to be in this year of 2023. There are some marginal correction in needle prices also and the electrode. Going forward, since needle contracts are being done in quarter by quarter, and electrodes are also being still, let's say, quarter by quarter or maximum, let's say, 6 months, we hope and we expect maybe needle suppliers should do some more correction. They will be corrected a bit. More is expected from them. Okay, sir. Cool. Thank you so much, sir. Thank you. Thank you. Our next question is a follow-up question from line of Nitin Srivastava from Inside Capital. Please go ahead. Yeah. Thanks for letting me ask the question again. What I wanted to know was that, as far as the European market is concerned, Like, I just wanted a ballpark figure. How much does Europe contribute to our, volume, sales volume? As a total of our sales, it would be in, let's say, about 9%-10% or something. Right. There was some issue in previous quarters regarding Turkey. They were facing some volume issues. Anything on that line, any news, or how is it faring right now? It's definitely better than the past quarters, because Turkey is one country where very flexible on steel making, and they're quick to reduce, they're quick to come. Turkey has seen some positive signs and rise in production in Turkey also. Okay. One last question: As far as the needle contracts are concerned, there was a time when we were signing six-month contracts. Like, how is the situation now? Is it six months or three months? How is it now? It continues to be three months still. Okay. Okay. Thank you. Thank you. Thank you. A reminder to our participants, please press star and one to ask a question. Aman, I guess no more questions. Yes. Thank you very much. That was the last question in queue. There are no further questions, I would now like to hand over the conference to Mr. Manish Gulati for closing remarks. Thank you, and over to you, Manish Ji. Friends, thanks for listening to our call, thanks for attending the call. We are very optimistic about our industry. There is no doubt about it. We can see things happening on the ground. We are seeing new and new electric arc furnaces coming up, we are very positive about HEG putting a 100,000 ton plant at one location, which is one of the most cost-effective plants in the world. We hope that from 2024 onwards, we'll see a rebound in demand, we'll be very much ready for that. Thank you so much, we look forward to receiving you again. Thank you, Ravi Ji. Thank you. Thank you. Thank you, Manish Ji. Thank you, Gulshan. On behalf of SKP Securities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you, and have a nice day. Thank you.