Good day, ladies and gentlemen. Welcome to the HEG Limited's Q1 FY24 earnings conference call, organized by SKP Securities Limited. 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 management's opening remarks. Should you need assistance during the conference call, please signal an operator by pressing Star and then 0 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, and 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 with 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 colleague, 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. Thank you, and over to you, Ravi Ji. Thank you, Navin. Friends, good afternoon, and welcome to our financial results conference call for the Q1 of fiscal year 2023, 2024. As per World Steel Association's data, steel production in the first six months of the calendar year 2023, that is January, June, was lowered by about 4% at 408 million tons, as against 425 million tons in the first half of 2022. It is expected to remain subdued in the rest of the next six months as well. However, World Steel Association outlook projects that steel demand would rebound in the next few quarters and is likely to increase by about 4% in 2024. It has been known for quite some time that steel industry alone accounts for about 7% of the global carbon emissions in the world, and it also accounts for about 23% of industrial carbon emissions. The Western world, especially the U.S. and the Western Europe, are making serious efforts to decarbonize the steel industry in the near future. Steel produced through blast furnace emits about 4 times more carbon than the same steel produced through the electric arc furnace. In this backdrop, Western world steel production through electric arc furnace, minus China, which used to be about 44% in 2015, has now already reached about 50% in 2022, going up by about 78 million tons from 357 million in 2015 to 435 million tons in 2022. Several steel bodies in the world expect electric arc furnace production, minus China, to further increase by about 100 million tons by 2030, taking the electric arc furnace production from its current level of 435 million tons to 535 million tons. Which means an additional demand of graphite electrode to the extent of anywhere in the region of 160,000-190,000 tons. Similarly, OPEC... I'm sorry. Similarly, OECD do expect new, new capacities of EAF, minus China, of about 53 million tons to be operational by 2026, and another about 45 million tons, which mean, by conversions of blast furnaces into electric arc furnaces by 2030. This again matches with the WSA figure of about 100 million tons of new electric arc furnaces coming into operation in the next 6-7 years. This would mean a substantial increase in demand of our products all over the world, and since we have been exporting about two-thirds of our production to some 30+ countries for a very long time, we are well set to meet this demand from HEG. We are closely tracking about 60 million tons of new electric arc furnace capacities between Europe, Europe and US, of which about 7 million tons have already started, and another 18 million tons are likely to be in operation in the next 2 years, and the rest between 2026 and 2029-30. In this backdrop, our timely decision to expand our capacity by about 20,000 tons per annum is likely to yield good results. While we remain solidly upbeat about the continuous growth of electric arc furnace steel production in the coming decade, resulting into a continuous rise in electrode demand, at present, we are seeing a period of subdued steel production the world over due to several global factors, which all of us are aware, which is likely to continue through the end of 2023, resulting into subdued demand for our products for the next few quarters. Now turning to China. China, which only produced about 5% of its steel through electric arc furnaces till about 5 years ago, is currently at a level of 12%, and is aiming to reach 20% by 2025. We believe electric arc furnace will grow at a CAGR of about 3-3.5% in the next decade, which will directly translate into a substantial increase in graphite electrode demand. All this sounds very exciting for us at HEG, as no new capacities in the electrode industry have been announced by any other graphite company in the Western world. Now, a word about our expansion. Production of graphite electrode s, as you know, is a long process which entails 5 different processes. 4 of these are already in operations for last few months, and the last one is under trial and is likely to go on stream fairly soon. In our expansion, we have used some of the best and most modern equipments and technologies, which we believe will take us to the next level of enhanced capabilities in terms of quality as well as cost competitiveness. We at HEG have been operating the world's largest plant under one roof, with a capacity of 80,000 tons for a long time. With our expansion to 100,000 tons very soon going to be operational, we are in a strong position to take advantage of the growth in demand of our products. Now, a couple of words about our new subsidiary, TADS. Our new project of graphite anodes is progressing well, and we have started our pilot plant, which will facilitate trials. The land acquisition for this project is already achieved, and we expect to complete the Phase 1 of the project to make about 10,000 tons of anodes by mid-2025. Friends, in conclusion, our Q1, 2023, 2024, has been fairly satisfactory given the very, very tough market conditions. The next 2, 3 quarters may see margins coming under some pressure, but we are fully confident of the demand coming back from 2024 onwards, and we'll take full advantage of our expanded capacities and competitive costs. We have all the technological capabilities, operational efficiencies, and market reach to take our company forward and to succeed and thrive in all emerging situations to create long-term value for our shareholders. With these words, I'll now pass the floor to our CFO, Gulshan, who will take us through the financial figures. Following that, Riju, our Vice Chairman, Manish, our Executive Director, and Gulshan will all be very delighted to address any queries you may have regarding electrodes and graphite anodes. Thanks, and over to Gulshan now. Thank you, sir. Good afternoon, sir. I will now briefly take you through the company's operating and financial performance for the quarter ended June, 30th June, 2023. For the quarter ended 30th June, 2023, HEG recorded revenue from operations of INR 671 crore, as against INR 722 crore in a corresponding quarter of the previous financial year. During the quarter ended 30th June, 2023, the company delivered EBITDA of INR 178 crore, as against INR 205 crore in the corresponding quarter of the previous year. The company, on a standalone basis, recorded a net profit after tax of INR 98 crore in Q1 FY24, as against INR 134 crore in the corresponding quarter of the previous year. On a consolidated basis, the net profit after tax is INR 139 crore in Q1 FY24, as against INR 159 crore in the corresponding quarter of the previous FY. The company is long-term debt free and had a treasury size of nearly INR 980 crore as on June 30, 2023. To take out more questions from the participants, the detailed presentation have been uploaded on the company's website and on the stock exchange. We would like to address any question or queries you have in your mind. Thank you. Over to Navin. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question and limit themselves to two questions. You may join the queue again, time permitting. We will take up 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 Amol Rao from Kotak Capital. Please go ahead. Good afternoon, sir. Sir, just, a clarification, sir. I thought you were expecting to commission, our capacity, in June, at the end of June. A slight delay, understandable, but sir, what is the technicality due to which this delay is happening, sir? You see, as I said, out of five operations, four have been in operation, so we are getting the additional tonnages from those four processes. Obviously, if the, if the fifth one is not yet commissioned, to that extent we don't have, I can't say that we can produce 100,000 tons as of today. Okay. There has been a, there has been a very, very small breakdown of a very small piece, which is, which is being replaced, and it's coming from Bangalore, and it's a matter of another maximum three to four weeks. Okay. By end of next month, we should be in business. I, I guess there's no harm or foul, because anyway the markets are a little sluggish, so... Yeah, exactly. No hurry to come in. Exactly. Okay, great. Exactly. Sir, one, one more question, and this is more on the business practice. I, I, I realized that you were sitting on something like around INR 800 crore of inventory last quarter when we spoke, sir, and the business decision is completely fine. What, what is the call here on, sir? Do we see that demand still intact for which we had stocked up our finished goods inventory? Has there been a slight change in timeline for that? If it is, I mean, by how much it, it is? Manish, Manish, would you take that question? Yeah. Yeah, I, I'll take that, sir. See, about inventory, we are not very much off. See, normally, in our business, we maintain one, 1.5 months inventory, which is now 2.5 months. We don't see any big issue in liquidating that. Rather, looking at the impending opportunity, we want to have this in our hand, so that when the market starts picking up, we will have some additional products to sell in the market. That inventory is not something like an unmanageable type of thing. As I said, from one to 1.5 months of normal inventory, it's 2.5. Just to have one other experiment. Basically, the outlook remains the same as last quarter, that we want to be stocked with finished goods material whenever the demand materializes, and the market is short. Is that correct? That understanding remains intact, right? Absolutely. You see, in our processor, it takes those, takes 45 days to make, and the connecting phase, which we call metal, takes 5 months. It always happens. Whenever there's, there's a downside calendar, the market picks up. It's time to make that product. We are keeping that additional inventory knowingly, consciously, waiting for the markets to turn around. Fair enough, sir. Sir, I'm sorry, I know I'm supposed to ask only two questions, but one more question, sir, on the spread. Sir, are needle cokes as per your, your analysis, that needle coke and graphite electrode spread that we usually look at on a rolling three-month, six-month, twelve-month basis, six months usually for us, is, is that still more or less intact? More or less, or has there been some contraction, sir? Because of the, if I were to sell the electrode today at the price which we are getting orders, and the needle coke also bought today, we can say the spread is intact. We are. When the price is coming down for both electrodes and needle coke, needle coke takes longer to absorb. I mean, it takes longer to, you know, get price to take effect just because of inventories and our processing cycle. That way, I would say that, it is, the, the spread is under pressure. Not too much, but yes, it is under marginal pressure, because electrode price, as we book quarter by quarter, are, are, when they fall, needle coke takes 2 quarters to catch up with that. Correct, sir. Correct. Thank you, sir. Thank you for that clarification, sir. Wish you all the best, sir. Thank you. The next question is from the line of Pranay Khandelwal from Alpha Invesco. Please go ahead. Hi, thank you for the opportunity. Fairly new to the company, and it seems like a little bit late. I wanted to understand the demand-supply scenario right now, of needle coke, as it's a critical raw material for our operation, so pricing, demand and supply of petroleum needle coke. Thank you. Can I, sir? Yeah, yeah, Manish. Sorry. Yeah, yeah. You see with our, if, if you have been tracking our peer groups, nobody's running at full capacity. Somebody's running at 45, 50, you know, globally. There is abundant availability of needle coke as of now. What we expect from our needle coke suppliers is to, you know, help us through with better pricing so that we are able to, you know, go through this time, with, with decent spread. As well, if your question was for availability, today it is in abundance. Okay. Can you just give me the numbers, if it's possible, just the industry supply, ex of China and from China of needle coke? Yeah, that is very standard actually, is the, the capacities have not changed for many years. It's, it's about, I would say six, six and a, a half, 650,000. 650,000 should be a close number of their capacities across China. Okay, INR 650 from rest of the world. Yeah. From China, how is that, how much in China? China has lots kind of cokes, pitch cokes, the petroleum cokes, and there are mainly pitch-based, coal-based cokes. That I cannot comment, but it must be a, a large number. Just to add here, I mean, we hardly, we hardly import from China. It's not the same quality which you get from Japan or U.S. In our case, basically, there are, in this business, there are only three, four producers of needle coke, quality producers, and those-- and these are all based out of Europe, U.S., and Japan. Oh, all right. Do, do we have any information of any new suppliers that might be coming up in Japan or, U.S. or anything? No. I mean, I, I think the last, the last new entrant in this business in the Western world probably is about 70, 75 years old. In the last 60, 70, 75 years, I don't think there has been a new entrant anywhere in the world. Apart from this new entrant, any capacity expansion from the existing players that, that is there? They keep adding a little bit here and there. For them, it's, it's one of the by-products. Depending upon the demand, they keep increasing or decreasing and replace it by something else. It's part of a refinery process. See, I believe we must source it on contract, so what might be our average tenure? It again depends on the market. I mean, these days it's quarterly. Okay. We do it quarterly. All right. It basically has to match with our selling cycle. I mean, obviously, if our selling cycle in current market conditions is quarterly, we can't buy coke for six months or nine months. We don't know the price of electrode after three months, so it's not practical to buy coke for more than three months. Do we have any sense of the capacity utilization these players might have in petroleum coke? It's, it's, as I, as I said, it's exactly connected to the graphite industry. If we are at 60%-70%, they will ideally be 60%-70%. Okay. Does that affect our contracts in any way? Like, if the capacity utilization is low or high, is, is there any impact? Is, is there any restructuring in our contracts like that? No, not at all. Actually, you see, as the chairman said, that since all of us, the, in the peer group, the big players, they're all working at around 60%, the, the needle coke supplier also has to align with that. They cannot keep producing and adding to their inventory. They are also at a level of 60%. Since we are negotiating with them of including contracts quarter by quarter, so there is no change in that sense related to capacity utilization. No. Listen, I mean, just to, just to clarify in simple words, there are only five, six players in the graphite industry. There are only four or five players in the needle coke industry. Everything works in tandem. It's not a, it's not a commodity where there are hundreds of customers or there are hundreds of suppliers. Everybody works in tandem with each other. Okay. All right, that would be all. Thank you. Thank you. The next question is from the line of Abdul Kader Raja from Ratnabali. Please go ahead. Yeah, good afternoon, sir. Thank you for the opportunity. Just two questions. First, sir, was there any inventory loss in this quarter? My second question is, sir, if you could just please repeat, like, what is the current status on the graphite anode project? Like, are there any technology partners with this? first, first question, I mean, Manish, you can answer. Second, Riavi will take up. Sir, I didn't, I didn't hear the first question very well. Can you... Abdul, can you please repeat it for me? Yeah. Sir, like, I just wanted to know, is there any, like, inventory loss, in this quarter? Oh, no, no, not at all. You've seen our results. They're pretty good results. There's no inventory loss. Our pricing is higher than the cost of goods sold, so there was no question of taking any inventory loss, in this Q1 or even, Q2. Okay, sir. Sir, can you also, like- Yeah, you had a second question about anode. Anode. Yes, sir. Riju? Yeah. Sir, I just wanted to know, like, the current status on our anode project, sir, and, like, are there any technology partners with us? We are, we more or less selected all the machines that we will be importing. Obviously all the handholding for the plant will be done by them. There's not one technology partner, because we're actually sourcing the machines from four or five different companies, and these are large companies in China. The current status is that we've got the lands with us. It was maybe 100 acres of land in one area. All the clear- We've now applied for all the clearances, like environmental clearance, et cetera. Right now, we are still quite hopeful of being on target of first around the Q1 of 2025 for our first phase of production. Okay. That is great, sir. Thank you so much, sir. I'll come back to you. Thank you. We have the next question from the line of Ajit from Nirmal Bang Securities LLP. Please go ahead. Hi, sir. Am I audible? Yeah, yeah, you are. Yeah. Thank you so much, sir. Sir, I just have 2 questions. The first one is, sir, what is our strategic development towards energy storage solutions in medium to long term? The second question is, sir, what is our approximate replacement cost of our assets? That's it. Replacement cost of? of the assets? You, you mean the current capacity of about 100,000 tons? Yeah. See, I can give you a very, very, very rough estimate, because if you have been tracking our industry, you, you will probably know that ours is the last new greenfield plant put anywhere in the world, minus China. We have been expanding from 10,000 tons to 100,000 tons. Only based on that experience, and our last experience is about 20,000 tons, where we've spent about INR 1,200 crore. If you just multiply it by maybe 5 or 6, probably anywhere between INR 6,000-8,000 crore, that will be my very, very rough. Again, it's not, it's not going to be as accurate, because ours was a brownfield expansion, and the new, new greenfield plant is a, is a totally different space. I'm not even sure that anybody will put up a 100,000-ton plant to start with. It's a fairly complicated technology, and I'm sure nobody is going to take a risk of putting up a 100,000-ton plant. Maybe the smallest plant viable will be like 30,000-40,000 tons, and probably it will cost somewhere in the region of INR 5,000-6,000 crore. Okay, sir. Got you. Sir, the first question, which was on towards energy storage solutions, like, what are our strategies and what is there any development in that, in medium to long term? Riju? HEG is not doing participating in the energy storage solution. That we are doing from our different company, Bhilwara Energy, in which HEG has a 49% stake, and there the things are going fairly as per target. We are actively working on 4 different projects, totaling around INR 120 crore, which could close by the end of this financial year. And as we are seeing more and more traction in that, we are, means we are on track to be around INR 200 crore of projects in this particular year. No, sir, why this question was that, in our annual report we have mentioned about there is one slide about powering the e-mobility drive. In that, leveraging our expertise in graphite technology and all these things. Just for that reason, I was asking the question. Yeah. Okay. Okay. Any development in this? Within HEG, we are not doing anything on energy storage, because over here we already have our energy coming from the state government. Outside of HEG, yes, we are working on different projects on energy storage. Oh, see, I think, it's acting for, in our annual report, the page which you are referring to, powering the E-mobility drive, that is for our new subsidiary, TADS, in which we will be making graphite anode powder, which is one of the component which goes into cell battery, and those cells goes into batteries, which goes into each. You're referring to that page, and this is the answer, that we'll be making graphite anode powder from the new subsidiary. It's not an HEG making graphite like so. Okay. The powder, sir, I missed your voice between. The graphite, anode powder will be used in? Cells. lithium-ion batteries. Yeah, lithium-ion cells. Okay. Okay, sir. Thank you so much. Yeah. Thank you. That is a project which, Riju just explained, should be in operation by, by second half of, 2025. Okay, sir. Thank you so much. Yeah. Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Deep Mehta from Bank of India Mutual Fund. Please go ahead. Hello, sir. Thank you for the opportunity. Two questions from me. Hello. Hello? Am I audio? Yeah, yeah, go ahead. Please. Yeah, yeah. Yeah. First question: What was our capacity utilization for Q1, and how should we look at it for the year ahead? Manish? For Q1, it was close to 90. High 80 and closer to 90 for Q1. On 80,000 capacity? On 80,000 capacity. For full financial year, what are we expecting? See, the balance, the 2 quarters of Q3, Q4, as Chairman was saying in his... They're looking with, you know, subdued demand. I don't know where we'll finally land up with. Maybe around, if, if you take this, our capacity, original capacity, it should be around 80%-85% of 80,000 tons. Sure, sir, this is very helpful. My second question is regarding our needle coke as a raw material. Recently, Reliance Industries have announced in their annual report that they have developed a technology for manufacturing needle coke. Is this needle coke same as what we use in our plant, and can it help us in securing our raw material supplies? See, the have been, trying this, have also spoke to us in the past also, and also Indian Oil has been trying. We will see what eventually it's, they need they would need technology from somewhere. We'll see what kind of product they eventually come with and what is whether, whether that's suitable to make ultra high power grade or not. That remains to be seen as it comes. Okay. As of now, we don't have very clear visibility on usage of that product? No. Okay. That's all from me. Thank you very much. Thank you. The next question is from the line of Pratim Roy from B&K Securities. Please go ahead. Yeah, hi, sir. Thanks for the opportunity. My first question is that right now, because price is hovering around, if I'm not wrong, USD 1,500-USD 1,700 per ton, and graphite electrode price is more or less in a similar line in last three months. You mentioned that the margin is under pressure in the coming quarter. You are mentioning that because of the fixed cost inflation, or is there any possibility of the spread can improve further from here on? Sir, could I, should I answer this? There's a lot of echo in my line. I hope I heard your question. Did you mean to say that needle coke pricing is around $1,500 and electrode pricing? What did you say? Yes, sir. Needle coke pricing is around $1,500-$1,700, the graphite electrode pricing more or less staying at the same level in last 2-3 months, if I'm not wrong. In that scenario, we can expect an improvement in spread. You in your earlier comment that you mentioned that the spread is under pressure, margin is under pressure. If you can throw some light on that, specifically. Well, I somehow I've again heard the needle coke price, but I've not heard your price. No, no, I heard it. I can answer. As far as the price of coke is concerned, you are more or less in the ballpark. Your second assumption is not correct. I mean, Manish clarified that the markets are weak, and we do expect the markets to remain weak for the next couple of quarters. The prices are under pressure. It is not correct to say that the prices are stable. Prices are under pressure. Okay, sir. the next slide. we, but we still expect to maintain our capacity utilization at about 80%-85%. Okay, sir. Okay, that's been clear. My second question is that, sir, for the graphite anode project, it will come in the second half of the current year FY, current year 25. What can be the ROE or the IRR we can expect from that project? How much that can contribute to the profitability of the company? If you can give some broad-based idea on that, please. Can't give an absolute idea on that because we are still 2 years away from completing the project. The project cost will be approximately INR 800 crore, which will produce 10,000 tons of anodes. The current price of that being in the region of 9,000-10,000 tons. Obviously, I mean, then you can do your math based on that current price. You can take the similar pricing of raw material that we have in our graphite electrode price. The IRR, et cetera, I mean, we are expecting around 25%-30% EBITDA on this particular project, based on USD 8,000-10,000 also, et cetera. Okay, sir. Thank you. Thank you, sir. Thank you. Thank you. The next question is from the line of Ajit from Nirmal Bang Securities LLP. Please go ahead. Sir, just a follow-up question from my side on the powder you were talking about. Sir, is this a by-product of the existing project or altogether a new product, sir? No, this will be altogether a new product, and the, the raw material will be calcined petroleum coke only, and that can be of different grades of coke. Our by-product that we produce in HEG, I mean, because they are different grades of raw material that we produce over there, we try to use some of those also for this particular project. I mean, as far as the basis of the project is concerned, it's all on new raw material. Just a ballpark market size of this product? I mean, market size is huge. I mean, this is basically going into lithium ion battery. In India alone, by 2025, we expect a demand of around 50,000-60,000 tons. By 2030, around 300,000 tons should be the demand in India, based on what the cell companies have announced. Companies like Amara Raja, your Reliance, Ola, and Lucas TVS, et cetera, who are setting up plants in India, their requirement itself should be this. The global requirement is extremely huge. I mean, today, today also, we are seeing a requirement of around 300,000 tons in globally, which is- What will be our share in this 50,000-60,000 tons? Sorry, sorry. Yeah. What will be our share in this 50,000-60,000 tons in FY25? Our, our first project, we are right now going to produce, I think, 10,000 tons of material. I mean, this can be so either exported or used for the Indian market as well. Okay. INR 12,000. INR 12,000. INR 12,000, sir, sorry. INR 12,000. INR 12,000. 10,000. Okay, sir. Understood. Thank you so much, sir. It's a first project of its kind in India. Marketing 10,000 tons in a market which is today 50,000 tons is not really a problem. Great. Great, sir. Great, great. Congratulations, all the best, sir. Thank you. Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. Participants, you may press star and one if you wish to ask a question. 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. Jhunjhunwala for the closing remarks. Over to you, sir. Thank you, friends, for taking so much of interest and asking some very pointed questions. I look forward to speaking to you next time in about three months' time. Thank you. Thank you. On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you. Thank you.