HEG Ltd

HEG’s Graphite Electrode capacity currently stands at 80,000 MT, making it one of the largest single-site integrated graphite electrode facility in the world.  It also operates three power generation facilities with a total rated capacity of about 77 MW. The hydroelectric power plant at Tawa near Itarsi, District Hoshangabad (Madhya Pradesh) has a rated capacity of 13.5 MW, while two captive thermal power plants located at Mandideep (Madhya Pradesh) have rated capacities of 30 MW and 33 MW respectively. The company had a dismal Q1FY14, posting a 39% (YoY) and drop of 47% (QoQ) in net sales at Rs.234 crore. Despite a sizeable decline in operating costs, higher depreciation and finance cost and forex loss of Rs.15 crore and massive jump in tax outgo, the company ended the quarter with a net loss at Rs.9 crore v/s net profit of Rs.35 crore in Q4 and net profit of Rs.23 crore in previous Q1.

Demand slump for steel sector, its main consumer and lower price realizations pushed the company into this state. Capacity utilisation was at its lowest at 58%. Higher inventory cost of raw materials is also a major cause. Pressure on volumes is expected to remain in the short term and in current fiscal, the company hopes to maintain EBIDTA margin at 16-20% and capacity utilization of 70-75%. Consolidated debt of the company at end of FY13 stood at Rs.1215 crore.  Looking ahead in the immediate short term, the downward bias in prices of graphite electrodes is expected to continue but lower price of needle coke, its main raw material is also expected to remain low and if supported with better volumes, only then will margins improve.