HEG Ltd

It is with great pleasure that I address you, reflecting on the journey of growth and learning that we have undertaken over the past year. This address holds a special place in my heart it is more than a report on our financial performance. In fact, it allows me to attempt to express my passion for what I believe will unfold over the next 3 to 5 years.

Fiscal Year 2025 represented a significant milestone for our company as we reinforced our position within the challenging graphite electrode sector. Our business is intrinsically linked to the steel industry, particularly in relation to the steel manufactured via the Electric Arc Furnace (EAF) method, which is predominant in Western world and Middle East.

Steel production exhibited subdued performance throughout the year, particularly in our focus regions, attributable to intense human conflict and various geopolitical challenges, which shifted the focus from development initiatives to de-risking measures.

The other important factor that impacted the global steel sector was the substantial surge in steel production and, consequently, exports by China. The development intensified competition in international markets, pressured global prices and amplified challenges for producers in other regions struggling with tepid domestic demand.

As a result, the graphite electrode sector endured significant headwinds regarding off take and margins.

We were no strangers to this global trend. We too reported a dip in our financial performance.

Revenue from operations dropped from Rs. 2,395 crore in FY24 to Rs.2,153 crore in FY25. Likewise, EBITDA and Net Profit declined from Rs. 526 crore to Rs. 388 crore and Rs. 232 crore to Rs.101 crore over the same period.

Notwithstanding the subdued numbers, I am pleased with our overall performance. We approached the subdued trend with poise and confidence. While most of our peers in the industry operated at 60-65%, capacity utilisation, we were able to maintain our operational level at 80% despite expanding capacity from 80,000 to 100,000 tons.

We believe that we are amongst the lowest cost producer of graphite electrodes globally – and we believe we have further strengthened this position as we now operate the single largest plant of Graphite Electrodes in the western world with a capacity of 100,000 tons. In a dificult market condition, this has helped us to maintain highest capacity utilisation in the industry.

Despite short-term pressures, decarbonisation is now an irreversible trend in the entire world. Steel produced through EAF emits one fourth of carbon v/s the same steel produced through the Blast Furnace route. With most of the world putting more and more focus on environment and reduction of carbon, we remain optimistic about the long-term growth potential for graphite electrode demand.

According to the World Steel Association, EAF steel production (w/o China) rose from about 44% to 50% between 2015 and 2024. With more and more electric arc furnaces being installed, this is likely to rise at an accelerated phase as the de carbonisation push intensifies.

Increased demand: An analysis of the global steel sector indicates that approximately 50 million tons of new Green field Electric Arc Furnace capacities are likely to be operational in the next few years between now and end of 2027/28 while about 10 mmt has already been operational.

From several other announcements made by some of the large steel companies, another 30 to 40 mmt of additional Electric Arc Furnaces are likely to be installed post 2028. This augurs well for our company.

Reduced supply: The capacity of Graphite electrodes has seen a decline over the course of the past 12 to 18 months. There have been four plant closures and another four plants have reduced their capacities in the western world, resulting in a cumulative capacity reduction of 120,000 tons – this accounts for approximately 16-18% of the Global total capacity, excluding China and Russia.

The anticipated imbalance in the graphite electrode sector, characterised by increasing demand alongside decreasing supply bodes well for our industry prospects in medium to long term.

I am pleased to state that HEG is poised to capitalise on the positive trend likely to unfold over the coming years. My optimism stems from our resilience and readiness for whatever lies ahead.

Our resilience: In our five-decade journey, we have experienced and endured multiple sectoral cycles, each enriching our knowledge and enhancing our strength to endure. Even when others were pushed to the brink of closure and beyond, we not only prevailed but also strengthened our growth levers. We scaled capacities, improved product quality, reduced costs, fostered relationships, and widened our reach.

Today, our resilience resides within our team, which is prepared for every possible eventuality and opportunity for future growth.

Our readiness: We have a strong presence in most of the EAF steel companies worldwide – small or big.

Exports have accounted for between 65 to 70% of our total sales for number of years.

Over the past few years we have kept expanding our capacities to meet the expected future demand and we are fully ready for a rebound in performance with the sectorial trend reversal.

Our graphite anode plant project has gained momentum. We possess the requisite land parcel and relevant site permissions. The groundwork has commenced. We have finalised the machinery, and orders will be placed within the current year. The Rs.1,850 crore project, financed through a debt-equity balance, is expected to be operational by 2027.

The opportunity: Currently, anode powder – a critical material for lithium-ion battery production is entirely imported from China. Credible research indicates that India's domestic demand for anode powder is projected to reach 100,000 to 140,000 tons annually by 2030, driven by the scaling up of local cell manufacturing. With commercial operations in place, we will be well-positioned to capture a share of this growing market and contribute to the development of a localised, resilient battery supply chain.

Our edge: We possess significant advantages in this business space. Our team, technology, and processes are well-established. Our research and development efforts spanning over two decades, along with our pilot plant, have enabled us to stabilise our processes for producing high-quality products.

Most significantly, our presence in India allows us to manage costs effectively, facilitating a seamless entry into the global market.

Our capacity: In the initial phase, we intend to establish a capacity of 20,000 tons, with the potential to double it within the next four to five years, considering the prevailing economic conditions and the sector dynamics.

The Board has approved the Scheme of Arrangement under which the Graphite business will be transferred to HEG Graphite Limited, which will also be listed on the stock exchanges. The anode business will remain under HEG Limited.

We have filed the application with the stock exchanges. This restructuring will be completed in the current year.

HEG Limited and HEG Graphite Limited will chart independent paths as two distinct, publicly listed entities. Given their fundamentally difierent growth drivers, risk profiles, and capital needs, this strategic demerger enables each business—Graphite and Green Energy—to focus on its unique strengths. It unlocks value by allowing dedicated management, sharper strategic focus, and better capital allocation.

This marks a significant step in our sustainability journey and positions both companies for agile, competitive growth. Shareholders will benefit from owning shares in two specialised companies, each with enhanced investment potential and long-term value creation opportunities. We believe this is the right move for our company, our employees, and our shareholders, and we look forward to the future it will create for both businesses.

In conclusion, the coming few years instil a sense of optimism within us. Our robust foundation adequately positions us to capitalise on forthcoming opportunities. As we persist in adapting to market demands, we remain confident in our capacity to generate enduring value for our shareholders and positively contribute to the decarbonisation of the steel sector.

As we chart our course for the future, I express my deepest gratitude to the growing HEG family and our valued stakeholders. Your unwavering support and commitment have been the bedrock of our success.

Warm regards,

Ravi Jhunjhunwala