HEG Limited: FY26 volume-led growth, a volatile Q4, and a bigger bet on EAF steel

HEG Limited’s FY26 results carried two stories at once. The full year showed a clear operational recovery, with higher volumes and stronger margins. But Q4 was dominated by accounting-driven volatility, as fair valuation and foreign exchange movements pushed reported earnings into a loss.

On a standalone basis, revenue from operations rose to 2,568.50 crore in FY26 from 2,152.71 crore in FY25. EBITDA improved to 497 crore from 388 crore, and the EBITDA margin expanded to 19% from 17%. Profit after tax increased to 180.72 crore from 101.31 crore.

Q4, however, looked very different. Revenue from operations was 603.21 crore, but profit before tax was a loss of 189.01 crore. Management attributed this mainly to unrealized items: fair valuation losses linked to investments, and an FX impact tied to a sharp rupee depreciation within the quarter. The CFO later quantified unrealized FX loss at around 35 to 40 crore.

The operating context: steel cycle noise, but an EAF structural tailwind

The company’s commentary anchored heavily on global steel production trends and policy changes. Management cited World Steel Association data showing global crude steel production for Jan to Mar 2026 at about 459 million tons, down around 2% year on year but up sequentially, largely driven by China’s seasonal restart.

Outside China, production was described as softer, while China’s elevated exports were highlighted as a key pressure point for pricing and trade flows. Management said Chinese steel exports are running at over 100 million tons on an annual basis, which has triggered rising protectionism across markets.

The longer-term lens was more optimistic. HEG repeatedly tied its demand outlook to the rise in electric arc furnace steelmaking, pointing to the lower carbon footprint of EAF steel versus blast furnace routes. Europe’s Carbon Border Adjustment Mechanism and changes to quota regimes were cited as policy signals that could structurally support EAF-based production.

Capacity and utilization: scaling into the EAF opportunity

HEG positions itself as a scale player in graphite electrodes. The investor presentation states the company completed an expansion to 100,000 tons in 2024 and is now planning a further expansion to 115,000 tons by early 2028. Management reiterated that construction for the additional 15,000 tons is progressing as planned and the target remains early 2028.

Utilization was a key operational metric discussed in the call. Management stated HEG has been operating at more than 90% utilization on average for the full year and recent quarters. For Q4 specifically, they clarified that production utilization was about 95%, while sales volumes were slightly lower due to shipment postponements.

The company also emphasized its export profile. The presentation notes that HEG exports about 65% to 70% of its production to about 35 countries, a pattern it says has been consistent for more than 20 years.

Financial summary (Standalone)

Note: Management stated Q4 losses were mainly unrealized items relating to fair valuation and FX.

Q4 disruptions: freight shock, order reshuffle, and FX volatility

A key operational disruption discussed during Q4 was logistics related to the Middle East. Management said around 20% of annual sales come from the Middle East and MENA region and the conflict led to shipment postponements. They indicated volumes were impacted on a quarter-on-quarter basis by roughly 1,000 tons, with the underlying theme being order mix changes and rerouting.

Freight inflation was addressed directly. The company said it issued force majeure letters where it was impacted, and in some cases customers accepted delivery terms that shifted incremental freight costs away from the company. Beyond freight, management also pointed to energy cost inflation as a margin risk and one reason price increases are being pursued.

The second major Q4 swing factor was the combined effect of fair valuation and FX. The investor presentation notes that negative EBITDA in Q4 was on account of fair valuation loss on the GrafTech investment. Management also said rapid rupee depreciation within the quarter contributed to unrealized exchange losses.

Pricing and raw material coverage: booked near term, push for H2

Pricing was one of the most discussed topics. Management explained that the company typically books orders three to six months ahead and is largely booked up to September. For unbooked orders, they said they are seeking price increases, but did not commit to a specific quantum because outcomes depend on geography, customer negotiations, and competitor behavior.

On raw materials, needle coke availability and pricing are recurring industry concerns. HEG said it is covered for needle coke purchases and shipments through end-June, and because of shipping and processing lead times, this should cover costs until September. Beyond that, management said discussions for the next quarter’s contracts would likely happen around mid-June and at the time of the call there was no confirmed indication of higher prices.

The Chairman also reiterated the company’s rationale for investing in GrafTech, stating that backward integration into needle coke is strategically valuable in a tight market. Management emphasized that the investment view is long term and that interim market movements do not change their conviction.

Capital structure and shareholder returns

Management highlighted balance sheet strength. The CFO stated the company had no long-term debt as of 31 March 2026 and a treasury of around 792 crore (standalone). The board also recommended a final dividend of 3.4 per equity share (face value 2), subject to shareholder approval.

Separately, management mentioned progress on a composite scheme of arrangement, with shareholder and creditor meetings scheduled for 5 May 2026 and an expectation, subject to approvals, that the scheme could be approved by the NCLT sometime in the second quarter of the financial year.

Takeaways

HEG’s FY26 results show that the core graphite electrode business benefited from higher volumes and steady operating margins across the year, even as Q4 suffered from unrealized valuation and FX swings. The company continues to frame its strategy around the structural shift toward electric arc furnace steelmaking and is scaling capacity to 115,000 tons by early 2028.

Near term, the key monitorables remain shipment normalization in the Middle East, the pace and stickiness of any price increases on unbooked orders, and the trajectory of energy, freight, and needle coke costs. The long-term thesis management outlined remains consistent: if EAF capacity additions outside China accelerate as expected, the demand backdrop for graphite electrodes should strengthen, and HEG wants to be ready with scale and utilization discipline.