HEG Q1 FY27: High Utilisation, Margin Recovery, and an Expansion Roadmap to 2028

HEG Limited began FY27 with a sharp improvement in profitability, helped by better realisations, disciplined cost control, and steady operations at a very high utilisation level. For the quarter ended June 30, 2026 (Q1 FY27), standalone revenue from operations rose to INR 681 crore versus INR 613 crore a year ago. EBITDA increased to INR 211 crore, and profit after tax improved to INR 110 crore.

The quarter was also notable for the sequential recovery from Q4 FY26, which had been impacted by mark-to-market losses on investments (a point referenced in the presentation and reiterated during the call). In Q1 FY27, management indicated that other income included fair valuation gains on investments, again highlighting that treasury marks can influence reported earnings.

Beyond the quarterly numbers, the management commentary focused on two themes. First, HEG’s confidence in graphite electrode demand over the medium to long term, driven by the global shift toward electric arc furnace (EAF) steelmaking. Second, the group’s ongoing strategic and corporate actions, including the 115,000-tonne graphite electrode expansion targeted for early 2028 and progress on the composite scheme of arrangement, alongside the Greentech and anode project update.

Market context: Steel stabilisation outside China and the EAF transition

Management framed the operating environment as challenging but improving at the margin. Global crude steel production in the first half of calendar 2026 declined 0.7 percent year-on-year to around 930.6 million tonnes, according to World Steel Association data cited in both the presentation and the call. The more supportive datapoint for electrode demand was the resilience outside China, where steel output rose 2.1 percent year-on-year to about 430.6 million tonnes.

China remains relevant to the pricing environment even though management explicitly stated that HEG does not sell electrodes directly to China. The call highlighted that China’s weak real estate cycle has pushed domestic mills to export surplus steel. While Chinese steel exports in the first half of 2026 eased to 55 million tonnes, down 5.6 percent versus the 2025 peak, they remain historically elevated and have triggered defensive trade measures such as anti-dumping and safeguard duties in several regions.

At the same time, HEG emphasised structural demand drivers for electrodes. The company cited decarbonisation policies including the EU’s CBAM and referenced an OECD outlook that around 71 million tonnes of new EAF steelmaking capacity is planned globally between 2026 and 2028. Since graphite electrodes are a consumable essential for EAF operations, management linked this trend to a favourable long-term demand backdrop.

Q1 FY27 performance: Better realisations, cost discipline, and a clean rebound

On the earnings call, management described Q1 FY27 as a strong start despite a marginal decline in volumes, with the impact offset by improved realisation through product and geographic mix and operating efficiencies.

Standalone results for Q1 FY27 (quarter ended June 30, 2026) reported:

The company also reported a strong liquidity position. The CFO stated on the call that HEG has no long-term loan borrowings and that treasury stood at approximately INR 858 crore as of June 30, 2026.

A practical factor behind the margin profile is the operating level. Management stated that the graphite electrode plant ran at an average utilisation of more than 90 percent during the quarter and expects utilisation to remain above 90 percent in forthcoming quarters as well. They also indicated that utilisation typically peaks around 94 to 95 percent and that conditions are rarely ideal for operating materially above those levels.

Pricing and costs: Lagged pass-through and Q3 onward visibility

Investors spent a meaningful portion of the call probing pricing, especially after public announcements of price increases by global peers. HEG’s response was direct about how the electrode market works. Management said companies in this business are typically booked three to four months ahead. In this context, HEG indicated that volumes are largely committed through September (and in some cases into October), meaning meaningful price increases would start showing up from October onwards.

On cost inflation, management repeatedly pointed to higher energy and freight, alongside the direction of needle coke prices. A question on needle coke clarified that the discussed 10 to 15 percent increase referred to overall electrode production cost (not needle coke alone). They also explained that the impact would not be immediate due to inventory cover and the time required to convert needle coke into electrodes, implying that cost pressures would begin to flow through toward the end of the year.

The company’s stated intent, without committing to specific price figures, was to maintain margins at levels similar to the recent quarter.

Capacity and strategy: From 100,000 tonnes to 115,000 tonnes by early 2028

HEG positioned itself as the largest graphite electrode plant in the Western world with annual capacity of 100,000 tonnes and stated it has been operational since November 2023. The company also highlighted that it exports around 65 to 70 percent of production to about 35 countries and supplies a diversified set of customers, including many of the top global steel companies.

The main strategic initiative in electrodes is the brownfield expansion by 15,000 tonnes, taking capacity to 115,000 tonnes. Management said the project is on track and should be commissioned by early 2028. The presentation’s capacity table similarly shows a 115,000 tonne level in 2028.

Management also highlighted that, except for HEG’s own project, no additional capacity has been announced by any other company in the Western world. This is a strategic point because it supports a tighter supply narrative if EAF-based steelmaking expands as projected.

Corporate actions and Greentech update: Demerger progress and anode ramp-up guidance

The call included an update on the composite scheme of arrangement. Management stated that the NCLT has reserved its order and the company is awaiting the pronouncement. The company said it would provide an update on the timeline of effecting the scheme and the record date and would hold a separate investor call to explain the HEG Advanced Materials business once the order is received.

Separately, the group’s Greentech and anode project through TACC drew investor attention. Management provided multiple verifiable datapoints:

• Commercial production for the anode project was stated to start in Q1 of next year.
• The first year utilisation target was stated at 40 to 50 percent.
• Revenue guidance was stated at INR 600 to 700 crore in year one, above INR 1,200 crore in year two, and around INR 1,500 to 1,600 crore in year three.
• EBITDA margin expectation was stated at roughly 35 percent under those revenue levels.
• Management stated that about 70 percent of capacity contracts could be closed within 1 to 1.5 months, with 3 to 5 year contracts.
• Capex phasing for the INR 2,200 crore project was discussed, with around 40 percent already spent, the bulk planned in the next three quarters, and around 90 to 95 percent payments expected by FY27, with the balance in FY28 Q1.

The discussion also touched on expected debt within the Greentech/TACC entity post demerger. Management indicated that around INR 1,500 crore of gross debt could be present on the entity by the time the FY27 balance sheet is visible, while also stating that the core HEG business remains debt-free in terms of long-term borrowings.

Key takeaways

Q1 FY27 reinforced HEG’s operating strengths: high utilisation, a recovery in margins and earnings versus the previous quarter, and a balance sheet supported by substantial treasury. Management also used the quarter to reinforce a longer-duration thesis that EAF steelmaking growth will structurally support electrode demand.

The next set of monitoring points is clear from management’s own framing. First, the pace and realisation of price increases from October onwards, given the booking cycle and the need to cover rising input costs. Second, execution on the 115,000 tonne expansion planned for early 2028. Third, regulatory progress on the composite scheme and the credibility of the Greentech ramp-up once commercial production begins.