HEG Q3 FY26 Profit Soars 147%, But Non-Operating Gains Raise Questions

Introduction to HEG's Q3 Performance

HEG Limited, a leading manufacturer of graphite electrodes, announced robust financial results for the third quarter ending December 31, 2025. The company reported a significant 147.4% year-on-year increase in its consolidated profit after tax (PAT), a figure that captured investor attention. This impressive bottom-line growth was supported by a healthy 37% rise in consolidated revenue. However, a closer examination of the results reveals that a substantial portion of the profit was driven by non-operating factors, prompting a deeper analysis of the sustainability of this earnings growth.

Detailed Financial Breakdown

In Q3 FY26, HEG's consolidated revenue from operations climbed to ₹655.33 crore, up from ₹478.34 crore in the same quarter of the previous fiscal year. The standout figure was the consolidated PAT, which surged to ₹205.97 crore compared to ₹83.26 crore in Q3 FY25. On a standalone basis, the performance was also strong, with revenue reaching ₹655.66 crore, a 37.4% YoY increase, and PAT growing by 43.6% to ₹141.25 crore. The consolidated basic Earnings Per Share (EPS) for the quarter stood at ₹5.95.

For the nine-month period ending December 31, 2025, the company's consolidated revenue grew by 21.9% to ₹1,972.48 crore. The consolidated PAT for this period showed an extraordinary increase of 295.6%, reaching ₹455.13 crore.

Key Financial Metrics (Q3 FY26 vs Q3 FY25)

The Quality of Earnings Under Scrutiny

While the headline profit numbers are impressive, a significant portion of the consolidated PAT in Q3 FY26 originated from non-core operations. The company's results included ₹65.14 crore from its share of profit of associates and another ₹51.96 crore as a net gain on the fair value of investments. Combined, these two items contributed approximately ₹117.10 crore, accounting for nearly 57% of the total consolidated profit for the quarter. This heavy reliance on non-operating income raises important questions about the quality and sustainability of HEG's earnings, as it suggests that core operational profitability may not be as strong as the final PAT figure implies.

Major Corporate Developments

The Board of Directors approved several key strategic initiatives during the quarter, signaling a period of restructuring and investment. A major decision was the approval of a corporate guarantee of ₹1,230 crore to the State Bank of India for credit facilities for its wholly-owned subsidiary, TACC Limited. Additionally, the board noted the allotment of ₹400 crore in Optionally Convertible Debentures (OCDs) in TACC, indicating substantial financial commitment towards the subsidiary's expansion and operational needs.

Strategic Business and Asset Realignment

In a move reflecting adaptation to technological change, the board approved the winding up of the medical transcription business of its subsidiary, Bhilwara Infotechnology Limited, effective March 1, 2026. This decision was attributed to reduced demand driven by the adoption of artificial intelligence and a key client ceasing its own operations. Furthermore, the company is undergoing an internal asset restructuring. The board approved the transfer of a 51% equity stake in Malana Power Company Limited, currently held by associate Bhilwara Energy Limited, to another wholly-owned subsidiary. This realignment aims to streamline asset ownership within the broader group structure.

Market Outlook and Key Risks

Investors will be closely monitoring the sustainability of HEG's profit growth, with a focus on the contribution from its core graphite electrode business versus non-operating income. The significant financial exposure to the subsidiary TACC Limited, through both guarantees and debentures, makes its performance critical to HEG's overall financial health. The discontinuation of the medical transcription business highlights the real-world impact of industry disruption from technology like AI, a factor that could influence other parts of the group. The successful execution of the approved asset transfers and the company's ability to manage its debt, reported at ₹584.85 crore, will be crucial for maintaining investor confidence. Following the announcement, shares of HEG Ltd ended the day at ₹557.00, up 2.10% on the BSE.

Conclusion

HEG Limited's third-quarter results present a mixed picture. While the company delivered exceptional year-on-year growth in both revenue and net profit, the underlying quality of its earnings warrants careful consideration due to the large contribution from non-operational sources. The strategic decisions to heavily finance a subsidiary, exit a technologically disrupted business, and restructure assets indicate that management is actively navigating a dynamic business environment. Moving forward, stakeholders will look for greater clarity on the performance of core operations and the strategic deployment of capital to gauge the company's long-term trajectory.