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Q4 Results: HEG’s Margin Shrinks On Higher Needle Coke Prices

The company seeks to expand its capacity utilisation to 90 percent in financial year 2020.

Three graphite electrodes glow red hot in an electric arc furnace. (Photographer: Andrey Rudakov/Bloomberg)
Three graphite electrodes glow red hot in an electric arc furnace. (Photographer: Andrey Rudakov/Bloomberg)

HEG Ltd.’s operating margin for the fourth quarter contracted due to higher prices of needle coke, a key raw material.

“Needle coke prices has been increasing every six months,” Manish Gulati, the company’s chief operating officer, told BloombergQuint in an interview. “ It (price increase) would be in the range of $1,700-$2,000 per tonne when compared year-on-year.”

Gulati also said the graphite electrode maker seeks to expand its capacity utilisation to 90 percent in the current financial year (FY20) due to increased demand from domestic steelmakers. The company reported its earnings for the quarter ended March on Monday.

Curbs on polluting units in China had caused a global supply crunch of graphite electrodes, increasing their prices. That widened the margins of companies like HEG and Graphite India Ltd., with its shares returning over 1,000-fold gains in 2017. But the stocks started falling since October 2018 on expectations of additional supply from China.

Actually the average pricing (of electrodes) has stayed compared with the same quarter last year. However, the needle coke costs had gone up resulting in a contraction in margin.
Manish Gulati, COO & CMO, HEG Ltd.

Key Highlights (YoY):

  • Revenue rose 4.2 percent to Rs 1346.7 crore.
  • Net profit fell 17.3 percent to Rs 524.4 crore.
  • Ebitda down 17.1 percent to Rs 788.1 crore.
  • Margin was 58.5 percent versus 73.6 percent.

Shares of the company declined 5.4 percent to Rs 1,623 apiece compared with a 0.3 percent fall in the Nifty Index as of 1:10 pm.

Watch the full interview here: