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HEG Ltd.

BSE: 509631 Sector: Engineering
NSE: HEG ISIN Code: INE545A01016
BSE LIVE 15:57 | 18 Oct 1264.10 19.60
(1.57%)
OPEN

1235.95

HIGH

1318.00

LOW

1220.00

NSE 15:57 | 18 Oct 1264.75 22.65
(1.82%)
OPEN

1228.00

HIGH

1318.00

LOW

1220.00

OPEN 1235.95
PREVIOUS CLOSE 1244.50
VOLUME 114873
52-Week high 1393.85
52-Week low 144.10
P/E
Mkt Cap.(Rs cr) 5,051
Buy Price 1264.10
Buy Qty 24.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1235.95
CLOSE 1244.50
VOLUME 114873
52-Week high 1393.85
52-Week low 144.10
P/E
Mkt Cap.(Rs cr) 5,051
Buy Price 1264.10
Buy Qty 24.00
Sell Price 0.00
Sell Qty 0.00

HEG Ltd. (HEG) - Chairman Speech

Company chairman speech

From the Chairman’s desk

The art of survival...

and how we lived to tell the story.

For the graphite electrode industry 2015-16 was the most challenging in Rs. istory.However the financial year under review was the most enriching for us.

When the customer turned hesitant we learnt what it means to find new ones. Whensectors turned sluggish we created new products to address others.

When prices nosedived we pruned costs to maintain viability.

The result is that in a year when most global graphite electrode manufacturersencountered substantial losses leading to closure we remained steadfast despite reportingmarginal losses.

This vindicates our long-term positioning to emerge as the last man standing in ourspace the world over.

Subdued business environment

Steel sector: Global crude steel production for 2015 declined by 2.8% (Source: WorldSteel Association). Players across the world registered negative growth; in

China steel production actually declined by 2.3% – for probably the first timeever. Since China temporarily had more steel than it required the country exported about112 million tonnes in 2015 (compared with India’s steel production of 89 milliontonnes during this period) affecting prospects of steel companies worldwide.

The result was that a number of global steel plants were compelled to cease theirmelting operations and buy Chinese billets instead. Besides the steep decline in oilprices forced oil-producing nations to slash their infrastructure budgets affecting steeldemand.

Electric arc furnace sector: The year 2015 was one when the demand and price ofvirtually all commodities – oil iron ore coke steel copper and aluminium amongothers – took a beating following a slowdown in China. Commodity prices declined by25-45%; while iron ore prices (a key input in blast furnaces) collapsed from US$135 inJanuary 2014 to about US$45 scrap (key input in electric arc furnaces) declined fromUS$285 to about US$220. The result was that the blast furnace sector was placedadvantageously; shutting electric arc furnaces proved simpler and relatively morecost-effective than shutting blast furnaces. This became evident in the numbers: as globalsteel volumes declined by 2.8% steel production through electric arc furnaces declined bymore than 8% affecting graphite electrode manufacturers like us.

Graphite electrodes sector: The steep reduction in EAF steel production affected thedemand and prices of graphite electrodes. In the past two years graphite electrodemanufacturing capacities reduced by about 200000 MT. Despite these capacity closures thecurrent capacity utilisation of the electrodes industry is still close to 70% showingcontinued pressure.

Our decisive response

The challenging global environment affected our exports with only about 55% of ourproduction being exported. To protect our market position and competitiveness we enhancedthe domestic share of our sales from 20% to 45% (Indian steel production increased by 2.6%in 2015). To counter volume erosion we added international customers in existing and newgeographies.

Besides we scaled our power business strengthened plant availability procuredcheaper coal and reduced in-house consumption (with the objective to increase merchantsales) thereby strengthening our profitability.

Going forward

Market dynamics: Globally the steel industry recovery will be delayed even as globalprices of iron ore and steel have improved marginally. The electric arc furnace space willtake even longer to recover considering the large gap between iron ore and scrap prices.The Chinese government has stated to close 150 million MT excess steel capacity by 2020.But how much of it will actually materialise remains to be seen.

Against this background graphite electrode capacities are expected to continuelanguishing.

Since 2013 mainly 55000 MT capacity closed in North America 30000 MT in Brazil30000 MT in South Africa 55000 MT in Europe and 20000 MT in Japan. We expect thistrend to sustain through 2016 marked by closures / consolidations resulting incorrecting demand-supply situation.

Our strategy: HEG Limited is among the lowest-cost producers of graphite electrodes inthe world. Our 2016 objective is to tighten operations strengthen processes enhanceproductivity and address untapped opportunities to maximise revenues and margins. We arediversifying into a synergic vertical – specialities – for which successfulproduct trials could lead to a growing market share in 2-3 years.

Message to shareholders

I must caution shareholders that 2016-17 will be even more challenging. Nevertheless Imust assure then that we will see these challenges through and rebound to attractiveprofitability at the first sign of a sectoral improvement. Warm regards

Ravi Jhunjhunwala

A fellow shareholder