 Dear Shareholders,
As we end yet another financial year and welcome the current year, we are pleased to note a positive outlook in the global economic scenario. The tail end of the last year has shown signs of recovery which is expected to firm up towards the second half of the current year.
Developing countries like ours, are witnessing a faster recovery rate than the developed economies, though in retrospect, developing economies were less affected by the crisis. The recent events in Dubai, Greece and Hungary have cast a shadow on this recovery. Efforts continue to be made by various Governments through stimulus packages and multilateral capital support to stabilize these economies and to spur growth.
As far as the Indian economy is concerned, during the year gone by the inward Foreign Direct Investments remained buoyant. The foreign exchange reserves increased and the service sector continued to grow at a rapid pace. These are all indicative signs of the continuing growth and robustness of the Indian economic model.
HEG Limited is a leading global manufacturer of Graphite Electrodes, which find their biggest industrial use in Electric Arc Furnaces (EAF) in steel plants. As you are aware, HEG Limited’s customer base is spread across the world, and the global economic conditions had affected the business marginally, but as we are seeing signs of recovery, sustainability and growth are returning to the steel and graphite electrode industry. The Company has well established associations with customers like POSCO, Arcelor Mittal, Krupp Thyssen, Nucor, Usinor, SAIL, TISCO, Jindal and Hyundai to name a few.
I would like to share some highlights about HEG Ltd’s performance, for the year ended 31st March, 2010. Revenues marked an increase of 10% at Rs.1,131 crore from Rs.1,029 crore last year. EBITDA at Rs.354 crore grew by 29% from Rs.275 crore. Profit after Tax for the year was reported at Rs.171 crore, a robust increase of 60% from Rs.106 crore of the previous year. Profit Before Interest and Tax for the year, for the Graphite segment rose by 29% and for the Power segment rose by 74% as compared to the previous year.
We remain encouraged by the industry data both on Steel and Electric Arc Furnace manufacturing. Just to elaborate, as per the MEPS forecast, the 2010 world steel output is expected to be at an “all time high” of 1,350 million tons as compared to its peak in 2007 at 1,345 million tons. This indicates a strong growth as compared to an approximate 8.2 percent fall in 2009, at a final expected level of 1,217.5 million of the world steel output. The Electric Arc Furnace capacities are expected to enhance by an additional 100-110 million tones in the next 5-10 years. A major part of these capacities are likely to be captured by India, Middle-East and the Asian geographies and we at HEG Limited are preparing ourselves for this expansion. The order booking is dynamic and the Company is well placed to optimize realizations. Our capacity utilization was about 90% in the last quarter and about 75% on an annualized basis. We believe that these levels are amongst the best in the industry.
Around the fourth quarter of FY 2009-10, the Company expanded its capacity from 60,000 tons to 66,000 tons. With this HEG’s Mandideep facility in Madhya Pradesh became the largest single-site integrated facility for graphite electrodes manufacturing. This has helped us achieve optimization of costs and better operating efficiencies. We have undertaken further capacity expansion to achieve a level of 80,000 tons. This expansion will require an investment of approximately Rs.206 crore and is scheduled to be completed by September – October 2011. The financial requirement will be met by a combination of internal accruals and debt and currently this expansion is on schedule. During FY2009-10, HEG achieved a production volume of 43,849 MT which is lower than the previous year’s level, as a result of the global meltdown, but this level is expected to rise considering the growth in global EAF capacities. The order booking too is witnessing a growing trend, as the confidence in the economy and the steel industry is on the rise.
To take advantage of this momentum, at HEG we feel that innovation is the key to success. Hence, we continuously endeavor to focus further on research and development. HEG’s R&D Centre for carbon science and technology has a strong applied research and development focus in the field of conventional carbon products and advanced carbon materials/ products such as carbon nano tubes /fibers. The research and development team work with the operations team on a continuous basis, for feasibility and smooth transformation of new developments to processes.
Coming to the chief inputs used by HEG which are needle coke and power, there were no major fluctuations in prices of needle coke for calendar year 2010 as compared to 2009. At current levels of world steel production, needle coke for graphite electrodes is comfortably available but if the steel industry marches along as expected, there might be a marginal demand-supply disparity in a couple of years.
Another major cost component for the graphite electrode industry is power. HEG is well-placed with the strategic advantage it has built through the power segment. As on date there are two thermal power plants generating around 64 MW of electricity and around 13.5 MW is generated from the hydro electric power plant. The total power capacity of around 77MW is will be sufficient even at the expanded capacity levels of graphite electrodes upto 80000 MT. During the last year the Company received coal linkages for the second thermal power unit and the hydel power plant at Tawa has performed well as a result of adequate rainfall in the catchment area, further resulting in lowering of costs.
Excellence in performance can be achieved only when it is a 360 degree effort from the Corporate. Hence, we at HEG are adopting the right corporate social responsibility practices towards social welfare, the environment, energy conservation and stakeholder interests. HEG has adopted two villages in Madhya Pradesh uplifting nearly 150 families residing there. Realizing that the future lies in today’s youth, we have created the Graphite Education and Welfare Society, a non- profit trust for improving educational awareness, health care, afforestation, drinking water, hygiene, sanitation, crafts and other community welfare work.
As we all know, that the graphite electrode industry is a capital and technologically intensive industry with a long gestation period. Our efforts since the past 30 years have resulted in a world class, hi-technology and exclusive facility of international standards for manufacturing of graphite electrodes. The key raw-materials are needle coke and power, needle coke prices are frozen and power is generated captively, providing clarity and strength as regard the major cost components. The Company’s product is on-par with the products of other global players and we aim not only to sustain but also improve the quality of our products through continuous research and development activities. With substantial new capacities of the electric arc furnaces expected in the short to medium term, the demand for graphite electrodes is expected to surge and your Company is well prepared to take the leadership position in this upswing.
The Board of Directors is pleased to recommend, for your approval, a dividend of Rs.10 per share for the FY 2009-10, with a view to augment the shareholders wealth and boost growth.
I acknowledge the sincerity and dedication of every member of the HEG family. I am thankful to our customers, suppliers, bankers, financial institutions and shareholders for their continuous trust and encouragement.
With best regards,
Ravi Jhunjhunwala
Chairman & Managing Director |