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Good day, ladies and gentlemen. Welcome to the HEG Limited Q2 FY '23 Earnings Conference Call organized by SKP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO; along with Mr. Riju Jhunjhunwala, Vice Chairman; and their colleagues, Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; and Mr. Gulshan Kumar Sakhuja, CFO. We'll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Ravi Ji.
Thank you, Navin, and good afternoon, friends, and welcome to our Q2 financial results call for the current year. As you are aware, the geopolitical developments resulting into an ugly war still continues after 9 months with no immediate end in sight. This has resulted into changing the dynamics in most parts of the world, resulting in many changes in all parts of the world, some with very serious consequences and some others with moderate consequences.
The developed parts of the world like U.S., EU, Japan seem to be the hardest hit, leading to high inflation in some countries, high interest rates and lower demand for most of the products, et cetera. Obviously, steel, which is where our products are used, has also been hit hard in the last 6 to 9 months, leading to a drop in overall production by about 8.7%. While some [ razor ] steel-producing countries like Japan and Western Europe have declined between 5% to 11% in the last quarter.
However, our company took some proactive steps to fight out these issues and due to our focus on infrastructure spendings, steel production continued to increase in June, July of this year, and then started declining. But still a fairly small decline compared to the rest of the world. European steel industry has been especially negatively impacted by exorbitant gas and energy prices, which are also having an adverse effect on regional steel demand.
In the short-term, the outlook for the steel industry still appears to be bearish. Steel demand is still being impacted by the fear of a global recession. Steel production is closely linked to the economic growth. World steel production, except China and Iran, showed a decline of 5.8% in the first 9 months of January-September '22 compared to the same period last year.
There has been a quarter-on-quarter decline of steel production of 6.6% between Q2 and Q3 calendar year 2022, again, excluding China and Iran. The bright spot in the otherwise bearish outlook of steel production has been U.S. and India, where demand was still strong. As for WSA's latest short-range outlook, world steel demand is expected to drop by 2.3% in 2022 after it increased by 2.8% in 2021.
The electrode demand, which is a derivative of steel produced through electric arc furnaces, what we in India typically call mini steel, also fell in July-September quarter due to pushback of orders, mainly by European steel producers and slowdown of production in other countries. We continue to see lower demand of electrodes in the current and next -- current and the next quarter, but we continue to still run the plant at full capacity currently.
Having said that, I would like to emphasize that decarbonization focus all over the world is gathering steam, leading to closures of many blast furnaces and replacements -- replacing them with new electric arc furnaces, which is a huge positive for us for countries like ours in future. U.S. which produces over 70% of its total steel through electric arc furnaces, new greenfield capacities to the tune of between 20 million to 25 million tons have been announced. 6.5 million tons we expect to start in the next 2 to 3 months, 11.5 million tons by 2024 end, and in the rest in the first half of 2025. Besides this, EU wants to replace about 16 million tons of blast furnaces by electric arc furnaces starting from 2023 end.
Although China still produces only 12% of its steel through electric arc furnaces, but this has increased from 4% in the last 5 years, so 3x. They are also on the path of increasing their electric arc furnace share to about 20% as they also try to control pollutions. We feel that medium- to long-term growth of EAF is unquestionable, which keeps us confident of the growth prospects of our industry, and that's where our current expansion kicks in.
About 2.5 years ago, we had announced taking our capacity of existing 80,000 tons per annum to 100,000 tons by end of this year. I'm glad to say that out of 6 different processes that go into production of electrodes, 4 are already commissioned, the fifth one is getting commissioned in the next few weeks and the last one by early January.
Once it is done, our capacity will go up to 100,000 tons. Our plant with 80,000 tons capacity until now, has been the largest plant in the [indiscernible] in the world for a very long time. And in the next few months, when once it reaches 100,000 tons, the gap between our plant and the next large plant will further increase, and we would start getting further economies of scale and cost advantages.
And furthermore, our expansion is coinciding with the new demand of electrodes coming in from these new capacities of electric arc furnaces, as I just spoke. This quarter's performance was in line with the first quarter despite lower sales volumes due to benefits of rupee depreciation, higher profits from our several hydropower generation facilities in Madhya Pradesh and Himachal and also higher income from our hydro operations of our associate company, [indiscernible] Energy, both of which did well due to early onset of monsoon this year and power prices going up substantially in the first half of the current year.
The needle coke procurement for the last 3 quarters have been flattish without any significant increase and continues to remain so. There is no shortage of needle coke in the market due to slowing down of offtake by major graphite producers. Meanwhile, as some of you have seen our public announcements, we plan to diversify into making graphite anodes for lithium-ion cells, which form the battery for electric vehicles.
And given that it's worth -- given that it is the first such plant coming up in our country, we see a good opportunity here over the long-term. We are forming a wholly-owned subsidiary of HEG for this new business, and our Board has approved a budget of about INR 1,000 crores for manufacturing 10,000 tons of anodes in Phase 1, which would be ready by early 2025.
We plan to invest another INR 100,000 crores for the second phase of 10,000 tons after the first phase is successfully implemented. At present, these cells for battery packs are all imported into India. And soon, there will be a huge domestic demand for graphite anodes powder as [indiscernible] manufacturing starts shifting to India. We see tremendous growth in this business in the next decade as India starts more and more using -- as India start producing and using more and more electrical vehicles.
Friends, with this, I would now hand over the floor to our CFO, Gulshan, to take you through the financial numbers. And then Riju, our Vice Chairman; and Manish, our ED, between all of us, will be very happy it was or any queries relating to electrodes or our new graphite anodes powder. Thank you, and over to Gulshan.
Good afternoon. Thanks. I will now briefly take you through the company's operating and financial performance for the quarter ended 30th September 2022. For the quarter ended 30th September 2022, HEG recorded revenue from operations of INR 598 crores at against INR 772 crores in the previous quarter and INR 518 crores in the corresponding quarter of the previous financial year.
Revenue for the quarter saw a decrease of 17% as compared to the previous quarter, while it witnessed an increase of 15% on a Q-o-Q basis. The fall in this quarter is due to lower volume offtake. During the quarter ended 30th September 2022, the company delivered EBITDA including other income of INR 198 crores as against INR 205 crore in the previous quarter and INR 167 crores in the corresponding quarter of the previous financial year.
The increase in employee benefit expenses over the corresponding quarter of the previous year, is on account of annual increment in salaries and [indiscernible] employees and provisioning for profit-related commissions payable to CMB of the company under contractual terms of their employment.
The reason for the increase in finance costs is due to the hike in the repo rate from 4% to 5.9% by the RBI to keep the rising inflation in check. Other bench -- other external benchmarks like [indiscernible] have also moved in the same direction, along with our equipment or working capital requirement in the business. Apart from the [indiscernible] finance cost from corresponding quarter of the previous year is on account of reduction of the interest subvention from RBI from 3% to 2%.
The company recorded a net profit after tax of INR 130 crores in the second quarter FY '23 and against INR 134 crores in the previous quarter and INR 113 crores in the corresponding quarter of the previous financial year. Expansion plan is going on in full swing, and we expect the expansion for that will be completed by December '22 and -- commercial production by early 2023. The company is a long-term debt free and has a premium price of nearly INR 250 crores as on 30th September 2022. Now we would like to address any questions or queries you have in your mind. Thank you.
[Operator Instructions] The first question is from the line of Sonali Salgaonkar from Jefferies.
A few follow-up questions. Sir, firstly, 70% of HEG sales are exports. Could you help us with a country-wise revenue breakup broadly? And which countries have been instrumental in weaker demand this quarter apart from Europe?
Manish, will you take that?
I would say, Sonali, the revenue breakup, instead, let me, just give a tentative volume breakup rather than the revenue break.
Yes. That would be helpful.
Yes. About, let's say, 20% is Americas; about [ 30%, 40% ] is Southeast Asia; about 27% is Middle East, something like that. So these are the very broad figures and range and actually very well diversified as we can see. So our shares in the major steel producing regions of the world, which are the Americas and the Europe and the Southeast Asia and Middle East. These are the 4 areas. And all these major countries, we have our presence. So tentatively, we take as a 20% share plus/minus 2%, 3% each and every area. Europe will be low this year. Otherwise, our -- it was about 10% which was to going to European nations, and I'm talking about total. And then again, 1/3 of our product is sold in India. So if you add all these, it's 100%.
Right. Sorry, sir, I missed the number you gave for Europe.
10%. We used to be there. Now it is -- it's probably going to slip to 7% to 8% of the total volumes.
Understand sir. And what was our capacity utilization in Q2 and currently? Because you did mention that your plants are operating at a healthy operating utilization. And also what is the inventory position in the system for the electrodes?
See, we continue to run at a 90-plus level, and that's what we have been making for last 6 quarters. We have not slowed down yet. And as Chairman said, we have no intention to slow down at least for this quarter. Our sales until April-to-June quarter was -- we sold as much as we made, again in the 90s, early 90s. That's what our sales utilization was. But for July to September, it's an early 70s. And October to December, as we see maybe it will be 60s, mid-60s or something. So we continue to produce at full capacity. But only from July to September quarter, we have sold less compared to our production and October to December quarter also seems to be in the same way.
And the inventory position?
Inventory position is still fine. We are -- it's not unmanageable per se, let's say, we can say, 1.5 months' worth of inventory, which is quite normal. One month is considered a very normal and in our operations where we make so many sizes, so many trades. So put together, if we have a month worth of inventory, that's right; we have 1.5 months.
Understand sir. About the pricing of electrodes. What has been the trend in pricing that we saw in Q2? Because in the first half, we did see some price increases panning out in electrodes like in last year. So what's the pricing trend in Q2? And also what do you expect to be the pricing trend in H2?
In Q2, pricing is virtually almost the same, I would say. Very insignificant increase between Q2 and Q1. You can consider it was just exactly the same. But in Q3, in which we are in, there is probably going to be -- our average price might be about 3% to 4% down. And Jan to March, still we're not looking at it. If things continue to go like that, maybe that quarter also remains under pressure or if things turn around, can revert to the current price level we saw in July-to-September quarter. So that remains to be seen because we are also booking very gradually, and we still are booking for the Jan-to-March quarter.
Understand sir. And for our new products, that this lithium-ion product that we are entering, could you help us with the overall TAM that the total addressable market which you foresee would be panning out in India? And correct me if I'm wrong, but your revenues will start accruing from FY '26 onwards. Is that correct?
Sonali, I'll have this question better answered by Mr. Riju Jhunjhunwala, as he's leading this project, so better that he answers it for you.
Sure. Riju -- and would also help -- it would help if you could give us the revised breakup of CapEx, at least for the Phase 1 of INR 10 billion, which is set out for the next 3 years?
So I mean, you asked about the overall market size. Let's say, by 2025, according to all conservative estimates, the overall battery demand, the cell demand for India would be 50 gigawatt hour. And this is what all the companies have signed up in their PLI schemes, et cetera also, which would mean on a very pessimistic side and annual graphite anode demand of 50,000 tons just for the domestic market. I mean if you want to understand more in detail, this means around 10 lakh EV cars or let's say, 1 lakh buses. So I mean -- and our total size that we are putting up in Phase 1 is 10,000 tons. And you're talking about our market size, very conservatively of 50,000 tons in Phase 1. Our total investment is around INR 1,000 crores, which includes working capital, et cetera. And this would be in stages between, let's say, March of 2023 to March of 2025. So spread over 2 years. And we hope to start commercial production by, I mean, latest by first April 2025.
Understand, Riju. Very helpful. And could you help us understand the needle coke pricing trends right now? I mean, if you're expecting the electrode pricing to be slightly under pressure, is it safe to assume that even needle coke could stabilize going forward?
[indiscernible] there has not been any change in the price of needle coke. As I said, availability is not an issue. And before you ask that question, let me clarify. In our case, the conversion cost being fairly low, our fixed costs are probably the lowest amongst all the graphite producers. So the total cost of converting needle coke to finished electrode is not very significant. And as we see, especially America, America is still going very strong on steel. And as Manish just responded to your question, America also happens to be our single largest location for exports after India. So it doesn't take too much to keep the inventory of finished stock rather than keeping the inventory of needle coke per se. So we have taken a very conscious decision that this is a small, short blip in the market. And we see this market turning around maybe in 1 quarter or maybe in 2 quarters. So it doesn't tie up a lot of your money if you keep needle coke or you convert the needle coke into electrode. So for any short-term blip, we don't want to take the risk of losing the market and losing the market share. So that's the only reason we keep producing at 90%, even if we are not selling all that product.
I understand. And just 1 last question from my side, probably a clarification of a number which you gave in your opening remarks. So the new -- for the decarbonization trend, you mentioned that 20 million to 25 million tons of EAF capacity, greenfield capacity, it's likely in the U.S. Am I correct? And by which year are we expecting?
We gave some breakup, about 6.5 million tons is already starting in the next 3 to 4 months. We have the names. We have the locations. We have the capacities of each one of these, about 25 million tons overall that I'm speaking about. So 6.5 million to 7 million tons is starting in the next 3 to 4 months. And by middle of 2023 or let's say, by end of 2023, we expect another 10 million to 12 million tons and the rest from early 2025 onwards. It doesn't take too long to put up a electric arc furnace, very much less compared to a blast furnace. Mind you, this 20 million to 25 million tons is only America. And it's only America because America produces more than 70% of its steel through electric arc furnace.
The next question is from the line of Nicola SKP Securities.
Yes, sir, recently, GrafTech has to close down their Mexico plant which was having an annual production capacity of 60,000 or representing 30% of the total GrafTech production? It is the only site which was also producing pinch, which has been utilized by all the GrafTech graphite electrode production. So in the recent con call, they have highlighted that they are trying to mitigate this nip production by shifting it to either at St Marys facility or at one of the European facility, but which will take some time. Plus, they have given the guidance of lower Q4 and the Mexico plant remained close, then they are saying that the 50% of the sales volume will get impacted in H1 calendar year '23. So in such a scenario, if the plant remained close, Mexico plant remain close for at least for the next 3, 6 months, how you foresee the graphite electrode supply shaping up?
It is one of the 3 largest plants in the world. I mean our -- if we call it the largest with 80,000 tons going to 100,000 tons, there's another plant in U.S. offshore [indiscernible] which is 70,000 tons. And this plant of GrafTech in Mexico is the third one with 60,000 tons. And as you rightly said, the nipple, which is a very critical product with electrode, 1 electrode goes with 1 nipple. It's basically just a 4% weight of the total electrode. But without that nipple, you can't join the next electrode. Electrode being consumable every couple of hours, every 6-hour, 8 hours as you consume 1 electrode, you keep adding 1 more piece of electrode and that is where you need this pins or nipples, you call. So typically, both these large companies who have more than 1 location for producing electrode, they have this tendency of concentrating their nipple production all at 1 place. And then they airfreight the nipples to their other locations to sell electrodes and nipples together. So unfortunately, in this case, Mexico is the location where 100% of nipples of GrafTech's entire 180,000 ton capacity were produced in Mexico. And that is the plant where there have been problems for about 2 months now. Now whatever we know, we only know from the public discourse and a lot of papers that they have disclosed in the public domain. So basically, we don't have any more information than what you have. But the fact is that this plant has been closed for 2 months. And they have themselves said that they don't see an early resolution. And they have been saying that in the current quarter, which is the October-December quarter, they will only -- their sales will go down by about 25% to 30%. And going forward, as their nipple inventory keeps coming down and down, because they're not producing any more nipples. And without the nipples, electrodes cannot be sold. It cannot be used. So going forward, if this problem continues for, let's say, the next even 6 months, then it is a problem. It is a problem for the whole industry. I mean, then this -- whatever tonnage is available with GrafTech, will get hampered. And they've clearly said that in the recent reporting to the SEC.
Okay. So can we expect a windfall volume coming up in first half of next financial year? Since we are already producing at around 90% production levels, while our sales volume would be somewhere close to 65%, 70%. So can we expect to liquidate our excess inventory? Is there any windfall gain coming because of this?
We will be, of course, I mean, if a large part of GrafTech sales comes down because of nipples, then obviously, everybody else, I mean, we are not the only ones, I mean whoever else is in the production of electrodes. That's the only options. And we have already started seeing some movement there. I mean as Manish said, America happens to be one of our largest export markets, and the Mexican plant was majorly supplying to U.S. GrafTech doesn't have operating facility for electrodes in U.S. So most of the U.S. sales were coming from Mexico, which is very close to that -- which is close -- which is next-door to U.S. So we've already started seeing that kind of a movement. I mean the inquiries and the pace of negotiations and the new orders which are trickling in now, we are getting a feel that more and more demand is taking, let's say, distributed to the remaining 2, 3 producers of electrodes.
The next question is from the line of Bhavin from Enam Holdings.
Yes. A few questions. First, on the graphite and the new project what you are planning. Can you give some economics on what kind of product is in [indiscernible]? What's the raw material use? What kind of EBITDA margins this product can generate? What are the critical raw materials would be for? And what would be the payback you are targeting for INR 1,000 crores CapEx you are planning for first 10,000 tons. Some economic, yes.
So on the CapEx, you spoke about INR 1,000 crore CapEx. We're expecting a turnover to CapEx ratio of approximately 1:1, the raw material, and that's why we have ventured into this particular segment is that the raw material that we use for our graphite electrodes, let's say, the needle coke and the Indian coke that we use, it will be more or less the same for this particular venture as well. So the raw material price would really kind of depend on the prices of that day. The selling price, of course, this is a highly value-added product, which is not sold in tons, it is sold in KGs, et cetera. So you're looking at a much higher per unit realization of more than double of what you are currently seeing in our graphite electrodes business. And basically, the processes are quite similar, and that is why in terms of the technology, et cetera, we feel confident that we'll be able to do a good job of it. And again, the payback period, et cetera, what you're looking at. If everything works out the way we are seeing it, should be between 5 to 6 years.
Sir, just 1 question here. So since you said that the NSR is almost double and more or less the process is raw material is the same. So can we assume that this business will have much higher EBITDA margins than your current electrodes business? And obviously...
Yes, I mean, electrodes business, as you know, well, it fluctuates between year and years. But if you take the current margins that we have in our electrodes business, the margins in the anode business should be significantly higher than that.
Other question, on the existing electrodes business. You mentioned there's some 6.5 million you mentioned starting in the U.S. in the next 4 or 5 months. If you have the list, can you name 2, 3 players who are expanding this 6.5 million electric arc furnace in the U.S.? And I think you said by middle of 2023, another 10-odd million. So can we get some large CapEx, which is happening in the U.S. so easy to track for us?
I can send it to you separately, but you will find most of the known large steel furnaces in U.S. led by Nucor. I'm sure you've heard of Nucor.
Yes. So Nucor, U.S. Steel and those are the most of the guys who are -- and are they replaced...
No. U.S. Steel is primarily blast furnace. Nucor is 100% electric arc furnace. Then the second large producer of electric arc furnace steel is the U.S. is a company called Gerdau, originally a Brazilian company, which was acquired by Americans. Then there is a company called Steel Dynamics. There are several others. So there are at least should 8 to 10 large EAF steel producers in U.S. who are adding these capacities. We can send you the details separately.
Sure, sure. And sir, they are adding this capacity?
Because it is public information and [indiscernible]. I can just take the names quickly. One is the Steel Dynamics at Corpus. The second one is North Star at BlueScope. The third one is Nucor at Gallatin. Fourth one is again a Nucor plant in Brandenburg. And then there's a group called CMC, that's in Arizona, the 2 plants. One is Astorn, which is probably coming with electric arc furnace. And there is Algoma in Canada and -- all this is public information and you can always ask us offline, we will provide us. No problem at all.
And these are the new capacities heading and they are not replacing the existing either electric arc furnace or...
These are the new electric arc furnaces. There are only very few blast furnaces in North America, as Chairman said, they already have 70% electric arc furnace share they have. So the names that we are taking are for the newly announced per capacities. The replacement is...
These are additional capacities...
And the existing CapEx, I think what you -- ongoing CapEx from 80,000 to 1 lakh, if I remember this was a INR 1,200 crore CapEx. If I see your CWIP, it looks like INR 853 crores. So I think another INR 400 crores is the pending number on this expansion, which should be done by March?
INR 200 crores by March, actually, there were another 2 shops which we are now taking in there. Actually put together, we have spent INR 1,000 crores. There were some 2 shops which were -- came before the expansion, where there will also be of a part the...
So pending is INR 200 crores only?
INR 200 crores, yes.
And there are no other projects. So INR 200 crores and your running capacity would be 1 lakh probably by Feb, March.
Yes, yes.
The next question is from the line of Amol Rao from Kitara Capital.
Sir, I remember that we were talking about tying up our power requirement, especially now that we are going to be operating another 20,000 tons. Talking to, I think, the Madhya Pradesh State Electricity Board for a good power purchase agreement on good terms. Is there some change in that plan? Has that been done anything? Any comments on that?
No, we are not getting any power from Himachal. We have our associate company, which produces about 300 megawatts of hydro in Himachal Pradesh, but that is all sold in the power exchange on a daily basis. So we don't get any power for Himachal. It's not practical in India to get power from Himachal to Madhya Pradesh. The transmission charges and everything is so high that it doesn't make sense. So we are buying 100% from the Madhya Pradesh State Electricity Board and more so 100% because in the last 12 months, 18 months, given the cost of coal and the issues related with carbon emissions as a whole and all that. So we have about 65 megawatts of captive coal generation at the same location as graphite, so which is not operating for the last 2, 2.5 years now because we are able to get everything that we need from the electricity board, which is much cheaper than producing our own power today.
Got it. And sir, will this arrangement also continue for the additional 20,000 tons that is coming on board?
Yes, yes. We have that agreement.
All right. And sir, about the new CapEx, sir, this is going to be, again, at the Mandideep facility only that we operate currently?
You're talking about graphite expansion?
Yes, sir. The anode.
No, no, no. Anode is not coming in Mandideep. I mean we are still to decide the location. We are weighing 2 or 3 options within Madhya Pradesh.
All right. So within Madhya Pradesh itself.
It will be Madhya Pradesh, but not -- it has nothing to do with the existing graphite plant.
The next question is from the line of [ Yash Dantewadia ] from [ Dante Equity ].
Sir, the existing capacity is 80,000, and you're coming up with 20,000 more.
Sorry to interrupt you, [ Yash ], the audio is not clear from your line. Please use the handset mode.
Hello. Am I audible now?
Yes, yes, we can hear you.
Yes. Your existing capacity is 80,000 tons and you've added 20,000 tons more. So you see this 20,000 capacity getting utilized by, let's say, 90%, 95%. How much time do you think it will take you to reach there?
You see, as I explained earlier, I mean, there are 5 -- there are 6 different processes into the production of electrodes. So out of 6 -- so there are 6 shops or 6 processes which are being nearly built for this 20,000 tons, out of which 4 have already started. The fifth one is starting in the next 2, 3 weeks. And the last one will start in early January. And the total cycle for producing electrodes is between 2 to 3 months -- 2 to 4 months, let's say. So in the real sense, the entire 20,000 tons will be available, let's say, from April, May. We'll start the sixth process, the last process in January. But it will take us between 3 to 4 months for us to produce finished product out of this because the process itself is anywhere between 3 to 4 months.
And when do you see this reaching to your -- what's your existing capacity utilization for your 80,000 tons capacity?
As Manish said...
We are running at 90s. As we said in the beginning, we are running at 92%, 93%, 94% level for all these quarters and continue to do so and sales from this quarter onwards is depressed.
So this 20,000 tons that's coming up, which will take another 6 months to get on full fledge. How long do you think this will take to reach 90% capacity utilization?
It depends upon global conditions because steel is -- as soon as the steel production in the world gets back on track, we will be soon seeing this capacity absorbed. But, let's say, internally, what we talk about, let's say, between 1 to 2 years, we should be able to, let's say, within by 2023 end or 2024, we should be at that 90% level because the new demand of electrodes will come in, in the world with new electric arc furnaces, so we expect to get back at the 90% level within 1 to 2 years, that is 2023 and 2024.
[Operator Instructions] Next question is from the line of Pratim Roy from B&K Securities.
Currently -- you just mentioned that you're working with 90% capacity utilization. So what is the volume number how much you have sold in the market? And what is the [indiscernible] if you can throw some light on that? You mention that the [indiscernible] is almost in line [indiscernible] the number, how much is the [indiscernible]?
See if I heard you clearly -- I didn't hear you clearly, but I think what you're asking, how much we sold in this quarter of Q2. So that is in early 70s. And for October to December, that's probably be in mid-60s because we're already in the middle of November, so we can see where we are going. And for the next quarter, we now have started booking for Jan-to-March quarter. So that remains to be seen what level we can reach.
Okay. Okay, sir, what is the current realization for the graphite electrodes that you're enjoying right now?
I mean it's -- I cannot give a specific figure on a price, which is very easy for you to calculate because all we do here is [indiscernible] If you have the capacity utilization, which I already said -- we just have to divide it, but don't let...
Got it. Got it, sir. Got it, sir. 70% is the realization. Okay. Got it, sir.
[Operator Instructions] The next question is from the line of [ Sanjay Jain ], an individual investor.
I wanted to get a little bit more sense on this graphite anode that CapEx that you have announced INR 1,000 crore. What -- like where are we getting this technology from? And what could be the -- could you give something a little bit more on the process, like I want to get some sense on what kind of conversion cost would be and what parameters would be driving those conversion costs?
So technology-wise, today, let's say, 90%, 95% of the entire anode production in the world is in China. And process-wise, this comprises of, I mean, 4, 5 different processes like crushing, grinding, coating the raw material with pitch. And then the main process in this is the graphitizing of the raw material, in which basically where we see as HEG, we have a 50-year experience in the main process, which is the graphitizing of the raw material. So technology-wise, we are pretty confident that a lot of technology is inbuilt in what we have in HEG. Some bit of technology, we will be outsourcing from some European companies and Chinese companies. And process itself, like I said, it's like you have 5 or 6 different processes in the electrodes. You have 5 or 6 different processes in this, but the raw material for both the products is the same and the...
Hello. I'm not able to hear you.
Ladies and gentlemen, please hold the line while we reconnect the management. Thank you.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Over to you, sir. Mr. [ Jain ], please repeat your question.
Yes, I was asking about what kind of process is there in this making of graphite in large. And you were talking -- you were explaining the multiple process, including graphitization and then you lost the line.
Yes. So that's what I was explaining that the 4 or 5 processes and one of the major processes is the graphitization, in which the process is quite similar to what we have in the electrode space, which is where our expertise comes in. And here, the final product is basically crushed graphite powder, which is very, very small in size and made according to the customers' requirements in different shapes or in different kind of qualities. So really, in terms of the technology and processes, we are very confident that we'll be able to do a good job in this particular product and seen the kind of demand that's going to be there in the next 10 years, the potential to keep adding capacity in second or third phases is tremendous.
Okay. Another thing that I wanted to understand is what kind of yields are there -- like if you take -- what are the raw material? Like needle coke you mentioned and you also talked about pitch. So far making 1 kg of finished product what kind -- how much -- what quantities of raw materials is needed?
I mean you can talk about it. It's something very similar to graphite electrode, which will be around 1.2, 1.3 kg for the finished raw materials. So 1.2 to 1.3 kg of this thing raw material to the finished product. And the raw material would be a mix of -- depending on quality and mix of the Indian coal -- coke and imported coke that you have, needle coke. But the needle coke would be very, very limited in its application. Mostly our entire requirement should be met out of the Indian coke itself.
So you're saying that there's less requirement of needle core, more requirement of Indian coke.
Correct. Correct.
[ Cost ton ] of finished product?
Raw material, obviously, the raw material is significantly lower -- but even on a per kg basis, it should be overall lower because the raw material requirement is not what we have for our UHP electrodes. It's more or less what we have for the other electrodes that we have.
Okay. So now since the raw material is cheaper per ton basis, then why is the price of the finished product twice as compared to graphite electrode. Is there too much of processing costs involved in this? Or is it because of the lower throughput per amount of CapEx that we are incurring?
It's a mix of all. It's a mix of demand supply. It's a mix of technology and obviously, it's a mix of the lower throughput. If you're talking about a 1:1 capital-to-turnover ratio, obviously, we will need to have a very high EBITDA over here in order to be, I mean, financially very viable. But even today, what we have seen in the last 5, 7 years, the selling prices are stable for this particular product and the processing cost is very similar to what we have for the graphite electrodes. And going forward also, this is not expected to come down drastically because of the simple fact that the requirement for anode powder is going to go up very, very substantially, not just in India, but across the world. So that demand supply mismatch will always be there. And then you have this 2-year lag time of putting up any new capacity.
Got it. So basically, you're saying that raw material cost per ton of finished product will be lower, conversion cost would be similar. And I missed -- I think you mentioned in the earlier discussion that what is the tonnage out of this INR 1,000 crore CapEx?
Our -- we are talking about 10,000 tons per year plant, which would give us approximately 1:1 capital investment-to-turnover ratio also. So first phase, we are going for 10,000 tons. In the second phase, we'll add another line of 10,000 tons.
Thank you very much. As there are no further questions, I'd like to hand over the conference to Mr. Riju Jhunjhunwala for the closing remarks. Over to you, Riju.
Manish, I think sharing the closing remarks would be directed towards you, I guess. Okay.
Okay. So let me say, friends, thank you very much for attending our call and we remain very optimistic for our business, electrodes, especially with the [ sunrise thing ], anode coming up, we see a bright future for HEG, not only in our bread and butter business of graphite electrode, but also for this new product called anodes, where we are positioning ourselves as a green energy company. So we look forward to speaking to you after the next quarter results are out. Thank you so much and take care.
Thank you, Manish Ji. Thank you, Riju.
Thank you. Ladies and gentlemen, on behalf of SKP Securities Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.