The global steel industry is a major polluter, accounting for about 7-9% of global greenhouse gas emissions. The traditional blast furnace-basic oxygen furnace (BF-BOF) manufacturing process is highly carbon-intensive, emitting an average of 2.33 tons of carbon dioxide per ton of steel.
To align with the Paris Agreement's climate goals and pre-empt the imposition of aggressive carbon taxes, major steel manufacturers are actively shutting down their legacy blast furnaces and replacing them with electric arc furnace (EAF) technology.
This transition is rapidly restructuring the global steel industry. In the Western world, EAF steel production has steadily risen from 44% of total production in 2015 to 50% in 2023 and 51% in 2024. The United States and Europe are leading this shift, and this is where HEG is positioning itself.
HEG's core business: graphite electrodes
HEG is the world's largest single-site manufacturer of graphite electrodes and the third-largest producer in the Western world. It manufactures ultra high power (UHP) and high power (HP) graphite electrodes.
The 3,000°C moat: dominating the graphite market
UHP electrodes account for about 70-75% of its product mix. These electrodes function as electrical conductors in EAFs, where they generate the intense heat (up to 3,000°C) required to melt steel scrap. It imports calcined petroleum needle coke, the primary raw material, from global suppliers using short-term contracts to align with electrode pricing and manage price risks.
A massive entry barrier
HEG exports about 65-70% of its production to over 35 countries, catering to the top 25 steel producers worldwide. The manufacturing of graphite electrodes involves complex graphitization technology that takes anywhere from five to six months per batch. HEG was the last new entrant in the Western world in 1976, underscoring the massive barriers to entry.
Operating 100,000 tonnes per annum (TPA) of capacity under one roof gives HEG economies of scale, making it one of the lowest-cost producers in the world. It aims to expand capacity to 115,000 TPA by early 2028 to capitalize on the strong demand.
The green-steel tailwind
EAF-produced steel emits only one-fourth of the carbon that traditional blast furnaces produce. As the global steel industry pushes toward decarbonization, EAF steel production is growing rapidly (currently at 50% of global production, excluding China), driving long-term demand for graphite electrodes.
For HEG, the math behind this green steel tailwind is straightforward. For every one million tons of steel melted in an EAF, about 1,500-2,000 tons of graphite electrodes are consumed. HEG expects 110 million tonnes of new EAF capacity by 2030.
This is projected to generate incremental demand for graphite electrodes of about 190,000-200,000 tons globally (excluding China) by 2030. This represents a significant demand shift for an industry, in which the current total UHP electrode capacity (ex-China) is only around 500,000-600,000 tons.
How 20% volume growth doubled HEG's profits
With demand increasing, HEG’s revenue increased by 21.6% to ₹1,965 crore in 9MFY26, driven primarily by its core graphite electrode business. This growth was entirely volume-led rather than pricing-led, with volumes rising about 20%.
HEG operated at a capacity utilization rate of 89%, the highest among global graphite producers. Ebitda jumped 58.5% to ₹623 crore, while margins expanded 740 basis points to 31.7%. Net profit more than doubled to ₹344 crore, up from ₹163 crore in the same period last year.
Demerger logic: unlocking the greentech platform
While the graphite electrode business remains the core cash generator, HEG is simultaneously restructuring its corporate structure to unlock more value. The traditional graphite electrode business will be demerged into a new entity called HEG Graphite, which will eventually be renamed HEG Limited.
The current listed entity will absorb the group's renewable energy assets, Bhilwara Energy Limited, and be renamed HEG Greentech Limited. This restructuring separates the cyclical graphite electrode business from the long-duration clean-tech platform.
HEG Greentech: The new growth platform
HEG Greentech is being built as a technology-led, integrated clean-tech platform designed to capitalize on India's energy transition. It operates across four business models: advanced battery materials (TACC), battery energy storage solutions (REPlus), storage-based renewable IPP, and hydro power.
Each vertical plays a distinct role in the broader strategy.
TACC: The lithium-ion anode disruptor
TACC is spearheading HEG Greentech's entry into the lithium-ion battery supply chain by manufacturing synthetic graphite anode active materials. Leveraging HEG's expertise in complex graphitization, TACC will sell high-quality anodes to global and domestic cell manufacturers for use in electric vehicles and energy storage systems.
The company is constructing a 20,000 tons per annum greenfield facility near Indore, spread across 100 acres. Commercial start of production is slated for April 2027, with long-term plans to expand capacity to 60,000 TPA by FY32. A 200-tonne pilot demo plant is already in operation, enabling TACC to supply validation samples to over 20 cell manufacturers worldwide.
TACC is also developing next-generation materials including silicon-doped anodes to increase energy density and graphene-based anodes for faster charging. It also plans to build a more than 4,000 MT graphene derivatives facility to serve industries ranging from cement to advanced textiles.
This business aligns with the current anode market, which is dominated by synthetic graphite (about 85% of demand), with natural graphite making up the remaining 15%. Also, Indian cell manufacturers have announced capacity targets of 120-140 GWh by 2030, which will lead to demand of 130-150 kTPA anode.
REPlus: Battery energy storage solutions
Complementing the materials strategy, REPlus operates as an end-to-end BESS provider, designing, engineering, assembling, and commissioning battery packs and large-scale container solutions for the EV, utility, hybrid, telecom, and data center markets. This business expects to benefit from government targets of 30% EV penetration by 2030.
Currently operating at 1 GWh of cell-to-pack capacity, it aims to expand to 6 GWh by Q2 FY27. At its peak capacity of 6 GWh, the business aims for about ₹6,000 crore of revenue. Beyond India, REPlus has commissioned projects in Saudi Arabia and the Democratic Republic of Congo, and recently established an office in Dubai to tap into the Middle East and Africa energy storage markets.
In addition to manufacturing, HEG Greentech is focusing on "firm and dispatchable" hybrid power by combining solar with BESS. The business aims to capitalize on rising BESS demand as standalone solar projects are becoming less viable due to grid intermittency. The company targets building a portfolio of 2.3 GWp of solar and 5.9 GWh of BESS by FY30.
Build and flip business model
To manage capital efficiently, the company plans to primarily serve commercial & industrial clients through a capital-efficient asset recycling model. Instead of tying up capital as a long-term asset owner, HEG will build solar+BESS assets, operate them for 6 to 12 months to establish operating performance, and then sell (flip) them to yield-seeking investors such as renewable energy InvITs. This strategy aims to deliver an equity internal rate return of 16% to 20%.
Cash engine: Why hydro power funds the future
While the other three pillars represent growth initiatives, the hydro power segment is the platform's financial bedrock. HEG Greentech fully owns two debt-free hydroelectric assets in Himachal Pradesh: the 86 MW Malana plant and the 192 MW AD Hydro plant.
Because these plants have 3.5-4 hours of reservoir capacity, they can sell power during peak tariff hours as merchant plants. They consistently generate Ebitda margins of more than 80% (amounting to over ₹370 crore) and yield over ₹300 crore in free cash flow annually.
This cash generation materially supports the capital requirements of the broader greentech platform. The company is also in the process of acquiring a 76 MW hydro project in Uttarakhand (Phata Byung) to bolster this portfolio.
₹7,700-crore roadmap: How HEG is funding its energy ambitions
To realize this vision, HEG Greentech has outlined a capex plan of ₹4,300 crore by FY27, escalating to a cumulative ₹7,700 crore by FY30. Based on a 30:70 equity-to-debt ratio, the equity requirement is roughly ₹2,300 crore.
This is supported by steady cash flows from the hydro assets, surplus cash on hand, and a recent strategic equity injection of ₹500 crore by the Singularity Growth Opportunities Fund, led by investor Madhusudan Kela.
Demerger math: Is the market underestimating HEG Greentech?
An independent PwC valuation report projected HEG Greentech would bring in about ₹5,000 crore of revenue by FY30, with an Ebitda margin of 20-25%. However, HEG's management has said these numbers are conservative.
The ₹5,000 crore projection does not include any growth or capacity expansion in the TACC (anode) business beyond the initial phase. It was calculated before HEG Greentech acquired the remaining 49% stake in the hydro assets from Statkraft (thereby fully consolidating hydro revenues). It did not consider the financial returns from the new IPP business either. At ₹587 per share, HEG is trading at a 16.5 EV/Ebitda multiple, in line with the 10-year median of 18 and even a discount to Graphite India (25.6).
Key risks
The graphite electrode industry is intrinsically linked to global steel production. Any weakness in global production puts short-term pressure on graphite electrode demand and keeps spot prices depressed.
The emergence of alternative green steelmaking methods, such as hydrogen-based steelmaking, poses a long-term threat that could reduce the effectiveness of the EAF method and, consequently, graphite electrodes. The expansion of UHP graphite electrodes by Chinese manufacturers (200,000 tons coming online) also poses a future competitive risk.
HEG made a strategic investment in GrafTech International, a major competitor in the US. The value of this investment has declined considerably, with GrafTech's stock price falling from $19 to around $7. GrafTech is currently operating at a loss (around $65 million per quarter) and faces high production costs.
In the BESS market, lithium and cell prices are volatile and largely dictated by supply dynamics in China. The market could pivot away from lithium-ion batteries toward emerging technologies such as sodium-ion or solid-state batteries.
Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.
The writer does not hold the stocks discussed in this article.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.