HEG capacity expansion, EAF transition and Greentech demerger support earnings growth

Investment View and Key Drivers

ICICI Direct Research’s July 27, 2026 report is positive on HEG Ltd, supported by the structural transition in global steelmaking towards the Electric Arc Furnace (EAF) route, planned graphite-electrode capacity expansion and potential value unlocking from the proposed demerger. The broker has assigned a BUY rating with a target price of Rs 750, compared with the report CMP of Rs 640, for a stated target period of 6–12 months.

HEG is a leading Indian graphite-electrode manufacturer and exporter, with around 65–70% of production exported to global markets. The company has graphite-electrode manufacturing capacity of 1,00,000 tonnes in Madhya Pradesh.

EAF Transition and Graphite-Electrode Demand

Global steel producers are progressively adopting the EAF process because it emits nearly 75% less carbon than conventional blast-furnace steelmaking. Industry estimates cited by ICICI Direct indicate around 100 million tonnes of EAF capacity additions outside China by FY30. This could create incremental graphite-electrode demand of about 2 lakh tonnes, compared with a current industry size of around 6.3 lakh tonnes.

The industry has recently faced a subdued pricing environment and geopolitical supply-chain disruptions. However, weak profitability has led global producers GrafTech and Tokai Carbon to announce price increases for uncommitted volumes. HEG has also indicated price increases, which the broker expects to begin contributing to earnings from H2FY27E and to support margin expansion.

Capacity Expansion and Operating Outlook

HEG is expanding graphite-electrode capacity by 15,000 tonnes, taking total capacity to 1.15 lakh tonnes by early 2028. The broker views this expansion as a support for volume growth. ICICI Direct characterises HEG’s Q1FY27 result as healthy, although the report does not provide quarterly operating or financial figures.

Greentech Demerger and New-Energy Opportunities

A further investment driver is the planned demerger into two listed entities: HEG Graphite, containing the graphite-electrode business, and HEG Greentech, containing clean-energy ventures. HEG Greentech will include Bhilwara Energy and TACC.

TACC is establishing a 20,000-tonne graphite-anode plant with capex of about Rs 2,250 crore, targeted for commissioning in Q1FY28. The project addresses India’s expanding lithium-ion battery ecosystem. The report cites estimated battery demand of 120–140 GWh by 2030 and an associated anode-material requirement of about 1.4 lakh tonnes.

The anode business is expected to generate EBITDA margins above 25% and return on capital employed above 20%. HEG Greentech also plans to expand Battery Energy Storage Solutions capacity to 6 GWh from 1 GWh and target a multi-fold rise in green-power generation.

Cumulative capex for the venture is estimated at around Rs 5,500 crore through FY30. This is expected to be funded through a 27:73 equity-debt mix, including a Rs 500 crore strategic investment from Singularity AMC.

Financial Performance and Estimates

HEG reported net sales of Rs 2,569 crore, EBITDA of Rs 598 crore, an EBITDA margin of 23.3% and net profit of Rs 181 crore for FY26. ICICI Direct’s estimates are summarised below:

The broker expects sales and profit after tax to grow at around 15% and 73% CAGR, respectively, over FY26–FY28E.

Valuation and Target Price

The Rs 750 target price is based on a sum-of-the-parts valuation using FY28E estimates. The valuation framework includes:

• Core graphite-electrode business: 10 times EV/EBITDA.
• Equity investment in BEL: 2 times price-to-book.
• Other long-term investments: 2 times price-to-book.
• Anode business: 2 times capex.

Key Risks

• A delay in the shift of steel capacity towards EAFs could hurt global graphite-electrode demand.
• Graphite-electrode prices may increase by less than anticipated from H2FY27E, limiting the expected improvement in earnings and margins.