A Graphite Cash Cow and a Battery Bet - Going Their Separate Ways

This is post #11 on our Special Situations Alert written weekly on The Financial Express website. Read Special Situations Alert here.

Happy Sunday folks,

The year is 2024.

HEG Limited, An LNJ Bhilwara Group company and the owner of the world’s largest single-site graphite electrode plant, decided to split into two halves.

On one side sat the graphite electrode business: a nearly five-decade-old, cash-generating, deeply cyclical export machine, with roughly two-thirds of sales going overseas, that supplies the electrodes which power Electric Arc Furnace (EAF) steelmaking around the world.

On the other sat a fast-growing, capital-hungry clean-tech cluster: a lithium-ion battery anode plant under construction, two hydro power stations, a battery-storage EPC business, and an independent power ambition stretching to 2030.

Two businesses. Different customers, different capital needs, different risks.

One stock price trying to value both.

So HEG signed off on a Composite Scheme of Arrangement to split them. Here is what is happening, where it stands, and what the prize might look like.

Special Thanks to a Special friend for special insights on this Special situation 🙏🏽

Why HEG is splitting

The graphite electrode business is a genuine global franchise.

HEG runs a 100,000-tonne-per-annum plant at Mandideep near Bhopal, backed by roughly 77 MW of captive power. It supplies to the Top 25 steel producers outside China across 35-plus nations.

HEG has a ~5-6% global market share including China but in the market it competes it has a higher ~16% share by capacity (and ~19-20% by volume) Ex-China.

In FY26, it did revenue of Rs 2,568 crore and EBITDA of around Rs 497 crore, with no long-term debt. A year where “Sales volumes were up 20% year on year, even as the broader industry contracted.”

But it is cyclical, and FY26 sat near the bottom of that cycle.

However, even during a ‘downturn’ - HEG held capacity utilisation “above 90% throughout the year,” while it pegged the global industry average at 60 to 65%. For a cyclical business, this is a hallmark for a low cost producer.

Sitting inside the same listed company was a completely different animal: the clean-tech build-out.

A 20,000-tonne graphite anode plant (via a wholly owned subsidiary, TACC), 278 MW of hydro assets housed in associate Bhilwara Energy, a battery-storage EPC business (RePlus), and a solar-plus-storage IPP plan.

In a January 2026 ‘Demerger webinar’, management summarised the the rationale as:

“We are at an inflection point where two strong franchises sit within one listed company, a mature cash-generating graphite electrode business and a fast-scaling green tech growth platform. These businesses have different growth drivers, risk profiles, capital needs and valuation frameworks. The scheme is designed to unlock value for public shareholders by creating two focused listed companies.

In plain terms: a relatively slow, cyclical but cash generating business was being valued along with a high-growth, high-spend energy-transition bet.

Neither was being valued properly in 2024 when the scheme was approved by the Board. Since then the valuation multiples (EV/EBITDA) have improved, partially ‘unlocking value’.

But there might be more on the table.

What the scheme actually does

This is a two-part corporate move bundled into one scheme, with an appointed date of 1 April 2024.

Step one, the demerger. The graphite electrode business is carved out into a company currently called HEG Graphite Limited. On the record date, every HEG shareholder gets 1 share of this new company for each HEG share they hold (a 1:1 ratio). This entity is then renamed HEG Limited and listed separately. This will become a pure-play graphite company.

Step two, the amalgamation. Bhilwara Energy Limited (BEL), currently an associate company, which houses the two hydro assets, merges into the existing HEG Ltd. BEL’s outside shareholders receive 8 HEG shares for every 7 BEL shares they hold (an 8:7 ratio, set by independent valuers). The existing HEG entity is then renamed HEG Greentech Limited.

In management’s own words:

“Post implementations, HEG Graphite Limited will be renamed HEG Limited and the current HEG Limited will be renamed HEG Greentech Limited... You will hold shares in the legacy business of graphite electrodes through the new HEG Limited company and you will also hold shares in HEG Greentech”

So a shareholder who owns HEG today ends up owning two listed companies: the graphite pure-play, and the clean-tech platform.

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Where the assets go

HEG ltd - Scheme of Arrangement summary

First, where things stand today.

One listed company, HEG Limited, currently holds everything under a single roof: the graphite electrode business sits directly inside HEG (the 100,000-TPA plant, the captive power, the treasury and the ~10% GrafTech stake), alongside three wholly owned subsidiaries:

1. TACC (the anode plant under construction)

2. HEG Graphite Limited (an empty shell created to receive the demerger),

3. Bhilwara Infotechnology (a small IT arm).

The power and green-energy assets are held through a 45.62% associate stake in Bhilwara Energy (BEL) (equity-accounted, not consolidated), which in turn owns the 278 MW of hydro plus the RePlus storage and IPP entities.

So, today an investor buying HEG gets a cyclical manufacturer, an under-construction battery-materials business, and a minority slice of a power platform, all in one line.

To put it more simply, this is what the structure looks like today:

HEG Ltd - Simplified corporate structure

Source: Author illustration

Into the new HEG Limited (graphite pure-play): the 100,000-TPA Mandideep plant (expanding to 115,000 TPA by early 2028 at roughly Rs 650 crore of capex), the captive power, the treasury (about Rs 729 crore, debt-free), and HEG’s roughly 10% financial stake in US-listed peer GrafTech.

Into HEG Greentech Limited: the TACC anode platform (20,000 tonnes, commissioning targeted around March 2027), the 278 MW of hydro that comes in with Bhilwara Energy, the RePlus battery-storage EPC business, and the solar-plus-BESS IPP plan.

The timeline: why this one dragged

Here is where HEG differs from the other demergers we have covered. Most move from board approval to listing in roughly 12 to 18 months. HEG’s has taken far longer

• May 2024: Board approves the original composite scheme. Appointed date backdated to 1 April 2024.
• August 2024: Shareholders approve a share sub-division (1 share of face value Rs 10 into 5 of Rs 2), setting up the face value used in the swap ratios.
• March 2025: The boards approve a modified scheme. The changes were largely about valuation.

On the same day, BEL cleared a fresh capital raise from an outside investor (Singularity AMC), which changed BEL’s value and therefore the merger swap ratio, so the scheme was reworked with updated valuation reports and a new fairness opinion to reflect it. (The filings attribute the modification to SEBI’s observations plus these updated valuations - they do not spell out the specific points SEBI raised.)

• January 2026: BSE and NSE finally issue their observation (No objection) letters (8 and 9 January). The scheme was filed with the NCLT, Indore Bench, on 24 January.
• May 2026: NCLT-convened meetings of shareholders and creditors are held on 5 May, and the scheme is approved by the requisite majorities.
• 2 July 2026: The NCLT hears the petition and reserves its order. As of writing, the sanction order is still awaited.

By late 2025 management was already managing expectations. On the Q2 FY26 call it said:

“While the process has taken longer than anticipated, we are confident of receiving stock exchange approvals in due course...Based on the current time table, we expect NCLT approval by April 2026.”

That April 2026 target came and went. By the May 2026 call the guidance had shifted to “we anticipate that the scheme could be approved by the NCLT sometime in the second quarter of this financial year” (that is, by around September 2026).

Effectiveness, the record date, the share allotment, and the separate listing of the graphite company all still sit on the other side of that order.

For a patient investor, a long-delayed but now near-final scheme can be exactly the kind of setup where the catalyst is close and the crowd has lost interest.

What’s in it for shareholders?

Let us put some rough numbers on it. Two things drive the “size of the prize”: a possible re-rating of the graphite business as its cycle turns, and a separate value for the clean-tech platform.

If The graphite cycle turns.

The core bull case is that the electrode cycle is bottoming just as the split completes. HEG’s own commentary supports the demand side. On the May 2026 call, management called the EAF build-out “unprecedented in the history of the steel industry,” expected to translate into “incremental electrode demand of around 200,000 tons by 2030, excluding China.”

On pricing, larger US peer GrafTech announced electrode price hikes, and HEG management has framed the industry as overdue for a rise. As the executive director put it on the Q4 FY26 call:

“The graphite electrode industry was looking for a price rise not from now for the last almost 2 years because this is unsustainable for them...now there is a Middle East situation, rise in energy, rise in freight. So, this is the last straw in the camel’s back.”

If HEG takes a similar per-tonne price increase, the operating leverage is significant, because most of HEG’s costs are rupee-denominated and fixed while its revenue is dollar-linked, so a weaker rupee is a tailwind.

FY26’s reported EBITDA of Rs 497 crore (up from Rs 388 crore in FY25) came mainly from the 20% jump in sales volumes, improvement in EBITDA margins from 17% to 19%, but a meaningful impact of price hikes are expected to show up by September 2027.

Another caveat is that this Rs 497 crore EBITDA is almost entirely from the graphite business. Greentech sits outside it, because Bhilwara Energy (the hydro/greentech associate) is equity-accounted, so its roughly Rs 400 crore of EBITDA does not appear in HEG’s EBITDA line, only its share of net profit shows up below the line. That’s precisely why the FY27 and FY28 numbers in the Graphite Electrode model below rest on the hike actually landing.

Here is what the graphite business alone could earn as that plays out and utilisation stays high:

HEG Ltd - Graphite Electrode business forward estimates (Read Disclaimer)

The FY27E and FY28E columns rest on a handful of explicit assumptions, each of which one can adjust up or down:

• The price hike. HEG takes the same roughly USD 900 per tonne increase that GrafTech announced (GrafTech’s range was USD 600 to 1,200).
• How fast it flows through. HEG’s book prices gradually, not overnight, because a large share is sold on annual and multi-quarter contracts. The model phases the hike at roughly 65% of the book by FY27 and 100% by FY28. Layered on top of price hikes, this is the next big swing factor.
• By grade. The premium UHP electrodes (about 70% of volume) capture the full hike because there is no Chinese alternative. The basic HP electrodes (about 30%) capture only about 30% of it, because Chinese imports cap the price. This is why blended pricing rises less than the headline hike.
• Volume and utilisation. Roughly 92,000 tonnes volume produced in FY27 at about 92% utilisation, rising to about 104,000 tonnes in FY28 as the 15,000-tonne expansion (to 115,000 TPA) comes on line. Practical ceiling utilisation is capped at 95%.
• Costs, kept simple. Think of HEG’s cost base in two buckets. The only meaningfully dollar-linked, variable input is needle coke, the raw material, at roughly 35% of total cost, and the above table assumes it rises about 5%. The other ~65% (power, stores and spares, employees, other expenses, depreciation) is effectively rupee-denominated and does not move with the electrode price. So when a dollar price hike lands on the revenue line, only about a third of the cost base increases, and the rest stays put.
• On top of that, a weaker rupee (assumed at about Rs 95 to the dollar in FY27 and Rs 97 in FY28) lifts the dollar-linked revenue more than it lifts that one dollar-linked cost. Both effects push the extra price straight into EBITDA.

Put together, the table above attributes the bulk of the EBITDA jump to margin expansion (the hike landing on a mostly-fixed cost base) rather than volume. Change the pace of repricing or the size of the hike and the FY27 to FY28 numbers move materially.

The clean-tech platform. The other half is HEG Greentech. On the ‘Demerger webinar’, management disclosed that Bhilwara Energy was valued at around Rs 3,100 crore for calculating the swap ratio, and that an outside investor put in about Rs 500 crore at a roughly Rs 3,600 crore valuation, implying real third-party validation of the hydro-plus-anode platform.

The anode business most likely deserves a much higher multiple than the utility-like hydro, so the cleanest way to size the whole platform is on its guided EBITDA and a blended multiple range.

Rather than trying to pin down each growth segment’s future EBITDA (which management would not disclose), the useful exercise is to note the multiple each type of business could potentially command - This would be more useful as EBITDA numbers become apparent down the line.

For our purpose today we put a real FY27 number only against the two things management has actually quantified (hydro and the platform total), and then value the whole platform on a blended multiple range.

HEG Greentech - Prospective EBITDA & Multiple Estimates

At that blended 8x to 10x on the roughly Rs 400 to 450 crore of guided FY27 EBITDA, HEG Greentech works out to an enterprise value of about Rs 3,200 to 4,500 crore.

That is effectively the hydro business valued on its own merits, with only a small premium for the growth segments (TACC, IPP, RePlus) that have not yet started earning. The real anode, IPP and storage upside sits in FY28 and beyond and is not captured here, so these estimates are best treated as a near-term floor, not the full prize.

We will use these estimates in the combined sum-of-the-parts at the end of this section.

For those who’re curious, here’s some more digging into the HEG Greentech segments & the assumptions that underline future prospects:

• Hydro is the solid, known anchor. The two Himachal plants (Malana ~100 MW, AD Hydro ~200 MW, about 278 MW together) run at 80% EBITDA margins and, in management’s words on the January 2026 webinar, “deliver almost 370 plus crore EBITDA and a free cash flow of 300 crore plus.” Bhilwara Energy as a whole was put at “around EBITDA of 400 crores,” and an analyst on the same call valued that leg at “8 times” without pushback, roughly Rs 3,200 crore.
• BEL also cleaned up the ownership ahead of the merger, buying out Statkraft’s 49% stake in the two hydro projects for Rs 1,205 crore, so it now owns 100% of them. This is the one leg you can bank on.
• Anode (TACC) is disclosed on inputs, not yet on FY27 profit. With an upcoming capacity of 20,000 tonnes, plant expected to go live by April 2027, capex about Rs 2,250 crore, blended ASP “$7,500 plus,” and EBITDA margins guided at “30%, rather 35% to 40%.” These publicly disclosed figures let you size up the opportunity:

20,000 tonnes at about $7,500 a tonne is roughly $150 million, or about Rs 1,300 crore of revenue at full utilisation, which at 30% margins implies something like Rs 390 to Rs 400 crore of EBITDA once fully ramped. But that is a steady-state, full-capacity figure. Management was explicit that anode EBITDA only starts flowing from Q4 FY27, with the real ramp in FY28 and FY29.

• RePlus (BESS) has a public topline target, thin margins. At the full 6 GW build-out target, management said it “should be able to target Rs 6,000 crores” of revenue, but this is a low-margin assembly-and-solutions business, and it goes live only around Q2 to Q3 FY27.
• IPP is deliberately not a topline story. Management repeatedly said the IPP business “should not be seen from a topline perspective because it is more of an IRR game,” targeting a “16 to 20” percent IRR under an asset-recycling model, with EBITDA beginning around Q2 FY27.

Crucially, on FY27 itself, management would not give a precise segment number.

Asked directly, the strategy head said it was “still too early to comment with certainty because these projects are currently under execution,” but offered one hint: greentech EBITDA “should at least double in FY27 compared to the FY26 figures.”

Since FY26 greentech EBITDA was guided at roughly Rs 200 to 225 crore (on revenue of Rs 500 to 600 crore), doubling implies a FY27 platform EBITDA of about Rs 400 to 450 crore, still almost all hydro, with anode, IPP and RePlus only starting to contribute late in the year.

So the honest read is this: the hydro leg (~Rs 3,200 crore) is firmly public. The anode, IPP and RePlus values, and the exact multiples, are author estimates that management pointedly declined to confirm on the record.

Therefore, treat the platform valuation as a range whose direction the public disclosures support, but whose precise segment values they do not.

Putting the two halves together. A back-of-the-envelope sum-of-the-parts values the graphite business on an EBITDA multiple, then adds the “non-graphite” value that every HEG shareholder also owns: the demerged HEG Greentech platform, net cash, and the GrafTech stake.

Non-Graphite or HEG Greentech + Cash + Gratech stake valuation

Add the graphite business on a range of multiples and you get the “size of the prize.” The table below runs the graphite EBITDA through cautious-to-bullish multiples, adds the non-graphite value, and divides by 19.3 crore shares.

The stock last closed at Rs 527 per share, so the upside is measured from there:

Consolidated HEG Graphite limited - Sum of the Parts (SOTP) Estimates

The catch

A few things to be frank about.

The graphite business is genuinely cyclical, and FY26 showed it: Q4 FY26 posted a reported loss, driven mostly by delays in shipment due to the US-Iran war, an unrealised mark-to-market hit on the GrafTech stake and rupee depreciation, both non-cash.

Management reaffirmed it is holding the GrafTech position as a “deliberate long-term investment,” but the volatility is real and will keep showing up in quarterly numbers.

And of course, the whole thing still hinges on an NCLT order that, as of early July 2026, is reserved but not yet delivered.

So which one wins?

We believe that the graphite pure-play is the obvious institutional pick: an established global franchise, a bottoming cycle, a clean balance sheet, easy to model.

But the pattern in these demergers is that the entity investors are less sure about is often where the surprise lives.

HEG Greentech will list as something the market has never seen from this company: a hydro-plus-anode-plus-storage platform, hard to benchmark, thinly understood on day one.

That’s exactly the kind of setup where mispricing tends to hide.

History does not repeat. But in special situations, it does tend to rhyme.

Hope this was exhaustive and insightful

yours

Rahul Rao, CFA