HEG demerger: Emkay Global shares target price amid value unlocking

HEG Ltd has proposed demerger to unlock value by clearly segregating its businesses into HEG Greentech and HEG Graphite. Emkay Global Financial Services on Tuesday expected the demerger process to conclude by June to July 2026 and reiterated its 'Buy' rating with a revised rounded target price of Rs 750.

Emkay ascribed an equity fair value of about Rs 7,500 crore to HEG Greentech, which, after the additional share issuance, translated into a value of around Rs 226 per share. It valued HEG Graphite at about Rs 10,000 crore, or Rs 518 per share.

HEG demerger

Emkay Global said the graphite business would be demerged into HEG Graphite Ltd, with existing HEG Ltd shareholders receiving shares on a one-to-one basis. Subsequently, Bhilwara Energy Limited (BEL) would be merged into HEG Ltd, with shares issued to BEL’s non-HEG shareholders. Existing HEG shareholders would continue to hold one share of HEG Greentech for every share of HEG Ltd held earlier.

Post the merger, the outstanding share count is expected to increase by about 13.7 crore shares to around 33 crore shares, leading to minority dilution to reflect the increase in BEL ownership in terms of assets and profitability for the portion not owned earlier. Upon completion, HEG Graphite Ltd would be renamed HEG Ltd, while the current HEG Ltd would become HEG Greentech Ltd.

HEG Greentech

Emkay said HEG Greentech is positioned to emerge as a battery anode producer, with capacity targeted at 60,000 tonnes by FY32. Phase I capacity of 20,000 tonnes was under construction, involving a capital expenditure of about Rs 2,250 crore. The brokerage noted that land acquisition of around 100 acres and key approvals are in place, engineering and procurement are 80 to 90 per cent complete, and overall project progress stood at about 30 per cent.

The project risk is mitigated by steady annual cash flows of around Rs 300 crore from hydropower assets, along with exposure to battery storage solutions. Emkay said the balance sheet is expected to remain well-capitalised post completion, supported by a Rs 500 crore investment from Singularity and a planned equity-debt mix of 30:70. Total equity requirement is estimated at about Rs 2,300 crore, providing headroom to execute the growth plan.

HEG valuation, target price

In its base case, Emkay Global estimated steady-state Ebitda of around Rs 490 crore for TACC based on 30,000 tonnes of capacity and about Rs 320 crore of Ebitda for BEL. Together, this implied Ebitda of about Rs 810 crore for HEG Greentech. In addition, battery energy storage systems and independent power producer projects could potentially add around Rs 700 crore of Ebitda, based on Emkay’s estimates, with a capex requirement of about Rs 1,950 crore.

However, Emkay treated this as option value, citing the nascent stage of the energy storage ecosystem and uncertainty around market development and product-level economics.

On balance, Emkay reiterated its BUY rating on HEG with a revised target price of Rs 750, reflecting the combined valuation of HEG Greentech and HEG Graphite.