Dear Shareholder''s
 
 THE YEAR 2011-12 CAN BE SUMMED UP AS ONE OF GLOBAL UNCERTAINTIES.
 
 The global economic environment turned adverse following the financial
 turmoil in the euro zone, questions raised about the US economy by
 rating agencies and the unfortunate Tsunami in Japan. In India, the
 Government was caught between the challenge of spurring growth and
 containing inflation, which resulted in an economic slowdown. Besides,
 the sudden rupee depreciation from August 2011 resulted in enhanced
 forex related costs.
 
 The combination of these factors impacted steel demand, our critical
 user segment. While our topline and EBIDTA (before exceptional items)
 grew 28% and 4% respectively over the previous year, our profit after
 tax declined stood at Rs.62.3 crore in 2011- 12 impacted by currency
 volatility.
 
 Sparks of delight
 
 On the face of it, the numbers showcase a gloomy picture of our working
 in 2011-12. However, there were some positive sparks, which helped
 progressively de-risk our business from volatile external factors.
 
 Capacity expansion: Our Rs.225 crore expansion was commissioned in
 February 2012. This provides us with the opportunity to increase our
 market share in the top-end of the graphite electrode market.
 
 This expansion will enhance profitability in two ways: 1) it is
 tailored for large- sized products fetching higher realizations and 2)
 it will cover our production costs (raw material, power and labour)
 more effectively.
 
 Capacity utilisation: We achieved a capacity utilisation of about 90%
 in our existing production capacity which was higher than the global
 average by about 10%, a remarkable achievement.
 
 Wider sales: We widened our geographic footprint. The result was that
 that the adverse external environment notwithstanding, we grew sales
 volumes over 15% in 2011-12.
 
 Liquidity: Despite a financial crisis in various global economies, we
 enhanced our liquidity through stronger relationships with several
 private and foreign banks. This strengthened our cumulative bank limits
 addressing our growing working capital needs.
 
 The trigger
 
 An increase in steel-making through the EAF route will catalyse the
 next round of growth of the global graphite electrode sector.
 
 At HEG, we feel that the EAF steel making route will continue to be
 preferred for various reasons:
 
 - EAF route for steel making is preferred over the blast furnace route
 which is beset with volatile commodity prices and environmental
 considerations
 
 - The cost of energy (critical in EAF steel making) is relatively low
 in developed economies; the per unit cost of energy in the US is
 US{FILE_CONTENT}.06 and in the EU is US{FILE_CONTENT}.08
 
 The EAF route comprises more than 60% of all steel produced in the US
 and over 40% of all steel manufactured in Western Europe –
 approximately a third of the world''s steel production.  Credible
 sources suggest that the EAF steel production will continue to grow in
 developed and fast-developing nations namely Middle East, Russia and
 China marked by affordable power and growing private consumption,
 auguring favourably for the global graphite electrode sector.
 
 India also provides an interesting opportunity for graphite electrode
 manufacturers. Indian ISPs are adding EAF units to their blast furnace
 facilities to strengthen their competitive advantage. Besides,
 increased private consumption over the last decade catalysed domestic
 scrap generation, reducing a dependence on imported scrap and making
 this route increasingly cost-effective. India is expected to add 10 MT
 steel making capacity through the EAF route over the next five years.
 
 Blueprint
 
 At HEG, we are adopting a three- pronged approach to grow volumes and
 profitability.
 
 Value addition: Our recently commissioned new capacity (14,000 TPA) has
 widened our product basket towards value-added products opening new
 windows of opportunity for the Company.
 
 Geographic diversification: We expect to strengthen our presence in new
 and growing EAF markets of BRIC nations and other Asian economies and
 benefit from emerging opportunities in those geographies.
 
 Strengthening relationships with suppliers: We built on our existing
 relationships besides bringing new supplier sources for key raw
 materials.
 
 Message to stakeholders
 
 A 40-year young organization has readied itself to capitalise on
 emerging opportunities with the sectoral upturn.  During the current
 year, an interesting volume-value play is expected to unfold, which
 will strengthen our volumes and profitability.
 
 In conclusion, I would like to thank you for your continued trust in
 our Management and the Board of Directors.  I also take this
 opportunity to thank our customers, employees, suppliers, service
 providers, financial institutions and bankers for their support and
 role in the Company''s success.
 
 
 Warm regards,
 
 
 Ravi Jhunjhunwala,
 
 Chairman and Managing Director