Hindustan Zinc Ltd
NSE:HINDZINC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
289.4
772.3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Hindustan Zinc Ltd
Earnings Call Analysis
Q2-2024 Analysis
Hindustan Zinc Ltd
Hindustan Zinc has marked one year of fatality-free operations, a clear indication of its dedication to safety and robust operational processes. The company has made significant strides in its Environment, Social, and Governance (ESG) efforts, setting ambitious targets to reduce greenhouse gas emissions by 50% for Scope 1 and 2, and 25% for Scope 3, all by FY 2030, with a goal to achieve net zero by 2050. Furthering its sustainability promise, a Zero Liquid Discharge Plant was inaugurated to advance towards a 5x water positive target by 2025. The company's social initiatives continued to flourish, marking positive impacts through education programs, skill development, and sports, contributing to inclusive growth in surrounding communities.
Despite global economic headwinds, including Chinese economic weakness, rising inflation, and interest rates, Hindustan Zinc has demonstrated a robust financial performance. Signs of easing supply chain disruptions and softening inflation are emerging, though the global zinc supply and demand remain under pressure. Meanwhile, the Indian market remains buoyant with infrastructure requirements and the automobile industry driving zinc demand. Lead and silver market dynamics also indicated a shift with increased prices, suggesting a varied impact on demand across different metals. Notably, silver demand is likely to rise owing to its technological applications, such as in vehicle electrification and solar panel technologies.
The company reported its highest ever first half mine metal production despite scheduled maintenance impacting recent output. Revenue for Q2 FY'24 decreased by 19% year-over-year, primarily due to lower zinc prices and sales volumes. However, cost optimization efforts have led to the lowest cost of production in the past six quarters. The EBITDA and net profit have reflected these trends, with decreases traced to lower revenue, partially mitigated by improved cost efficiency. The zinc cost of production before royalty also improved by 10% year-over-year. The management retained cost and capital expenditure guidance, showcasing confidence in the company's cost-control capabilities and future investment plans.
Hindustan Zinc looks forward to starting production from newly commissioned fumers soon and anticipates placing orders for additional fumer sets. The company is also on track to debottleneck smelting operations, aiming to reach a metal production capacity of over 1.25 million tonnes. There are no bottlenecks in mining, and the company is set to accelerate mine development. With the company currently well within the global cost curve and confident about maintaining cost of production, the way forward includes continued strategic investments and operations optimization.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Hindustan Zinc Second Quarter and Half Year FY 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jhalak Rastogi, Associate Director Investor Relations. Thank you, and over to you, ma'am.
Thank you, Nirav. Good afternoon, everyone. I welcome you all to Hindustan Zinc's Second Quarter and Half Year Ending 30th September '23 results briefing. In this call, we'll refer to Q2 FY'24 investor presentation available on the company's website.
Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on Slide #2 of the presentation. Today on the call, we have with us CEO, Mr. Arun Misra; and our CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through financial performance, after which we'll open the floor for questions. I now request Mr. Misra to begin today's call. Over to you, sir.
Thank you, Jhalak. A very good afternoon to all of you. Thank you for joining us today for the second quarter and half year FY'24 Results briefing. Before I begin today's results presentation, I would like to share some of the overarching priorities and themes that have been driving our success over the quarter.
On safety front, it brings me satisfaction to report one year of fatality-free operations. This is a testament to our unwavering commitment to safety, the dedication of our employees and our robust operational processes. Our focused introspection of the key safety-related learnings backed by automation and comprehensive safety training helped us strengthen the safety aspect of all our operations.
Even as we look ahead, our commitment to safety remains resolute as we are determined to continue to invest in safety measures and technology to maintain this record. As an update on ESG, I'm happy to share that Hindustan Zinc became the first metal and mining company in India to have validated science-based targets in line with 1.5 degrees Centigrade target of the Paris agreement.
Hindustan Zinc's ambitious target includes the commitment to reduce 50% of its absolute Scope 1 and 2 GHG emissions and further reduction of 25% of Scope 3 emissions by FY 2030 from the base year of 2020 and to achieve net zero emissions across the value chain by FY 2050.
Moving towards 5x water positive target by 2025, during the quarter, Hindustan Zinc inaugurated 4,000 KLD, Zero Liquid Discharge Plant at Zawar mines, reaffirming the company's vision of zero waste and zero discharge. Coming to an update on our ground CSR activities, it gives me satisfaction to share the progress and impact of our community initiatives in our efforts to promote education and empower individuals with different abilities, we organize visual awareness campaign in Indian sign language, advanced life skill sessions and various other activities as a part of international week of the deaf as a part of our skill development program.
Hindustan Zinc Kaushal Kendra witnessed successful placement of 286 trainees during the quarter in varied trades and skills. I would also like to share that another player of our Zinc Football Academy has been selected to represent India in 2023, under-16 championship in Bhutan and 4 players selected for the under-16 boys national team preparatory campaign in Srinagar.
Driven by inclusive growth and development, we continue to strike towards the 7 key thematic areas to steer our CSR efforts towards betterment of life in the communities, including women empowerment, education, sustainable livelihood, health and water, environment and safety, sports and community asset creation.
A quick snapshot of developments made in the quarter are given on Page 4 for reference.
Moving on to the markets, macroeconomic developments have been a dominant influence on the base metal prices. The global landscape is marked by potential headwinds, including Chinese economic weakness, rising inflation in the U.S. and Europe and the upward trajectory of interest rates.
However, amidst these challenges, there are positive indicators suggesting ease in supply chain disruptions and softening of supply-side induced inflation. The global manufacturing PMI has increased from 48.7 in June to 49.1 in September. The S&P Global India manufacturing PMI dropped to 57.5 in September from 58.6 in August, after rising sharply from 57.8 levels in June.
Though the manufacturing activity in India is at a 5-month low, however, it remains strong with the new orders supporting growth. The Indian economy has shown resilience supported by strong customer demand, advertising efforts and expanded capacities. The global zinc supply and demand forces remained underperforming, globally demand has been muted majorly due to sluggish economy of U.S., China and Europe.
However, the Indian economy remains optimistic, the specific infrastructure requirements continue to bolster and sustain zinc input requirements into the medium and long term. The Indian automobile industry is also on a growth trajectory, and India continues to remain a bright spot in the global steel industry.
Touching briefly on lead. Lead prices increased during the quarter, averaging to $2,170 per tonne despite of the strong Chinese economic growth on account of challenges in the real estate sector, the state subsidies and energy transition credits have been generating EV sales including hybrids, thereby contributing to lead demand.
Along with the supply side issues due to mine closure, demand continues to remain robust on the back of rising urbanization and industrialization in developing nations as well as increased vehicle usage. Growing telecom and infrastructure sectors will further increase the need for industrial batteries fueling the domestic demand.
During the quarter, LME and SHFE stocks swelled on the back of backwardations, closing the quarter at 77,000 tonnes in LME and 71,000 tonnes in SHFE warehouses. Coming to silver. During the quarter, prices oscillated around $23 per troy ounce closing the quarter with an average price of $23.6 per troy ounce.
Silver prices remain influenced by the combination of geopolitical and technical factors, including the dollar strength, gold prices, interest rate expectations, industrial demand and geopolitical tensions in the Middle East. Ahead of the festive season, domestic demand of silver is expected to rise in medium term. Industrial demand globally is expected to increase significantly due to new waste technological developments like vehicle electrification, investment in 5G infrastructure and the ever-evolving solar panel technologies.
Now coming to an update on operational performance. I'm happy to report highest ever first half mine metal of 509,000 tonnes. In the overall performance for the quarter, we achieved modest results influenced by the scheduled maintenance activities, and we are now well positioned to enhance production with our facilities ready to deliver over 275,000 tonnes of metal.
We have also started working towards 1.25 million tonnes of refined metal through various debottlenecking initiatives across [indiscernible], and we target to return with a more comprehensive plan in subsequent quarters. While Sandeep will provide a detailed run-through of our business performance in a few minutes, I will take a moment to share recent developments in our investment front.
During the quarter, I'm pleased to inform you that our internal team commissioned India's first Fumer plant in an innovative method and with the help of online support from Chinese experts. We also commissioned 30,000 tonnes per annum alloy facility and the new concentrator in Rajpura Dariba mines at increasing the products of zinc and lead MIC. The new roaster at Debari and our fertilizer projects are also on track.
I'm happy to share that our 450-megawatt renewable energy power delivery agreement with Serentica is also progressing well and is on track on completion of which over 50% of our energy requirement will be made through green power. For more details, please refer to Page 9 of our investor presentation.
On our growth strategy for FY'24, we remain laser focused on producing concentrate and metal as per the guidance, optimizing cost and enhancing production efficiency to further strengthen our cost leadership globally. Based on the same, we are confident of delivering as per our guidance and would like to keep it unchanged. With this, I hand over the call to Sandeep for an update on the financial performance.
Thank you, Mr. Misra, and a very good afternoon, everyone. In the face of current economic scenario, we posted a robust and steady financial performance in second quarter of this financial, the quarter was underscored by strengthening foundations, reinforcing the fundamental infrastructure and optimizing costs, resulting in strong cash delivery and sustainable growth.
With the continuous cost reduction exercise, while we continue to remain in the first decile of the global cost curve, happy to share that we delivered third consecutive quarter of cost optimization and the lowest cost in last 6 quarters, reflecting our resilience and adaptability in navigating the ever-changing business landscape. As we delve into the details, I will share the company's financial performance for the second quarter and half year ended September '23. Revenue from operations for the quarter was INR 6,791 crores, down 19% Y-o-Y majorly on account of significantly lower zinc prices, lower zinc and silver volume and differential strategic hedging impact, partly offset by better lead and silver prices and favorable exchange rates.
Sequentially, revenue was down by 7%, primarily due to the lower zinc LME and plant shutdown, which resulted into lower volume on account of scheduled maintenance activity, partly offset by improved lead and silver volumes. For the first half of FY'24, revenue from operations stood at INR 14,073 crores, down 21% Y-o-Y, primarily on account of lower zinc LME, metal production and silver production and differential strategic hedging impact, partly offset by better lead and silver prices and favorable exchange rates. Zinc cost of production before royalty during the quarter was $1,137 per tonne, 5% better sequentially and 10% better Y-o-Y in U.S. dollar terms.
For H1 '24, zinc COP was $1,167 per tonne, 7% better Y-o-Y. The cost improvement was mainly on account of softened coal and input commodity prices and better domestic coal availability and utilization further supported by a better grid sequentially. The resulting EBITDA for the quarter was INR 3,122 crores down 29% Y-o-Y and 7% sequentially, mainly on account of lower revenue impacted by significantly lower zinc LME and volume, partly offset by improved costs.
For the half year, EBITDA stood at INR 6,481 crores down 33% Y-o-Y due to lower revenue offset by improved costs. Please refer to EBITDA bridge from Slide 27 to 29 for further details. Consolidated net profit for the quarter stood at INR 1,729 crores, down 35% Y-o-Y and 12% quarter-on-quarter. And for H1, it stood at INR 3,693 crores, down 36% Y-o-Y, primarily on account of lower EBITDA, offset by lower tax expenditures.
In regards to recent development of corporate restructuring, I would like to inform that management has appointed external advisers to assist in evaluating various options and the work is still in progress. Way forward, along with the possible options will be updated to the board upon completion of the evaluation exercise and recommendation by committee of directors.
The effective tax rate for the quarter and first half of FY'24 is approximately 25% in accordance with the new regime. Having demonstrated a constant cost control in our operation, we would like to reiterate the cost guidance and also keep our CapEx guidance unchanged. With this, I conclude my comments and we open the floor for your questions. Thank you.
[Operator Instructions]
The first question is from the line of Amit Dixit from ICICI Securities.
I have couple of questions. The first one is essentially on the cost. So we have seen a very impressive performance on cost, cost production has declined year-on-year as well as quarter-on-quarter. So just wanted to get the overall drivers of that, how much -- whether it was due to increased linkage materialization or due to lower crude costs or -- I mean, what was -- what are the key factors responsible for lower cost? And how much of it is sustainable? Also, if you can give the outlook for Q3, that would be great.
Thanks, Amit. The cost has a 2, 3 key aspects. One is of course, the imported coal prices got softened. We were also able to secure some opportunistic coal parcels. That has also helped. Secondly, while you are right, linkage coal materialization, but at the same time, if you see historically, Hindustan Zinc used to consume in the blend of 30-70. So 30% was the maximum which we used to have linkage coal consumption. However, we modified our power plants in the last 1 year at Chanderiya and Dariba, which has given us flexibility to use almost 100% of the linkage coal in some of the units.
So I will say this is more from the initiative and efficiency, which Hindustan Zinc has developed in an innovative way. So our overall coal basket in the quarter 2 this year has been a 45% blend was of the linkage coal. And we expect that 45% will depend upon the linkage materialization, but the flexibility which we have developed, it is something like which will be constantly is favoring us.
Second aspect, which has been there in terms of specific coal consumption also has gone down. So that is also operational efficiency beneficial. Quarter-on-quarter if we see, our grade has also improved from 7.1% to 7.4%. So these are the 3, 4 factors, which are the driving factor in terms of operational efficiency and the market factor, sir. Of course, there are certain shutdowns, which were planned in the quarter 2, which has also impacted the cost, which will not be there. Coming to the overall cost guidance given the $1,169 cost for the H1, which is well within our cost guidance of $1,125 to $1,175. Given this cost trajectory, we believe that for the whole year, we should be towards the lower end of the cost guidance on a full year basis.
Okay. Great. That's helpful. The second question is essentially on grade improvement. You indicated that grade has improved from 7.1% to 7.4%. Now from the written commentary, it seems that Rampura Agucha production was down in this quarter. So even with Rampura Agucha production down, your grade has improved. So if you can highlight the -- what were the key drivers behind this grade improvement? Because traditionally, we understood that Rampura Agucha has possibly the highest grade of zinc available.
Sure, Agucha normally maintains their grade. The key change happened is at Zawar mine where the grade is normally expected to be, say around 4%, 4.5%, but that goes down because of high dilution. This time in Zawar mine, the work on grade was very well, while Agucha maintained a grade of 13.3%, Zawar maintained a grade of 4.6% which is far above than expected, normally it is a grade of 4.1%. So key work that happened where the quantity in Zawar mine is -- was increasing. And at the same time, they maintained the grade. And that's why the overall grade performance was better in quarter 2.
It's not that Agucha grade has deteriorated. It remained about 13.3%. See, the focus at a low LME environment is to minimize development required for production and maximize on the grade in every mine so that our overall cost of producing the metal in concentrate is the lowest, so that's how you build the cost curve as far as in the low LME environment is concerned. So that strategy paid off in our operations in this quarter 2.
Sir, could you just repeat the Zawar grade. Sorry, I ...
If I look at quarter 2 grade -- see, in Agucha is about 13.3% against 12.5% of quarter 1, okay? And in quarter 2 of last year, it was also 13.3%.
And also, if I add just to supplement Mr. Misra, SK grade has also improved from 4.8% to 5.2%, so on a quarter-over-quarter basis. And even Y-o-Y basis FIC, SK grade was 4.58%, which is now 5.2%.
So in all mines, the idea was that preserve grade, minimize dilution, reduce development request and so that you produce the same metal in concentrate at a lower cost. So that strategy paid off.
So sir, was it a case of it you hitting selectively the richer ways? Or is it because you actually took some...
I can do the mine planning of the sequencing I decide in a way to maximize our production. I can do also the mine planning that slightly reduced over production, but of a better grade. And so that I can slow down progress in one particular section, increase the progress in another particular section. That flexibility offers only when you have multiple locations inside the same mine. So today, Agucha mine has 4 mining locations in the same mine. It's not 1 mine, there are 4 mines inside. Zawar has got 4 different mines. Each of them has got 2 to 3 production centers. So those flexibilities we are enjoying because of we could develop so many mining locations in the same mine over the last 2 to 3 years.
Next question is from the line of Vikash Singh from PhillipCapital.
Sir, I want to understand the Fumer, which you have commissioned, what is the ramp-up time line? And when will be the next fumers would be coming in?
So this fumer is already on and is operating, not that there's a particular ramp up. It's -- it will -- the product that it is producing is going back to operations, and we will be reporting the numbers production separately from fumers, I think in another 15 to 20 days' time. So that is it. As far as new fumers are concerned, we are already working with the technology suppliers. And maybe in a month or 2, we will be in a position to confirm placement of order for another 3 sets of fumers.
Understood. Sir, my second question pertains to our 1.25 million tonne mine [indiscernible] target. So just wanted to understand two things. We have been last 4, 5 years been trying to reach there, but our mining capacity has increased, but not the metal capacity. So what's the hold up there? And -- what's the hold up there? Or technically are we facing some challenges? And what's the time line for this 1.25?
No, no, no. So when we were expanding in that 1.2 million tonne project purposefully, we did not expand the smelters. We said let first the bottleneck is in the mines, let's expand the mines first. And once we can produce more than 1 million tonnes of concentrate every year, then you know that the time has come for expansion of the smelters. So we have produced more than 1 million tonnes for two consecutive years. Every year, we are starting with the opening stock of MIC for the smelters to process.
Even as I speak today, we still have good amount of about 12 to 13 days requirement of metal-in-concentrate in hand for the smelters to operate. So we are now looking at how to -- that's why we have commissioned the roaster project, which will debottleneck our smelter. And then we are also coming back with more debottlenecking projects, which will take smelting capacity to about 1.25 million tonnes or maybe 1.2 million tonnes. And mines are already expanded. Just we need to fast pedal the development part of it, and that should produce more concentrate. No bottleneck in mines as of now.
Understood, sir. And sir, since thermal coal prices are again inching up. Any guidance in terms of 3Q or 4Q COP, which you would like to give it to us?
So if Vikash -- Sandeep here, if you see my first question, which I answered to Amit, we are -- as I say, we are currently at $1,169, which is well within the cost range of $1,125 to $1,175. And we are quite confident that given the Q3, Q4 volumes will be up. We will be towards the lower end of the COP, which we would like to have a confidence to achieve and thermal coal prices, I'm not sure on what basis you're saying it's inching up, it is fluctuating. And for us, it is -- at a landed cost level, it is at the same level at which we procured in the quarter 2.
Understood, sir. Sir, just one last question pertaining to industry. Given the zinc prices have been constantly falling, have you -- what according to you -- what percentage of zinc production could have come under stress and is it possible for you to tell us that is there any zinc production cuts we can experience going forward globally level basically?
Only if I -- as I know, only [indiscernible] mine of the [indiscernible] that got a shut. Apart from this, we did not hear any major cut in the zinc prices. I think everybody is taking the cut in the cost, especially European smelter where the power cost is down. But since the India, we're having a unique advantage on both power and labor. So we are -- continue to remain in the first decile of the cost.
[Operator Instructions] Next question is from the line of Love Sharma from JPMorgan.
Just a question around the NCLT update on the conversion of [indiscernible] earnings, if you can share that standing? And secondly, relatedly, the cash balance, which we currently have more than $1 billion now and the debt outstanding is kind of similar. How should we think in terms of the debt versus cash mix like you would be probably getting some -- doing some negative carry by holding this cash versus the debt on the groups.
So in terms of NCLT, the next date of hearing on the 8th November, and this is more on the procedural aspects. And in terms of the cash and borrowing, you are right, the numbers are similar, but I would like to share that both our investments and borrowings are largely on the long-term basis. So we don't have any negative carry. Specific number, I can't tell, but on the post-tax basis, we don't have any negative carry.
And can I just ask a follow-up? So on the NCLT side, if you could just highlight what is the procedural aspect which is still remaining or pending at the NCLT level?
So second motion has been gone through the NCLT. ROC was supposed to file the reply, which I understand they have filed. Next date of hearing is on the 8th November and then accordingly matter can be reserved for the -- order can be reserved for the announced pronouncement. So let us hope for the best.
Understand. Okay. And then so far as of now, if you just can update on the current [indiscernible] earnings on the books from -- at September 30?
So retained earnings at this point of time in the books is 20,000 -- INR 2,400 crores.
[Operator Instructions] Next question is from the line of Shantanu from [indiscernible] Fertilizers.
Yes. So I was just wondering, we essentially work on the fertilizer sector. So we were looking at your DAP, NPK plant, you said that you have now got a technology partner and we just wanted to know more about it because you see the domestic rock phosphate is a big problem in terms of quality also in terms of availability. So we were wondering whether domestic rock is going to be enough because it's a large-sized DAP plant. So I wanted to know -- what is the capacity of this DAP plant? And what is the kind of investment that you are planning on it? When is it going to be commissioned? Who is the technology partner that you have onboarded? And what do you think is going to be the source of your rock phosphate because, of course, you will be manufacturing the sulfuric acid. So that's what we were thinking we would ask.
No. So your apprehension is very correct. As far as Indian rock phosphate is concerned, and we being in Rajasthan. So RSMM is the only source of rock phosphate, which is a state enterprise. And yes, there are issues. But we are in talk with RSMM for, one, expanding their mines to produce rock phosphate for us, which Hindustan Zinc can extend their help. So it's a matter of finalizing the agreement. And second part is also putting up a beneficiation plant for upgrading the rock phosphate that RSMM has. So that is one part.
Second part is import. We have produced -- in our design, we have considered a certain percentage. If I remember the number correctly, around 40%, 50% of rock phosphate that would be imported. As far as capacity is concerned, it's about 5 lakh tonnes per annum, 0.5 million tonne plant. In the first phase also the design and utility has the capacity of absorbing or taking it up to 1 million tonnes at a later date and our construction partner is L&T and as far as technology partner is JESA.
Technology partner is JESL?
Yes, yes.
JESL, right?
JESA, it's an American company.
American company, okay. Right. So when do you think this is going to be commissioned?
It's in construction only. It will take another 18 months or so -- 18 months, 2 years time number.
[Operator Instructions] As there are no further questions, I now hand the conference over to Ms. Jhalak Rastogi for closing comments.
Thank you, everyone. With this, we close today's earnings call. For any follow-up questions or clarifications on the results, please feel free to reach out to Investor Relations team. Thank you.
Thank you very much. On behalf of Hindustan Zinc Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.