HINDZINCNSEApril 24, 2023

Hindustan Zinc Limited

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109turns

15analyst exchanges

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Management on call

Arun Misra

CHIEF EXECUTIVE OFFICER – HINDUSTAN ZINC LIMITED

Sandeep Modi

CHIEF FINANCIAL OFFICER – HINDUSTAN ZINC LIMITED

Jhalak Rastogi

ASSOCIATE DIRECTOR,

Key numbers — 40 extracted

1 million

share with you that Hindustan Zinc has achieved highest ever metal production in FY’23, crossing 1 million ton metal mark which was promised at the beginning of the year. We could do this through relent

250 megawatt

d into another power delivery agreement with Serentica Renewables for sourcing renewable power of 250 megawatt, thereby aggregating such contracts to 450 megawatts under the group captive scheme. We inaugurat

450 megawatt

Renewables for sourcing renewable power of 250 megawatt, thereby aggregating such contracts to 450 megawatts under the group captive scheme. We inaugurated 550 tons per hour paste fill plant at Rajpura Dar

first EV truck for carrying concentrate from mines to smelters. Hindustan Zinc ranked amongst top 5% ESG scorers in the metals and mining sector in S&P Global Sustainability Yearbook 2023. We have

1.72 million

ing well on our social sustainability goal. We could outreach an ever- highest number of more than 1.72 million beneficiaries in FY’23 through our sustained CSR initiatives. Strengthening our commitment towa

100%

s Kaushal Kendra trained successfully its first all-female batch for unarmed security guards with 100% placement at reputed organizations. Reinforcing the goal of diversity and inclusion, we achieved

19.5%

placement at reputed organizations. Reinforcing the goal of diversity and inclusion, we achieved 19.5% gender diversity as of March 23, inclusive of all genders and sexual orientations. I would like t

weak. Further, as per IMF, 2023 will be another challenging year with global growth of less than 3%, majority impacted on account of monetary tightening, COVID aftermath and a war in Ukraine. Zin

1.5%

struction and the automotive sector for the first half. Global consumption is forecast to grow by 1.5% in 2023. Touching briefly on lead, lead prices in Q4 exhibited an improvement of 2% Q-on-Q, closi

to grow by 1.5% in 2023. Touching briefly on lead, lead prices in Q4 exhibited an improvement of 2% Q-on-Q, closing at $2,145 a ton. Global lead demand exceeded supply in 2022, with lead metal supp

0.7%

ing at $2,145 a ton. Global lead demand exceeded supply in 2022, with lead metal supply down by 0.7% and demand up by a modest 0.5%, predominantly in China, India, Japan and US. However, in the firs

0.5%

ead demand exceeded supply in 2022, with lead metal supply down by 0.7% and demand up by a modest 0.5%, predominantly in China, India, Japan and US. However, in the first half of 2023, muted and balan

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Guidance — 20 items

Arun Misra

opening

“Further, as per IMF, 2023 will be another challenging year with global growth of less than 3%, majority impacted on account of monetary tightening, COVID aftermath and a war in Ukraine.”

Arun Misra

opening

“Global consumption is forecast to grow by 1.5% in 2023.”

Arun Misra

opening

“Such resilient efforts, blended with softening input costs, enabled delivery of strong operational performance, successfully achieving the annual guidance with an EBITDA margin of 52%.”

Arun Misra

opening

“Before I hand over the call to Sandeep for an update on financial performance, I would like to present our production guidance for the fiscal year 2024.”

Arun Misra

opening

“We expect mine metal for the year to be in the range of 1,075 kt to 1,100 kt and refined metal production for the year to be in the range of 1,050 kt to 1,075 kt, while FY '24 sellable silver production is expected to be between 725 tons to 750 tons.”

Sandeep Modi

opening

“For the full year, Zinc COP stood at $1,257 per ton, 12% higher Y-o-Y in USD terms and 21% higher in INR terms, though well, within the guidance given in October '22.”

Sandeep Modi

opening

“Further, as we will be moving to the new tax regime from the fiscal year, our tax rate will be around 25%.”

Sandeep Modi

opening

“Coming to our cost and capex guidance for the fiscal year '24, we expect our zinc cost of production to be in the range of $1,125 per ton to $1,175 per ton for the upcoming fiscal year, which is inclusive of higher mine development expenditure to support future volume growth.”

Sandeep Modi

opening

“The guidance is contingent on the macroeconomic factors impacting input commodity prices.”

Sandeep Modi

opening

“Having said that, given the fact that we have maintained our leadership position in the global cost curve, we remain confident to protect and improve our margins going forward as well.”

Risks & concerns — 4 flagged

We have started implementing critical risk management to prevent further fatalities and it gives me satisfaction to report fatality-free operation during last two quarters.

— Arun Misra

With the potential banking meltdowns and mounting inflation in the US supplemented by China showing few signs of strong economic recovery yet, broader market sentiments continue to remain weak.

— Arun Misra

On demand sides, there has been a fall in global consumption by 3% in 2022 amidst the slowdown of China's economic recovery and possibility of US banking crisis impacting the construction and the automotive sector for the first half.

— Arun Misra

So, this financial year, you see the impact of INR318 crores.

— Sandeep Modi

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Q&A — 15 exchanges

Thanks for taking my question. This is pertaining to the current cash balance that the company has. Given the fact that we paid the dividend primarily by taking a smaller short-term debt, is the company looking to use this cash for any inorganic acquisition or what is the medium-term goal here? Sensitivity: Public (C4)

Sandeep Modi

So currently any acquisition which will happen will be on the basis of the board-approved decision and any valuation or due diligence done. Given the fact that as of now our focus is to invest in the fertilizer and roaster project and currently the company has INR10,000 crores of gross investment in cash in cash equivalent. The borrowing is smaller and compared to the borrowing, our quarter 1 cash flow should be basically recouping whatever negative we are having. And if you see our guidance which we have given, I am sure you can do your math and comfortably we can generate in annual more than

Yes, hi. Congratulations for a good set of numbers and thanks for taking my question. My question is with respect to the mined metal production guidance. So if I look at your guidance, I mean it is, the upper end of guidance is also at 5% high, Y-o-Y. We have hit the mine metal rate of 1.2 million tons in this quarter. While I understand that, it is not that every quarter is uniform, but just wanted to understand why we have given such a subdued guidance and what are the key enablers for us reaching 1.2 million tons per annum and when we will reach it?

Arun Misra

So if I can remind you, we started off the discussion of the growth project as 1.2 million tons MIC. So while we can still produce 1.2 million tons MIC, what we have demonstrated in quarter 4, our focus going forward is actually move from MIC to finished metal. So we are looking at now putting one roaster and then we will try to do some debottlenecking of the leaching circuit to actually build up a capacity of 1.2 million tons. So our immediate focus is to, with the available capacities, produce 1,120,000 tons, more than 1,100,000 tons of metal first and then whatever is that metal that we pro

Hi. Thank you for taking the question. I had a question about in terms of this year from FY'24 onwards. You're going to pay some brand and royalty fee. Can I understand that amount has already been paid in April, and if so, how much is that? And generic question would be, you would pay directly to Limited or to PLC? Thank you.

Sandeep Modi

There's some background noise, but I'm sure you are trying to ask what is the brand fee expenditure. So, during the year, brand fees was approved from the 1st of October. So, this financial year, you see the impact of INR318 crores. And the next year will be depending upon the turnover, it will be 2% of the turnover. But roughly, it should be between INR650 crores to INR700 crores. Okay. Thank you. Can I ask question on the GRE to RE conversion. I know that you got the shareholders vote for that. Do you still need any other creditors vote to happen? Or is the process pretty much done? And on t

Yes, thanks. My first question is on the dividend payout. Now given that we've moved to a marginal net debt level, should we expect dividend payouts to be restricted by the cash flow or we are also okay by taking more debt and pay higher dividend like we did in FY'23? And also, given our FY'23 payments was much beyond our internal accrual, I mean, should we consider this as, frontloading of FY'24 dividend in FY'23, given that you commented that FY'24 cash flow will be used to repay the short-term debt? Sensitivity: Public (C4)

Sandeep Modi

So, thanks for the question. So first of all, dividend payment is, I think, a Board decision. So, whenever it will happen, we will come to know. Obviously, any decision which will be taken by the Board, it will be depending upon the strong financial management. So, I'm sure the Board will consider all these factors before approving any dividend, which will happen in the future. Okay. All right. And just one last thing on the Zinc International acquisition, is it completely on the backburner that is called out? There were reports that the government is suggesting that we should consider the pay

Yes. Hi, thanks for taking my questions. Two things. One is on the cost of production that you have mentioned. Does it include the brand fee? And secondly, we have reduction in cost, which I think would have been a lot higher because the way coal prices have come off. And can you give us some colour as what has been the coal procurement cost and how we see going forward?

Sandeep Modi

So, Rahul thanks for the question. The cost which we report to the market is the V1 cost, which is for the conversion cost, total cost of production, that does not include the brand fee. Second, coming to the cost of coal. If we talk about that, as we said in the last quarter, that we were having certain high cost coal inventory. Obviously, that was taken for decision for the purpose of protecting the coal for the purpose of production. That has been depleted, and our coal cost has gone drastically reduced. And that's why you see, compared to quarter three versus quarter four, $80 cost reducti

Thank you. So my first question is, if you look at Hindustan Zinc balance sheet, it has materially weakened from its peak days of having a very large net cash balance. Now the gross debt is closer to INR12,000 crores. So, at this point of time, what is the management view on the debt on the book on a gross basis? Will management use the operating cash flow to reduce the gross debt on its book? Or should the debt increase through the course of FY'24?

Sandeep Modi

So, I will say Pinakin that this, as a answer for the earlier question also, at the current level of the guidance, and we are sure that we'll achieve this guidance 100%. And as I take the current LME level also, we are comfortably should be able to generate the cash flow of INR10,000 crores. And if you bifurcate in the quarter also, we should be, by May and even, we should be able to recoup, whatever the marginally, INR1,700 crores, INR1,800 crores, net debt is there. Coming back to this cash flow generation, I'm sure at the March end, we should be able to be in a position if we generate the I

Hi sir, thanks for the opportunity. So, my first question is what is the exact quantum of retained earnings as of 31st of March, please?

Sandeep Modi

Hi Ritesh, so exact quantum of the retained earnings, excluding the general reserve is INR1,700 crores, and general reserve is INR10,384 crores. Perfect. That helps. Sir, second question is when we look at the holding at Hindustan Zinc, we find 88% either pledged or encumbered. Sir, can you please detail what this corresponds to and how should we look at this number? Can it go down going forward? Or are we okay with this number at 88%? I think pledge of the shares is something in the hands of the Vedanta. I don't think we can comment upon this. What we read in the media is that, today, the 91%

Thank you. In terms of these capital projects ahead, apart from the fertilizer plant and the roaster plant that we are discussing, are there any other projects on the drawing board as this is?

Arun Misra

Of course, we have our next target will be 1.5 million tons. It may have internal -- some stage of 1.35 million tons before actually going to 1.5 million tons. So maybe another 1 month, we should be able to come clean on what would be the next date, when should we launch the project, what will be investment outlay. So, all that, we are on the drawing board. We are close to finalizing those. Thank you sir and if you can clarify the hedges, what Ritesh was asking. So as of now, we don't have any open hedge position. Thank you sir. Sensitivity: Public (C4)

Thanks for taking my question again. Just wanted to understand the grade of ore in this quarter and how does it compare Q-o-Q?

Sandeep Modi

So, Amit the grade of ore this quarter was 7.42% compared to the last quarter of 6.96%. Great. Thank you. that’s it.

Sir, one question, the brand fee element, which is there, does it accrue to Vedanta India? Or does it go to the parent?

Sandeep Modi

It goes to Vedanta Limited, Ritesh. As we already disclosed in our annual results and also last time, if the brand fee agreement has been signed to Vedanta Limited. Perfect. And sir, just one question. Hypothetically, you are unable to come through, you said another INR10,000 crores of leeway on the books. What is the ideal capital structure that you will be comfortable with? I think this is a forward-looking thing. We will have to see what should be the ideal. And I think we are to -- I think what will be the manner of the use, it is up to the Board. And when it will happen, I think we'll be

I just wanted a clarification on the difference in the gross cash mentioned in the presentation, which is around INR10,000 crores versus adding up the investments, cash balances and bank accounts in the balance sheet, given which is around INR11,300 crores. Any particular reason why the INR1,000 crores has not been accounted for as gross cash?

Sandeep Modi

I'm not sure where you are seeing this, the INR11,917 crores is the debt. We are having INR10,061 crores is the gross investment in cash and cash equivalent. Yes, and one thing is if I add up the investment, cash and bank balances given in the balance sheet, I get INR11,200 crores. So just asking... Okay. Yes. I got your point. There are certain unpaid dividend because if you the way the deposit of dividend on 31st, so there are certain dividends account, which is there in which the dividend money is there, which is a restricted cash, which we can't use because that was funded for the dividend

Yes. Good evening, sir. So just on the guidance for silver production. So, we were targeting 1,000 tonnes sometime back. But even for the next year, we're just targeting about 750 tonnes at the upper end. So, is the lead production constrained or – when can we actually achieve this 1,000 tonnes of silver production?

Arun Misra

No. So fantastic, fantastic. I must appreciate your question. This has to do with -- absolutely, you have hit the nail on the head. Our entire operating flow sheet is comprising of zinc plus lead as a medium of production in the pyro. And instead of doing only lead production in the pyro plant of Chanderiya. Whenever we do this, we always have lead MIC getting unconverted to metal and that is lying in stock. Even last year also, we ended up with having a lot of lead MIC in stock, which if we could convert, we could have produced some more silver. But we always preferentially use SK mine lead c

My question is about the -- your cash management generally, because in the past, we have seen some cash in the form of unquoted mutual funds and perpetual securities. Can I understand how easy this is to liquidate when you have to, let's say, for dividends or any other purpose? That's the first question and second, on the status of your transfer of retained earnings to general business, where do we stand on that one?

Sandeep Modi

If you see the investment, the investments are quite liquid whenever we want to sell. And while it is a long-term investment remain in the market, but however, we have been able to liquidate and we also can have a repurchase borrowing from these investments. So, beyond that, I won't be able to comment upon the investment part. In GR to RE, I think I've already answered that INR10,384 crores is there and the second motion has been filed in the NCLT in April, and we await the hearing from them. Okay. Thank you.

Sir, thanks for taking the question. I just want to remind a bit back. This is pertaining to Hindustan Zinc - Zinc International transaction. I just wanted to understand, sir, how will the flow of capital work. To my limited understanding, I think that we had taken an approval to create a wholly owned subsidiary, overseas subsidiary. I think it was called HZWOS. And then basically, we had to purchase subscribe to the shares of Zinc International, which was THL Zinc. And this was like a $3 billion, $2.9 billion, to be precise. I just wanted to understand, sir, how will the capital flow. You hav

Sandeep Modi

Until now, we have not incorporated any wholly owned subsidiary. It is part of the whole proposal. Since the proposal is yet to be approved, how can we create the subsidiary? Okay. But sir, hypothetically, if it had been done, how would have the money flowed? Money, if hypothetically will happen, it will happen from here to wholly owned subsidiary and wholly owned subsidiary buying from THL Zinc. But until now, I think we'll not able to -- we'll be unable to comment given that it is not yet approved by the Board -- yet not taken up from the shareholder purpose. Okay, sure. Thank you. Thank you

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. Sensitivity: Public (C4)

Arun Misra

Thank you. Thank you.

Speaking time

Sandeep Modi

Moderator

Arun Misra

Ritesh Shah

Abhiram Iyer

Amit Dixit

Pallav Agarwal

Love Sharma

Sumangal Nevatia

Pinakin Parekh

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Opening remarks

Jhalak Rastogi

Thank you. Good afternoon, everyone. I welcome you all to Hindustan Zinc’s Fourth Quarter and Full Year FY’23 ending 31st March ‘23 results briefing. In this call, we will refer to Q4 FY’23 investor presentation available on our 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 number two of the set presentation. Today on the call, we have with us our 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 will open the floor for questions. I now request Mr. Misra to begin today's call. Over to you, sir.

Arun Misra

Thank you, Jhalak. A very good afternoon to all of you. Thank you for joining us today for the fourth quarter and FY’23 results briefing. At the outset, I am very happy to share with you that Hindustan Zinc has achieved highest ever metal production in FY’23, crossing 1 million ton metal mark which was promised at the beginning of the year. We could do this through relentless efforts on our operational efficiencies in our smelters backed by consistent mine metal production in our mines. With our ever increasing silver production, it brings me great pleasure to share that Hindustan Zinc has now become the fifth largest silver producer globally. A quick snapshot of developments made in the year are given on page six and seven for reference. Coming to our key priorities on safety front, in line with our commitment to ensure zero harm to employees, the leadership has undertaken the prime responsibility of providing a safe workplace for all employees entering our premises. We have started i

Sandeep Modi

Thank you Mr. Misra and a very good afternoon to everyone. Supported by a consistent financial performance across the quarters, Hindustan Zinc experienced yet another record-setting annual performance, delivering historic high revenue, EBITDA, net profit and cash flow generation. This splendid performance is an accurate demonstration and a testimony of our continued efforts on operational efficiency, volume enhancement, cost optimisation, backed by agile decision making and a favourable LME environment. All of this has enabled us in sustaining robust and resilient margins even in an input commodity inflationary environment. Coming to an update on the financial performance for the fourth quarter and the full year ended March '23, revenue from operations for the year was at a record INR34,098 crores, an improvement of 16% Y-o-Y. This was supported by improved Zinc LME and volumes, gains from strategic hedging of approximately INR800 crores, favourable exchange rates and better lead and s

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