Hindustan Zinc Limited (500188) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Hindustan Zinc First Quarter FY 2022 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations, Hindustan Zinc. Thank you, and over to you, ma'am.

Good afternoon, everyone. I welcome each one of you today for Hindustan Zinc's First Quarter FY '22 Results Call. Today on the call we have with us our CEO, Mr. Arun Misra; our Senior Vice President and Head of Finance, Mr. Vinaya Jain; and our VP Finance and Deputy CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance while Mr. Jain 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, Mr. Misra.

Thank you, Shweta. Good afternoon, and a very warm welcome to all of you. I trust that you and your families are staying safe and following all necessary precautions as well as taking dose of vaccination to fight against the spread of COVID-19 pandemic in our country. Before I start today's result presentation, I regret to inform you that we lost 2 of our colleagues in an unfortunate accident that happened at our Rampura Agucha mine on 28th of June 2021. I would like to offer my deepest condolences to the bereaved family and friends of the deceased. One life lost is one too many. We commit to stand by their families in the hour of distress. We have conducted an in-depth incident investigation by an independent investigation committee. The learnings from the incident have been reviewed, and they are being implemented across all our operating assets. Nothing is more important to us than safety of our people, and we reiterate our commitment and vision to ensure all employees go home safely. Hindustan Zinc's safety team continuously drive various initiatives to meet our vision and work -- working committees identify critical areas for improvement to address any potential risk. In an unprecedented quarter where second wave caught the country by surprise and took [indiscernible] lives and livelihood, our key strength lies in resilience of our people. The Hindustan Zinc family not only ensured continuity of operations but also supported the local governing bodies in their fight against COVID-19. With the supply shortage of medical grade oxygen, we immediately deployed resources to set a bottling plant in 5 days to refill 500 oxygen cylinders per day to support the state of Rajasthan in their fight against COVID-19. We also supplied 5 tonnes of liquid oxygen every day to all the hospitals in the vicinity of our operating areas. We set up a 100-bed COVID field hospital at Dariba, which will come handy in case there is a third wave, which is believed to be more fatal. In addition, we have handed over 550 oxygen concentrators to the state administration and the vaccination van to Udaipur administration. It is our top priority to control and avoid any spread of the contagion amongst our employees, business partners and their families. Towards this end, we are running a mega vaccination drive, under which 100% of eligible populations have already been vaccinated with at least one dose of vaccine. We will continue this drive until 100% of our employees, business partners and their family members are administered both the doses of vaccine. We have also introduced new policies to support family members of employees in case of any loss of life due to COVID. These include paying last drawn fixed salary until notional date of retirement, education assistance for 2 children till graduation and enhanced medical insurance. In addition, we have supported our business partner employees by providing medical and life insurance policy and then [indiscernible] amount for their family members in case of any loss of life due to COVID. Coming to an update on ESG front, I am happy to inform that Hindustan Zinc has received the Most Sustainable Company in the Mining Industry 2021 award from World Finance Sustainability Award 2021. This is to recognize our product, functional, strategic and managerial innovation and balancing it with commercial insights and market integrity while ensuring sustainability. I am also proud to share that our Rampura Agucha mine, which is one of the largest underground zinc-lead mine operations globally has won CII's Best Application & Use of Renewable Energy award in Fifth Edition CII National Energy Efficiency Circle 2021. During the quarter, we also continued our engagement in the CII working group to drive accelerated climate action by Indian businesses for actively promoting the climate actions across various businesses in India. I am also elated to share that our people practices were yet again recognized, and we have received Great Place to Work award. We will continue our endeavor to make Hindustan Zinc family stronger every passing day. In our overarching goal to create mines of the future, we have continued our digitalization and automation efforts in partnership with leading global experts. Close to 40 kilometers of high bandwidth WiFi network in our SK and Rampura Agucha mine forms the backbone of our digital framework. This enables us to track equipment in underground mine with real-time telemetry data from various equipment to improve asset utilization, productivity and optimize costs. We have set up control rooms, both in SK and RA mines, which are then connected to central collaboration center in Udaipur, which ensures that senior management can review all operations based on real-time data, initiate improvement projects based on data analytics and share information online across mines for better collaboration. Turning to market update. Zinc prices have hit a 3-year high of $3,085 a tonne in early June, but have slipped since then. The decline in zinc prices due to growing worries about inflation, a slightly less dovish tone from the U.S. federal reserve, strengthening of the dollar and news that China state reservoir will start selling parcels of metal, including zinc, in the coming months. However, zinc prices subsequently recovered some of the lost krone. According to international-led zinc study group, global demand for refined zinc metal is forecast to rise by 4.3% to 13.78 million tonnes this year. This is against a 3.9% decline in demand last year. Power shortage in China's Southwest province of Yunan could affect zinc's smelting capacities to the tune of 1.2 million tonnes and result in 20,000 tonnes of refined zinc production being affected. While mine production in Peru is recovering, controls in Inner Mongolia to cut power consumption could also potentially impact global supply. LME exchange stocks at their current levels are only sufficient to meet 8 days of global demand, which is the lowest level for the current calendar year. Relatively low stocks and robust demand continue to put upward pressure on spot metal premiums globally. On domestic front, Indian economy showed some signs of cooling off in May due to second wave. However, of late, the weakness has already begun to dissipate as the nation exited lockdowns. The overall economic effect of the second wave has been softer than the first wave of pandemic last year, and this is clearly visible in demand recovery. Speaking of zinc demand, galvanizing has been the key driving course for construction, infrastructure and automobile-related demand. Government's focus on infrastructure development will continue to provide necessary impetus to zinc demand locally. Over the medium term, we also expect rising demand from transport and highway sector, which use road crash barriers and galvanized steel bridges. Similar to zinc, lead prices also saw an increase over the quarter and remained at $2,100 level going to constrained supply. Indian domestic demand took a hit due to second wave and muted demand from auto sector. The current quarter is already showing signs of recovery and demand from replacement auto batteries is expected to rise as distribution networks have opened up. Coming to silver, prices have remained steady and stable globally. Indian demand for silver has been subdued due to the premiums have gone up due to limited global supply. Overall, our continued foresightedness on market demand recovery scenario, pricing environment and adaptive approach to selling that is striking a delicate balance between domestic and international sales has helped us to tread the path successfully in this uncertain time. Coming to an update on operational performance. During the quarter, mined metal production was up 9% year-on-year to 221,000 tonnes on account of higher ore production, partly offset by lower overall grade. Sequentially, MIC production was down 23% on account of lower ore production and overall grades. Integrated metal production was at 236,000 tonnes, up 17% year-on-year in line with higher mined metal availability. Sequentially, it was down 8%, in line with lower ore production due to lack of operator availability in the mines in view of second wave of COVID-19. Integrated zinc production was 188,000 tonnes, up 20% year-on-year and down 4% sequentially. Integrated lead production was 48,000 tonnes, up 9% year-on-year and down 21% sequentially. Integrated silver production was 161 tonnes, up 37% a year ago, in line with higher lead production, partly offset by lower grade at SK mine, while it was down 21% sequentially, primarily in line with lower lead production. Coming to an update on our projects. I'm happy to share that post integration last quarter, the shafts at Rampura Agucha mine and SK mine are fully operational. Ventilation and cooling systems, or chiller units, have been deployed to facilitate the same in a seamless manner. Moreover, increased use of Advanced Process Control in both SK and RD mills for purpose of grinding are used to improve recovery. COVID-19 restrictions, including stringent visa guidelines for Chinese nationals continued during the quarter, which resulted in a delay of the commissioning of Fumer plant at Chanderiya. We expect Fumer commissioning to be completed by the end of November 2021. Before I hand over the call to Vinaya for an update on financial performance, I would like to reiterate our production guidance for the fiscal year 2022. We maintained mined metal and refined metal production guidance for the fiscal year in the range of 1,025 to 1,050 kilotonnes each and sellable silver production at 720 tonnes. With this, I hand over to Vinaya to update on the financial performance.

Thank you, Arun, and good afternoon, everyone. As outlined by Arun, we continue to strengthen the foundation of our operations to deliver on the guided volume growth. Our focus and continued efforts on digitalization and automation will help us enhance our mining output. Internally and through our business partners, we are constantly looking at improving equipment reliability and availability. Our goal is to increase predictability of our operations, thus reducing downtime as well as overall cost. All of this is laying a strong foundation for us to protect margins amid an uncertain environment and deliver on the promised performance for the rest of the year. Going to an update on financial performance for the first quarter and fiscal year -- and for the first quarter of fiscal year 2022, I'm happy to share that we delivered our best ever first quarter revenue, EBITDA and profit after tax. Revenue from operations during the quarter was at INR 6,328 crores, an increase of 64% year-on-year, led by higher metal and silver volumes as well as higher zinc, lead LME and silver prices. Zinc sales volume increased 15% year-on-year and lead by 9% year-on-year, in line with the higher production and robust demand. Sequentially, revenue was down 5%, owing to lower zinc, lead and silver volumes, lower metal premium, partly offset by higher zinc and lead LME prices and rupee depreciation. Zinc volume was down 5%, while lead and silver were both down 21%. This was mainly due to lack of operator availability in view of second wave of COVID-19. Zinc LME prices were sequentially up 6%, while lead prices were up 5%. Zinc cost of production before royalty during the quarter was $1,070 per tonne, higher by 5% year-on-year and up 13% sequentially in USD terms. The upward pressure on COP, the cost of production, is primarily stemming from the surge in input commodity prices, the increase in coal and diesel prices, cement prices as well as higher power costs was only partly offset by higher sulfuric acid credits. Finally, the fixed costs of the business are allocated based on volumes. We were accordingly impacted by this allocation as compared to previous periods. We fully recognize the headwinds from rising input commodity prices and are doubling our efforts to address them through long-lasting structural cost reductions that will lead us to greater operational efficiencies. EBITDA for the quarter came in at INR 3,558 crores, up 123% year-on-year and down 8% sequentially. Year-on-year, EBITDA was up on account of higher zinc and lead LME and increase in silver prices, higher volumes as well as higher metal premiums. Sequentially, EBITDA was lower on account of lower volumes and higher costs. Net profit for the quarter was INR 1,983 crores, up 46% year-on-year and down 20% sequentially. Year-on-year increase was mainly due to recovery in metal prices and higher volumes. Moreover, effective tax rate for the quarter was approximately 34.4%. The higher tax is due to the change in profitability mix between base business and treasury income and also partly due to end of certain tax benefits. Coming to our cost and CapEx guidance for the fiscal year 2022. We keep both our cost and CapEx guidance intact. As I mentioned in the previous quarter that we were anticipating upward pressure on commodity prices. I would like to reiterate that we are -- we will continue to closely monitor the situation this quarter and will take all necessary steps to address it. With this, I open the floor for your questions.

[Operator Instructions] First question is from the line of Amit Dixit from Edelweiss.

Congratulations for a good set of numbers in a tough quarter. I have 2 questions. The first one is on mined metal production and refined metal. If I look at mined metal and refined metal production, so mined metal was significantly lower than refined metal. So did we have some concentrate business that we converted to refined metal? If so, how much concentrate is left as of now? That is the first question.

Yes. Sure. You are correct. After a very good quarter 4 exit, we had mined metal available with us, and we have diluted the stock that we had, roughly about 22,000 tonnes of mined metal of opening stock that we had could be converted to finished goods.

And how much would be still left with us, this concentrate stock? Mined metal stock?

Concentrate -- mined metal stock will be around 13,000 tonnes.

Okay. Okay. The second question is what would be the current capital mine development in the quarter? And how did it change Q-o-Q and Y-o-Y?

So capital mine development is about 13 kilometers in the quarter. And the same figure quarter 1 of last year was about 7.6 kilometers. So it was about -- it is more than Y-o-Y 72%. And it is about slightly less than quarter 4. So capital development in quarter 4 was about 14 kilometers, and this is about 13 kilometers, roughly 1 kilometer less.

This was also impacted by lower operator availability, is it?

Development was impacted by a quarter of -- lower operator availability. But what we did this time was we balanced between deployment of operator and assets between production and development. And in spite of COVID, this time, we were aware how to manage and hence we could achieve 25 kilometers of development. Out of which, say, 13 kilometers would be capital and roughly about 12 kilometers for revenue development. Whereas the same number last year after COVID affect was only 16 kilometers.

The next question is from the line of Vishal Chandak from DAM Capital. [Operator Instructions] That is from the line of Rahul Jain from Systematix.

Yes. Sir, on your expansion that you, in your annual report, you specified for Zawar, from 4 million to 4.8 million, and Chanderiya 0.42 to 0.5. Could you give a time line for this? And also what is the outlay which is required to achieve this?

So we are moving aggressively as far as Zawar is concerned. And right now, we have just obtained the environment clearance for going up to 4.6. And then our next level also, it requires amount of reserves so that your mine plan gets approved. So we are focusing on converting more and more resource into reserve. Once that is done, then the projects will be brought to approval stage, and then we will be able to tell you exact number how much we need to spend for this.

So should we take this year's CapEx change similar to last year? I mean that is how we should look at?

As of now, we are not changing any CapEx guidance. Whatever we had with CapEx this year, we have stated in the beginning, we continue with that.

Right. And sir, how should we look at, say, over next 3 to 5 years in terms of volume trajectory? Are you more focused on taking similar to 100,000 and that is the primary goal and kind of just sustaining operations?

Very, very nice and very, very valuable question. Thank you for that. So our expansion terms right now is from 1.2 million tonne to go to 1.35 million tonne, right? So we are on the drawing board for that. And that expansion primarily also to move silver from 600, 700 tonnes level to maybe 800, 900 tonnes level, if not thousand. Then that has to come from SK mine and as well as Zawar mine. These are the 2 mines which will primarily provide silver-bearing lead material. So for that, the necessary drawing board work that we are doing currently is how to expand entire SK mine and partly RD mine and at the same time, work on Zawar mine for doubling the production and go to about 8 million tonnes. So this is the vision and accordingly, the work is happening. The moment we convert to project, surely I'll be able to share better details on this. But the trajectory is going towards 1.35 million tonnes.

Right. And sir, in your initial comments, you said that the cost increase on a Q-o-Q basis is transitory, right? And what are the key components of this kind of cost increase?

Yes. So the major cost increases, like I said earlier, was the input commodity prices that have gone up recently. And also the kind of volume impact will be there versus last year. Sequentially, our volume was down, so the allocation will be accordingly higher. But the input commodity prices is a significant impact, both on diesel, coal, cement, all of these factors will impact our input costs and COP accordingly.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.

Sir, I just want to understand, just now you have said 800 to 900 kt of silver volumes even with a higher capacity of 1.35 million tonnes. With Fumer coming in, we should have previously guiding that much in 1.2 only. So had it the problem with the Fumer or the problem with the grades where we are just lowering our silver guidance?

No, Fumer will add 30 tonnes of silver. Fumer will add plus -- how much of the SK we successfully able to take it up so that SK will give the primarily silver-bearing material. That's why I said that with the Fumer and with the further 1.35 expansion, I'm looking at anywhere close to 1,000 tonnes of silver, if we can get.

So there is no variation in the previous guidance, right?

No.

Yes. Sir, my second question pertains to us -- still we are carrying some debt, sir. I understand that some investment would have been a high-yielding asset. So just wanted to understand by when we can see this debt to paid off or we would like to continue this debt carry on from. But because going forward, our yields were supposed to come down on our investment, right? So how are we managing this, if you could explain to us?

So on the debt side, there are predictable maturities on the debt, and we will be paying down the debt for those maturities.

So that starts from?

Sorry, say that again, please?

So the debt maturity basically starts from next year? Or any some maturities having this year as well, if you could give us some number.

This year as well as next year.

Sir, any numbers if you would be able to give us, this year how much is maturing?

So around INR 1,000 crores is maturing in this year and remaining in the subsequent years.

Understood, sir. And sir, just one last question. In terms of 1.2 million to 1.35 million tonnes, is any time line has been set up for -- plus the CapEx? And any update on our VAP basically the fertilizer plant?

So for first part, as I said, we have to establish the basic R&R ratio for 1.35 million tonne and we want to assure ourselves that we have 8 to 10 years of reserve with that. So currently, where we will have at 1.35 million tonne metal level, we would have about 6 to 7 years of reserve only. So while converting resource to reserve, we have to first ensure 10 years of reserve. And then we make ourselves up that capacity. So the moment we -- maybe another 1 year of exploration, then we should be onboard, and we'll come back to you after getting the necessary approvals.

And on the fertilizer plant, sir?

On the fertilizer plant, we have almost completed the design work. We are in the current process of appointing the right CEO for the fertilizer business. And once that is done, and we take Board approval. By next Board meeting, which should be through.

We'll move on to the next question, that is from the line of Ashish Kejriwal from Centrum Broking.

Two bookkeeping questions for me. One is, is it possible to share coal cost on a per tonne basis what it was in the first quarter versus fourth quarter? Secondly, also, if you can possibly -- because you said that sulfuric acid credit was higher this quarter, so what was the price for that in this quarter? And thirdly, what -- the project status of our Gujarat smelter which we were planning earlier?

So on the average, coal cost for the Q1 last year was about INR 7,100 versus INR 8,300 this quarter. And on the sulfuric acid, it was about INR 1,350 last year quarter, Q1, versus INR 3,100 this quarter.

Sir, I was asking, fourth quarter, is it possible to share both numbers for coal and sulfuric acid?

Yes. So for coal, it was INR 6,700 approximately last quarter in Q4, and about INR 3,000 on sulfuric acid.

Okay. So major is our coal cost increase, which led to higher cost of production because cement and all that's very small actually?

Yes. And the diesel as well, diesel was -- in Q4 was about INR 65 per liter versus INR 81 per liter now. So these are the 2 major factors. Of course, coal impacts us quite significantly.

And sir, what about the Gujarat smelter?

So Gujarat smelter, we are done the MOU. We are in the process of environment clearance. So once that is done at the same time, we are parallelly working on the design. Once the environment clearance is through, then we'll seek Board's approval for taking the project up.

Okay. So that means the actual CapEx is at least 1, 1.5 years away from?

1 year. Roughly, roughly an year away.

The next question is from the line of Vishal Chandak from DAM Capital.

Sir, sorry if there is a repetition, because I got disconnected. This is with regard to your debt. So if you could just let us know, do you plan to raise further debt given the fact that your CapEx was never dependent on the debt, but you still went ahead and raised debt in the past. So in this year also, do we plan to raise debt or we plan to, on a net basis, push it down further?

So as of now, there's no plan to raise further debt. So we will continue paying down the debt as and when the maturities happen.

Okay. Sir, my second question is to Mr. Arun. Sir, if you could help us with your plans for the Galena Zone mining, how do we plan to grow about it and what are the time lines?

I didn't get you. The plans about?

The next level of mining that you mentioned, the mine -- under the mine.

Yes, so next level of mining. Yes, so next level of mining, there are basically 3 fronts. One front is in Agucha, as we go to the Galena Zone deep inside the mine. So it will alter the ratio of zinc to lead. So that will be one area of Agucha, and we are continuously investing in development to reach the Galena Zone fast, and it will also expected to get more silver out of Agucha mine. Second expansion is the SK, RD build. How do I increase the resource reserve base in SK and then further go down into SK mine to open up new blocks. This year itself, we are working to open up 2 new blocks in SK mine itself. Third is doubling the production in Zawar mine, which has got immense potential as far as reserve and resource is concerned, whereas the maximum potential lies in Zawar mine. And Zawar mine has a huge potential for expansion. These are the 3 areas in which we'll be working as far as expansion is concerned, and it should give -- result in, of course, ultimately more silver, more zinc and more lead.

Sir, if you could just help us with time lines by when we can expect the incremental output from these mines?

See, it will anywhere between -- first is the exploration. I said one more year of exploration is needed. And as far as projects are concerned, within 3 years' time.

We'll move on to the next question. That is from the line of Amit Dixit from Edelweiss.

I have 2 questions. So first one is on your coal sourcing mix. If you could split the coal sourcing between linkage e-auction and import in this quarter and what was it in last quarter?

Yes, coal linkage.

So coal linkage, roughly 1/3 linkage coal and 2/3 imported coal.

And what was it in last quarter?

It was about a quarter. So in the last year quarter, it was about 1/4 linkage and 3/4 was imported.

You mean Q4 FY '21?

Last year, roughly about 25% linkage coal, 75% imported. So looking at the exponential rise in cost of imported coal, so this year, we have knowingly increased our linkage coal percentages, and so we moved up to about 33%. And we are still working on engineering solutions so that we can consume more and more domestic coal in our power plants, looking in view that the coal costs are high.

Okay. And if you could help us with your grade this quarter on zinc and lead.

So So overall grade, if you look at it, this quarter was 6.91%, which was compared to last year same time, it was, I would say, higher than 6.9% maybe about 7-point something.

And in Q4?

Total was 7.41% was Q4 of FY '21.

7.41%, okay.

7.41%. It has reduced from 7.41% to 6.91%.

Okay. This is the considerable reduction within the quarter. I mean, what led to that?

No, it is a sequencing of the mine. As we are exiting last quarter, the areas that we are mining and this quarter, the areas we are mining are different, number one. Number two is because of the COVID effect, many of the high yield, high grade stopes we could not reach because of lack of development. So the mix shifted adversely to low grade stopes, but nothing is lost. Those high-grade stopes are getting developed. And in the subsequent quarters, they will add to the grade.

Okay. Wonderful. You also stated about tax rate at 30% to 34% in this quarter because of expiry of certain incentives. So what is the tax guidance for the year as a whole?

It should be around 30%. So this will normalize a bit as the year goes on. And the year's tax rate should be around 30%.

[Operator Instructions] The next question is from the line of [ Avadhoot Joshi ] from [ Newberry Capitals ].

In your annual report, it mentions about silver paste used in PV modules and 80% of which is imported. So it has been mentioned that effort has been underway with IIT Mumbai to reduce the imported. So I would like to know what is the plan? How our company is getting involved into it so that these volumes come to us accordingly?

So as of now, if you look at, we are producing to about India's -- are not this COVID-affected consumption, standard consumption of India, we are about 10% to 12% of the total silver consumption in India is supplied by us. And about half of it goes into jewelry and jewelry making. So we were looking at silver paste which goes into PV cells manufacturing, it's a very refined product. In India, there are manufacturers who are manufacturing it. And mostly, they are also importing the silver because it gives them tax advantage when they export the silver paste to the manufacturers who are manufacturing PV cells outside India. So we are looking at how to develop this product from the silver that we have, number one. Number two, it has to come along with increase of solar cell manufacturing in India, which is likely to happen for various shops that the government of India is giving to promote green and renewable energy. So we are looking at working with IIT and then see what products we can make. This will be part of value-added product that we can manufacture out of silver that we make.

Okay. Understood, sir. So this will be value added product. So margins will be greater in this area, I think we can consider that?

Absolutely, absolutely.

Second question about the NCDs, what we have raised last year. If I'm correct that we have raised about INR 3,400 crores of NCDs. I was just triangulating it with the cash and cash equivalents. So currently, we have INR 17,000 crores of cash. So what was the reason to raise the NCDs when we are having this much of cash with us?

So there were temporary cash flow mismatches and because our investments were long term maturities. So there were temporary short-term mismatches and that was the reason for raising this NCDs at that time.

If I read correctly, NCDs are also for, I think, 10 years, we have raised, right? And we will be paying it over 3 years period after -- each 3-year period, right?

Yes, it was for 3 years. So it's for -- so it's getting a repayment 20% in September '21, then 20% September '22 and balance 60% in September '23. So as we net the timing business. And that time, COVID time was there, so we were getting at very attractive rates. So we wanted to keep the liquidity. So that's where the -- we have our stated purpose in the Board approval we raised.

We'll move on to the next question. That is from the line of Pallav Agarwal from Antique Stockbroking.

Sir, I had a question on how the zinc and lead premiums have moved. So I think this quarter, I think probably softened a little. So how will they move compared to your 4Q and last year, if you could just give us some indication?

So if you see, from compared to last year, it has moved a lot primarily, of course, LME and as well as ratio between domestic and exports last year. Because of COVID there was hardly any domestic demand. Almost more than 50% we had to export. So that has led to now better realizations of premiums this year. But if you look at quarter 4 to this one, again, there is a slight dip -- there is a slight dip as far as from quarter 4 of last year to this year's first quarter.

And so are you seeing any pickup now? Do you expect that the activity levels picking up? And more domestic sales?

Correct. Correct. As the lockdowns are receding and the economy -- of course, India did well this time in COVID to us, they did not stop the wheel of economy. Everything was running. People were fighting COVID along with -- while it is running. So that is showing more domestic demand also started picking up. And as we speak right now also, we were doing better than what we did in quarter 1.

Okay, sir. And what was the proportion of value-added products in FY '21 that had reduced? But I think we had a target, I guess, of 25% of revenues coming from value-added products.

So if I -- so roughly around -- it should be close to 20% of the product is now currently value-added product. And we are on our way to become 25%. Only the strategy change was instead of trying to produce all kinds of products, we have fixed our eyes on 2 products, which is the maximum yielding, and we are producing it very, very consistently and very good feedback from the customer -- from the market.

Which one is [indiscernible]?

These are the ones -- one is CGG and another is HZDA-3.So these are -- [ the key ] other Jumbo and all that used to produce earlier. There is no change in that. But these are the 2 products which require some amount of control over all the impurities. So that is where we are trying to do our best. And both CGG and HZDA-3 is the first, then we will do HZDA-5 to make it 25%. And then also, we are looking at zinc powder as a product and seeing how to start producing that. So more and more value-added product in zinc will get added up as the year goes by.

[Operator Instructions] The next question is from the line of Vishal Chandak from DAM Capital.

Sir, if you could just help us with what was the premium that we have realized on zinc in this quarter over LME?

Over LME, what is the premium, you want the exact number? So it is, of course, better than what we -- much better than what we did last year, I can tell you that. This is -- I will not be able to give you further details on that.

Sir, actually, if we calculate it, then the premium goes up to in excess of about $600 per tonne, while the average premium that we have generally realized is close to about $200, $250 per tonne. So there's a huge difference. That's why I just wanted to reconfirm whether these numbers are near to the actual realized premiums.

No. As long as your premium calculation is concerned, which you said, I think we should be in that range only.

Great. Great. And any reason why this premium has shot up so drastically in this quarter? Because historically, we have never seen such high premiums of $600?

No, not $600. Your other base for calculating premium, not this base. Cannot be $600, no way.

So maybe I'll take it offline, but that's the number which comes up.

Take it offline. We'll discuss separately.

Sir, second question was with regard to the NCDs that you have mentioned. We have raised it for 10 years for a mismatch in cash flows. So if you could just help us with some more details on what kind of interest rates are we carrying on the NCDs?

So these are below the interest income that we are able to earn. So there's definitely a positive carry on these NCDs, so it's up 5%, around 5%.

Okay. So this would be -- through the life of the NCDs, this would be like carry -- there would be a plus carry on these?

That's right. As of now, we are seeing that. So that's the expectation, yes.

The next question is from the line of Abhishek Mody from Emkay Global.

My question pertains to the cost of production mix royalty. Previous quarter, you guided to be below $1,000 per tonne for the full year, now it is $1,070. So do you expect the next 2 quarters to be lower?

Yes. So first quarter was always expected to be higher than $1,000 because this is a year average and not a quarterly number that we provided. So first quarter was always expected to be a bit higher. But yes, we expect the cost to come down, and that's what we are shooting for, both driven by volumes and the other measures that we mentioned on the efficiencies.

With respect to the third wave, do you see, at least the domestic side of things to pick up in terms of volumes?

As of now, the signs are that domestic demand will slowly go up. Third wave is more in the mind, but our -- the strategy that we have taken, and I'm sure most of the big corporates in India have taken is 100% vaccination of all employees and families. And government of India also pushing vaccination on a fast pedal. So hopefully, we won't see any breakage in supply chain. And as people go out of the lockdowns, spending will increase. Government of India will also committed to spending on infrastructure. So we see the -- under third wave, again, there's always an uncertainty I cannot rule out. Unless third wave strikes much more violently than even wave 2, unless that happens, I don't see any big change in the domestic demand as of now.

Thank you. Ladies and gentlemen, that's the last question. I now hand the conference over to Ms. Shweta Arora for closing comments.

Thank you. Before we close today's call, I'm happy to share that we have continued our journey of comprehensive and quality disclosures. And as such, an integrated filing report for the fiscal year 2021 is now available on our website. We look forward to your valuable feedback on the same. With this, I close today's call. For any follow-up questions or clarification, please feel free to reach out to Investor Relations team. Thank you.

Thank you.

Ladies and gentlemen, on behalf of Hindustan Zinc, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.