Hindustan Zinc Limited (500188) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the First Quarter FY '27 Earnings Conference Call of Hindustan Zinc. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Raksha Jain, Director of Investor Relations of Hindustan Zinc. Thank you, and over to you, Ms. Jain.

Thank you, operator, and good evening, ladies and gentlemen. Thank you for joining us today to discuss the fourth quarter results of FY 2027. In this call, we will refer to our investor presentation available on the company's website. Please note that today's entire discussion will be covered by the safe harbor clause mentioned on Slide 2 of the presentation. Before we go ahead, would like to update everyone that our Board of Directors has appointed Mr. Amarendu Prakash as the CEO and whole-time Director of Hindustan Zinc, with effect from 1st August 2026. Mr. Prakash is a steel industry veteran with over 30 years of experience at date. He served as Chairman and Managing Director of Sales from 2023 to 2026. During his tenure, he spearheaded key initiatives in operational excellence, capacity expansion and digital transformation. Today's call is joined by our CEO, Mr. Arun Misra; CEO designate, Mr. Amarendu Prakash; and our CFO, Mr. Amit Gupta, who will also be interacting with you during the call. As you would have seen from our earlier announcement, Mr. Amit Gupta has recently been appointed as the Chief Financial Officer of Hindustan Zinc. The management will be discussing the operational and financial update for the quarter, followed by a Q&A session. Now I would like to invite Mr. Arun Misra to present the results. Over to you, sir.

Thank you, Raksha. A very good evening to all of you. Thank you for joining us today. We are pleased to begin FY '27 with a strong quarter marked by solid operational and financial performance and continued execution of our strategic priorities. Our integrated business model, industry-leading cost competitiveness and disciplined approach continues to differentiate us and position us well for long-term value creation. During the quarter, we also achieved a significant milestone in our diversification journey by including a mining lease of a rare earth elements and Yttrium block in Gundlupet, Karnataka, further advancing our ambition of becoming a diversified multimetal enterprise and reinforcing our commitment to supporting India's critical mineral mission. On the sustainability front, Hindustan Zinc continues to make strong progress against the performance expectations set by the. During the quarter following Chanderiya lead zinc smelter, Rampura Agucha mine became the first mine in India to receive the Zinc Mark certification, underscoring our commitment to responsible resource use and lower environmental impact. Our renewable energy consumption increased to 22%. We deployed India's first 250 metric ton electric crane and strengthened our partnership with the Energy & Resources Institute through our 250-hectare natural forest development project at Chanderiya. We also signed MOUs with Advantek Associates LLP and Aero Eagle Automobile Pvt Ltd to advance the adoption of green hydrogen and other clean energy solutions. I'm pleased to share that these industry-leading sustainability practices have led to Hindustan Zinc's inclusion in the Dow Jones Best-in-Class Emerging Markets Index for the first time, a testament to our unwavering commitment to sustainable value creation, responsible business practices and ESG excellence. Our CSR initiatives continue to create meaningful impact across local communities through focused interventions in nutrition, health care, education and sustainable livelihoods, strengthening community resilience and emanating long-term source value. During the quarter, we added 1,869 Nand Ghars across Rajasthan, taking the cumulative total to over 11,000 Nand Ghars. Moving to the market environment. India continues to remain one of the fastest-growing major economies despite all this global backdrop. Manufacturing activity remained in expansion territory during the quarter, supported by resilient domestic demand, sustained government capital expenditure and continued infrastructure investments. Against a backdrop of geopolitical concertinties and evolving trade dynamics, base metal markets remained relatively resilient during the quarter. Zinc averaged USD 3,466 per tonne, reaching a high of USD 3,625 per tonne, while Lead averaged USD 1,954 per tonne. Market fundamentals remained broadly supportive, underpinned by constrained mine supply and steady demand from infrastructure, galvanization and battery applications. Silver prices moderated during the quarter to $73 per troy ounce compared with the strong levels seen in the previous quarter, reflecting broader macroeconomic and investor positioning factors. Nevertheless, silver fundamentals remain supported by robust industrial demand from solar, electronics and electrification applications alongside continued investment interest. While near-term price movements may remain volatile, the medium-term outlook continues to be constructive, driven by structural demand from the energy transition and relatively constrained global supply growth. Turning to operational performance. We delivered a strong start of the year with the highest-ever first quarter mine metal production of 268,000 tonnes for the fifth consecutive year, alongside refined metal production of 260,000 tonnes, which was up 4% year-on-year. This growth was driven by better mine grades and the benefit from the 160,000 tonnes per annum roster, which is now taking care of the additional concern requirement during the maintenance activities. The output was further supported by debottlenecking at Chanderiya and Dariba despite the planned maintenance activities at the lead smelter. On the cost front, despite the volatile geopolitical environment, we achieved the lowest quarterly zinc cost of production, excluding royalty, since underground transition to $851 per tonne, reflecting a decline of 16% year-on-year. The reduction was driven by better grade, higher metal production, increased renewable power consumption and better by-product realization, partly offset by higher input commodity prices, especially energy prices in line with the geopolitical crisis globally. We achieved 149 tonnes of silver production in line with the lead production and our silver portfolio continues to contribute 46% to overall profitability. With our continued focus on capitalizing on the favorable price environment and optimizing inventory during the quarter, we strategically sold 10,000 tonnes of lead concentrate. This combination of lowest cost of production, strong output and commodity tailwinds translated into an all-time high quarterly financial performance. During the quarter, we reported highest ever EBITDA of INR 8,074 crores, resulting into a record net profit of INR 5,469 crores, making a new milestone for the company. On the growth projects front, we are making steady progress as planned for the 250 KTPA integrated zinc smelter at Debari mine development activities have started for matching the mining capacity. For the tailing 3 processing plant, construction activities have started and site mobilization for the infrastructure development is completed. Our other 2 key projects, that is hot acid leaching plant at Dariba and fertilizer plant at Chanderiya are on track to be completed by the second quarter of the year. Looking ahead, our strategy remains clear and consistent. We are committed to execute our growth projects with discipline, maintaining our industry-leading cost positions, strengthening our resource base and prudently allocating capital to maximizing long-term returns. A strong start to FY '27, reinforces our confidence in the execution of our strategy. And demand for zinc, silver and critical minerals continue to be supported by global megatrends. We believe Hindustan Zinc is going to deliver sustainable growth, resilient cash flows and long-term value creation for our shareholders. As I conclude, I would like to express my heartful gratitude to our shareholders, employees, customers, business partners and all our stakeholders for their unwavering trust and support throughout my tenure. It has been an absolute privilege to lead Hindustan Zinc and be part of its remarkable transformation and growth journey. As shared earlier, Mr. Amarendu Prakash will now take over the responsibility of leading Hindustan Zinc. Having worked closely with him, I am fully confident that his vision, deep industry expertise and proven leadership will guide the company to even greater heights. On a personal note, it has truly been an honor to serve Hindustan Zinc. I leave with immense pride in what we have accomplished together and with great optimism for the company's future. I sincerely thank each one of you for your trust, encouragement and partnerships throughout this journey. I wish Amarendu and the entire Hindustan Zinc team and all our stakeholders continued success in the year are. With this, I now hand over to Amit for an update on the financial performance.

Thank you, Mr. Misra, and good evening, everyone. The global macroeconomic environment continues to be influenced by geopolitical development, evolving trade policies and uneven economic growth. The 5 key challenges. India remains one of the fastest-growing major economy, supported by strong domestic demand and infrastructure investments and a stable policy treatment. While commodity market may remain sensitive to global development in the near term, the long-term outlook for our key metals remains positive. This demand continued to be supported by infrastructure development and galvanized steel connection, while lead fundamentals remain stable. Silver is benefiting from accelerated adoption across solar, electronics and other energy transition applications, creating a strong structural demand outlook. In this environment, Hindustan Zinc focus on operational excellence, cost leadership, designated capital allocation and a strong balance sheet provides a solid foundation for sustainable growth and superior shareholder returns across commodity cycles. I am pleased to share that we have started FY '27 on a strong note, delivering record financial performance and closing the INR 8,000 crores quarterly EBITDA milestone for the first time. This performance reflects our focus on operational excellence and disciplined execution supported by the benefits of last year's debottlenecking projects, the commissioning of the additional roster, higher operational efficiency and the lower zinc cost of production excluding royalty since our underground. Silver continues to be a key earning driver during the quarter, contributing approximately 46% of overall profitability and reinforcing its strategic importance to our portfolio. During the quarter, we delivered our highest ever quarterly revenue from operations of INR 13,747 crores, up 77% year-on-year, driven by higher metal production, supported commodity prices, better byproduct realization, lead concentrate sales and a stronger dollar. We have also delivered the highest-ever quarterly EBITDA of INR 8,074 crores, up 109% year-on-year, with an industry-leading EBITDA margin of 59%. This performance was further supported by the lowest ever quarterly zinc cost of production excluding royalty, since our underground commission at $851 per ton. During the quarter, we also monetized lead concentrate equivalent to approximate 9 tonnes of silver and 6,000 tonnes of lead metals. Reflecting this strong operating performance, we delivered our record quarterly net profit of INR 5,469 crores, up 145% year-on-year. Our ability to generate strong free cash flow of INR 5,253 crores free growth CapEx, demonstrate the resilience of our business model, industry-leading cost competitiveness and disciplined financial management. This robust cash generation enables us to fund our strategic growth projects, maintain balance sheet strength and create long-term value for our stakeholders. We ended this quarter with a net cash position of INR 5,572 crores, providing significant financial flexibility to pursue value-accretive growth opportunities while maintaining an attractive shareholder return profit. Our strong balance sheet, net cash position and disciplined capital allocation framework positions us well to fund future growth while continuing to reward shareholders. Our capital allocation priorities remain unchanged, investing in high-return growth opportunities, maintaining balance sheet strength and returning surplus cash to shareholders, reflecting our confidence in the business and strong cash generation. During the quarter, the company paid its first interim dividend of INR 11 per share, reaffirming our commitment to delivering sustainable shareholder returns. Beyond the value creation for shareholders, we remain committed to create meaningful value for the broader economy and society. During the quarter, Hindustan Zinc contributed approximately INR 6,450 crores to the through taxes, royalties, duties and other statutories, underscoring our role as a responsible corporate citizen and a significant contributor to India's economic development. Looking ahead, our priorities remain clear: maintaining industry-leading core competitiveness; executing our growth projects safely and efficiently; preserving balance sheet strength and delivering superior returns through the cycle. As we progress on our 2 growth journey and capitalize on the long-term structural demand outlook for zinc and silver, we remain confident in our ability to create sustainable value for all stakeholders. With that, I would like to thank all our stakeholders for their continued trust and support. I will now hand over the call to the operator for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Pallav Agarwal with Antique Stockbroking.

Congratulations to Mr. Arunji and best wishes to the incoming management team. So I had a couple of questions. First one was on the power and fuel costs. So on a sequential basis, it has gone up despite metal production being lower, and I think the RE proportion of energy also was better compared to the fourth quarter. So any particular reasons for the increase in power and fuel cost on a sequential basis?

So the power and fuel cost during the quarter has decreased majorly due to our materialization of linkage coal, which is slightly lower due to the various reasons, including the mine conditions from where we take coal. On top of it, there is an impact of imported coal, which is 3 at a cost as compared to earlier, although we have consumed more RE power. So this quarter is slightly higher on the power and fuel cost.

Okay. So what is the proportion of domestic coal in terms of lines?

36% compared to -- it was 54% last year, 64% in quarter 4.

Sure, sir. Also, if you would just on, I think as a policy, we never used to sell concentrate earlier. So are we like doing this on a temporary basis still the smelting capacity...

We still don't sell concentrate. We still have the same policy that we don't sell concentrate. However, if you recall, when we commissioned the 1 million tonne capacity, new mill in mine. So in the initial days, during stabilization of the plant, we have produced lots of lead concentrate which were slightly inferior grade and unusable in our own smelters. So we thought we would make good of that with the good grades that we'll produce later on. But looking at the price of silver and the good prices that we are doing, we do not want to use -- we don't want to lose the opportunity by derating the smelter by using inferior grade of concentrate. So that stock which we are carrying for a long time, stock. That's what we sold in the market taking opportunity of the high LME, and we realized almost silver equivalent of 9 tonnes through the sell and about 6 kT of metal through the sell. So that's how we have made good of the situation where the old stock we disposed of creating value for ours.

So has the stock mean exhausted, sir? Or we still have some of that old inventory with us?

Almost we are segregating, maybe some amount still be there, but we'll figure out if we can use it now. The smelter sundown, capacities are back, and we would like to keep the smelters empty. So we will not immediately sell unless we find that the mine production are at such a level that the smelters are not starving of any amount then and there only.

Sure sir. Also, if you could just share the absolute revenue number of the concentrate sales, sir?

So the INR 375 crores, INR 315 crore in the revenue from concentrate.

Okay. So finally, just so are we expecting any production for the rest of year. We shouldn't have any further shutdown or a maintenance plan, right? So for the remainder of the year.

So roughly, we have given a guidance of 1.1 million tonnes for the year, right? And we have done 260 kT just now. So yes, now everything is back, and we will -- we won't have any further set out, and we will deliver on our commitment of 1.1 million tonnes.

Our next question comes from the line of Suman Kumar with Phillip Capital.

Congratulations on a really good set of numbers. So my first question is considering the kind of production for Q1, what we have achieved, what is the confidence that we will achieve the targeted production guidance? And would the management try to even revise or change the guidance for the year. That would be my first question.

No, no. We have done 260 kT. Even on a straight line method, we are already at 1,040, right, and we have given a guidance of 1.1 million tonne only. So it's only little -- so we are absolutely confident of producing typically quarter 2, quarter 3 as we go forward, the production numbers are the highest and quarter 4, normally, we touch even close to 280, 290. So I don't see any reason why we will have any difficulty in reaching 1.1 million tonne.

And second, sir, what is your expectation of what is the net cash position of which we will be exiting FY '27?

So we are -- at this point of time, we are a net cash company and based on the volumes we have predicted and the prices which are pulling the market. So we believe that we are going to be net cash.

Okay. Sir, just 1 more question. During the -- in the notes to accounts, specifically in 0.5, there have been mentioned that SEBI had flagged a couple of observations on related party transactions. And although there has been no financial penalty or restriction or any kind of imposition on the group, but it has been mentioned that in line with semi directions, several corrective measures have been taken. So could you please throw a little bit of light on this, please?

So it's -- the way it operates is all the related party transactions, we take a omnibus approval and staying with that limit we operate. That omnibus approval, I had see INR 300 crores per metal quantity of. I'm just giving a number of, say, 100,000 tonnes, right? So the operating people always focus on the 100,000 tonnes but now the L&A increases, the value crosses INR 300 crores. Then that's what internally, the SOP, we will do is at the 80% level, alarms will be generated, that we are about to cross 80% of the value approval. So go back to Board and inform market commit and take that approval. Otherwise, there is no bridge as such.

I just have one more question that in the presentation, when we was mentioning that the zinc smelter and the lead smelter that is close -- plus 600 kt of metal capacity that is in conceptualization stage. So could we have a time line as in like once the Board approval happens, what is the time line or how many months are we looking at for this capacity to come online? And what would be the approximate CapEx outlay for this?

So this CapEx outlay, we just can't -- because we are now going through the tendering process and maybe another 1 month's time, we would know exactly. But if I do a straightline method, for a 250 capacity, we see around 12,000 crores. So we can see, including mines, somewhere around 650 kt will be about 2.5x of that, so roughly about INR 24,000 crores, INR 25,000 crores. But yet, I will wait for that tendering to be done. And second, we are estimating a time line of 36 months of construction period post approval by the board, which we expect by quarter 3 of this year, we will move for board approval.

Our next question comes from the line of Manav Gogia with Yes Securities.

Congratulations on a good set of numbers.

Sorry to interrupt, Manav, but your line seems to be slightly muffled, request to please check the mode that you're using.

Is it better now?

Yes.

Sir, my first question is in line with the previous participant on the operational guidance. So if you look at refined metal looks to be achievable for whatever guidance you had given for 1.1 million. But when we look at the volumes of silver, right, how should one look over the next 3 quarters? Because if we have to attain the 680 tonnes target, then we'll have to average at about 175 tonnes a quarter now. So what would your view be on this considering that it has come down and now zinc prices are also quite attractive?

If you look at the silver production, actually, the silver grade this quarter has been better, right? So in spite of a better grade, we have just 149 tonnes, so a rough estimate of 10 tonnes to 15 tonnes of silver would be in the -- locked up in the so it's not -- and one -- and if you take out the concentrate sale, then actually 158 tonnes of silver that we have -- value has been extracted. Now going forward, typically, quarter 2, up until quarter 4, we ensure that the mine development is such will hit even better PPM goal for silver, and we maximize in quarter 4. So looking at that, we can surely say it will not be difficult to achieve the guidance numbers.

Okay. Understood. So second question would be, if you could let me know if there are any current hedges which are open for FY '27? And how should one be looking at the hedging policy going forward?

So at this point of time, we have a 48 KT of zinc, which are open at the rate of USD 3,162 per tonne, and silver, 34 tonnes at the rate of 63 per pound. As of now, we are not doing any hedging considering the volatility in the market and at the appropriate time, whenever we do, we will update.

Okay. So we did these hedges in Q1 or these carry forward from Q4?

No. No, this year, we haven't done any hedging.

We haven't done. Okay. Sir, one last question I wanted to also ask was. So this is related to your DAP fertilizer plant. And I mean, since it is expected to commission in Q2, and we already out over in Q2. So can we get a definitive timeline on what is the targeted date of the? Can you also shed some light of the unit economics is expected to look out of the same?

No. So what will get commissioned in Q2 is the phosphoric acid portion of the of the fertilizer plant. The phosphoric acid plant that will be commissioned. And if you note that for the fertilizer plant, we are yet to complete the whole construction because the environment clearance and other regulatory approvals are pending. So once that is completed, then only we'll move to fertilizers. So as of now, in Q2, you can expect phosphoric acid plant to be completed and maybe some of that sulfuric asset will be converted to phosphoric acid for better realization in the market.

Okay. And what will be the time line for the fertilizer plant then?

Fertilizer plant should come in place by quarter 1 of next year.

Our next question comes from the line of Pratim Roy with 360 ONE Capital.

Congratulation on the strong quarter and. I have 3 questions. Firstly, there are several media article on government of India selling the stake in Hindustan Zinc. So is there any update which can be shared on these results? That is the first question.