Hindustan Zinc Ltd (NSE: HINDZINC) Q1 FY23 Earnings Concall dated Jul. 21, 2022
Corporate Participants:
Shweta Arora — Head of Investor Relations
Arun Misra — Chief Executive Officer
Sandeep Modi — Deputy And Interim CFO
Analysts:
Abhiram Iyer — Deutsche CIB Centre — Analyst
Amit Dixit — Edelweiss — Analyst
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Anuj Singla — Bank of America Merrill Lynch — Analyst
Kirtan Mehta — BOB Capital Markets — Analyst
Rahul Jain — Systematix — Analyst
Pallav Agarwal — Antique Stock Broking — Analyst
Shreyans Daga — Barclays — Analyst
Pinakin Parekh — JP Morgan — Analyst
Ashish Kejriwal — Centrum Broking — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Hindustan Zinc Q1 FY23 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. Thank you and over to you ma’am.
Shweta Arora — Head of Investor Relations
Thank you. Good afternoon, everyone. I welcome you all to Hindustan Zinc First Quarter Ended FY23 results briefing. Today, on the call we have with us our CEO, Mr. Arun Misra; and our deputy and interim CFO, Mr. Sandip 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 Mr. Misra.
Arun Misra — Chief Executive Officer
Thank you, Shweta. Good afternoon everyone, thank you for joining us today for the first quarter of FY23 results briefing. Before I begin today’s results presentation, I regret to inform you all that we have lost one of our business partner colleagues in an unfortunate accident that happened at our Zawar mines on 12th April, 2022. I would like to offer my deepest condolences to the bereaved family and friends of the deceased.
We commit to standby the family in this part of distress and an independent investigation is conducted on the incident and the learnings have been reviewed and are being implemented across all our operating assets. We have also continued our proactive safety and health initiatives during the quarter. Some of the major ones included blasting point standardization, identification and automation of high-risk manual activities, zone specific zero fatality plants and safety guidelines against truck coupling. We also initiated cardiac evaluation program covering 12,000 employees so far. At Hindustan Zinc, it is our sincere belief that people are our most valued asset and we set them with our best-in-class people practices. This is also reflected in external recognitions that we received on this account. I have to share that Hindustan Zinc has been certified as a Great Place to Work for the fourth year in a row.
Coming to an update on the ESG front. In line with our commitment to net zero by 2050, Hindustan Zinc has deployed India’s first battery electric vehicle in an underground mine at Zawar location under our engagement with the International Union for conservation of nature, IUCN. We have different Hindustan Zinc biodiversity policies and prepared an integrated Biodiversity Assessment Tool, IBAT report for all our additional locations identifying the presence of critical habitat hence this is, if any, within the core and buffer zones. Hindustan Zinc has also initiated work for the installation of 4,000 kiloliters per day zero liquid discharge plant at Zawar mines. I am also elated to inform you that Hindustan Zinc Daribas Smelting Complex and Zinc Smelters Daribas have both received the Greencore rating of gold and silver respectivaely at the fifth edition of the 7R conference. Moreover, our risk management system is certified as per ISO 31000 2018. All of these collectively play a very important role when it comes to making progress on ESG front.
A quick update on our ongoing CSR activities, our sales team has played an excellent balancing act on managing the ongoing long-term core initiatives along with sales and COVID related support during these trying times. The team has continued their well-rounded efforts towards education, sustainable livelihood whilst skill development and the establishment of a self-reliant financial ecosystem for the communities, women empowerment, health and sports. I am happy to inform that our Khushi Anganwadi Nand Ghar Program was recognized and awarded in the fifth CSR Health Impact Award, 2022 under the category CSR Health campaign for its remarkable work in the field of improving health status among the children below 6 years of age and women.
Turning to an update on market. On the global supply side equation, the widening spread of prices reflects the erosion of LME stocks, which seems set to fall to unprecedented low levels. At the end of May, LME stocks stood at 84 Kt of which 38,000 tons were canceled. By the end of June, the deadline stock was little changed at 81,000 tons but cancels warrants have risen to 63,000 tons leaving just 18,000 tons of light LME zinc stocks.
The zinc market witnessed backwardation during the quarter. On demand side with rising interest rates and inflationary pressure globally, consumers and business spending has started to decline threatening to undermine zinc demand in the times to come. S&P Global construction PMIs for 23th May, 2022 fail to 49.2 from 50.4 in April on account of higher input prices and supply chain constraints, which affected output as well as demand.
All three segments that is housing activity, commercial activity and civil engineering witnessed a decline. However, with substantial backlog of work for manufacturers in many parts of the world helped zinc demand to stay robust year-to-date with the impact of the continued distribution of European Union’s EUR2 trillion stimulus package zinc demand is expected to remain strong in the foreseeable future. I think briefed [Phonetic] late after the volatility seen in the month of March Quarter 1 started as flat and relatively uneventful.
In June, we saw prices tumble by 11% from the start of the month to finish at $1,907 per ton for the London Metal Exchange. The key driver for this drop in value was the strengthening of the US dollar, supported by global interest rates, renewed coronavirus outbreak and the deepening crisis from the Russian war on Ukraine and the resulting overall pessimism for the base metals demand. Lead was still the best performing among all the key LME base metals. Coming to silver which increasingly focused on renewable sources of energy. Demand for photovoltaic cells, which are used in solar panels is expected to grow. Silver being the key component for the same should experience demand tailwinds thus supporting prices in the medium term.
Talking about domestic market India’s industrial growth Hyatt index jumped 7.1% in April, 2022 as compared to 2.2% in March. The rise in Hyatt Index up7.1% is the highest in eight months, mainly led by good growth in power and mining sectors, which grew by 11.8% and 7.8% respectively. Manufacturing sector recorded a growth of 6.3% in the first month of the current financial year. Coming to an update on operational performance. Hindustan Zinc delivered best ever first quarter mined metal, refined metal and silver production.
Here., I would also like to bring your attention to the seasonality of first quarter which is traditionally viewed as a subdued one. With our learning through the years, we have made structural changes to neutralize this seasonality effect and are confident to deliver uniformly on volumes throughout the year. With the current run rate for both mined metal and refined metal hovering around 1 million tons per annum, we are confident to deliver on our promise volume for FY23 and we would like to keep it unchanged.
Coming to some of the key updates, I am elated to inform you that our Board has approved the setting up of the fertilizer plant. Also, we have received an approval for setting up of an additional roaster. These synergistic projects along with value chain will further pave to deliver value for all our stakeholders. With this, I hand over the call to Sandeep for an update on the financial performance.
Sandeep Modi — Deputy And Interim CFO
Thank you, Mr. Misra and good afternoon everyone. It was another record quarter where we got significant milestones and continued positive momentum of our financial performance. We delivered a historic high quarterly revenue, EBITDA and net profit. This meaning [Phonetic] is supported by our proactive to cashing the favorable LME environment by embarking on strategic hedging from last quarter as well as ongoing operational efficiency initiatives, volume delivery and cost rationalization. All of this has helped us to protect our margins and wrestle with input commodity inflation. Being in the first quarter cost per our margins are resilient owing to the positive correlation with the LME prices, thus creating a favorable trade-off for us in the inflationary environment.
Quick update on financial performance for the first quarter ended June ’22. The revenue from operations during the quarter was at a record rupees INR49,384 crore, an increase of 44% Y-o-Y led by higher zinc volume and zinc LME prices. Gains on strategic hedging as well as favorable exchange rates which were partly offset by lower ore prices [Phonetic] zinc LME prices and zinc metal sales increased by 44% and 10% respectively as compared to last year. Sequentially, revenue was 7% up primarily driven by higher zinc prices and the lead and silver volume. Gains from strategic hedging, partly offset by lower zinc volume and lower lead and silver prices. Lead and silver sales volume was sequentially up 9% and 10% respectively. Zinc cost of production before royalty during the quarter was $1,264 per metric ton higher by 18% Y-o-Y and 11% sequentially. It was up 23% Y-o-Y and 14% sequentially. The CoC has been adversely affected on account of higher coal prices, input commodity inflation, lower domestic coal, linkage coal from Coal India, partially offset by higher volume, better sulfuric acid realization and improved recoveries.
EBITDA for the quarter was a record INR55,278 crore up 48% from a year ago, primarily on account of higher zinc LME and volumes and was up 5% sequentially on account of LME. And lead and silver volumes was being partly offset by this higher cost. Effective tax rate for the quarter was approximately 33.8% marginally higher from last quarter on quarter-on-quarter basis. Consolidated net profit for the quarter was INR3,092 crores, 56% Y-o-Y and 6% sequentially on account of favorable LME while being partly offset by the rising input commodity prices. I am also happy to state on record that last week, the Board has approved an interim dividend of INR21 per share, which is 1050% [Phonetic] basis face value of INR2 per share and amounts to INR8,873 crores. The recorded for the same this reinforces our commitment to our stated dividend policy as superior shareholder returns.
Coming to our cost and capex guidance for the fiscal year ’23. We keep both our cost and capex guidance intact. As I mentioned in the last few quarters that we are facing an upward pressures on input commodity prices. I would like to reiterate that we will continue to closely monitor the situation this quarter and will take all measures and steps to address it. With this I open the floor for your questions.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.
Abhiram Iyer — Deutsche CIB Centre — Analyst
Sir, congratulations on a good set of numbers. My first question was with respect to the hedge — strategic hedging that the company has done, it’s mentioned that you have sold forward 21% of expected production for FY23 including what was sold in Q4 FY22. So if we look forward from Q2 onwards, could you just let us know how much sales has been hedged and at what price?
Arun Misra — Chief Executive Officer
So we last — till last quarter we hedged 18% and cumulatively it is 21% and 18% was also for the full-year ’23 and now one 3% we hedge during the quarter and the total price at which the average price was $4,100 per ton.
Abhiram Iyer — Deutsche CIB Centre — Analyst
So going forward, there is no hedge because you have completed the entire 21%?
Arun Misra — Chief Executive Officer
So, we remain opportunistic and we will see a wait and watch and accordingly take good decision.
Abhiram Iyer — Deutsche CIB Centre — Analyst
Got it, sir. Got it, sir. And could you also just let us know any update on the government stake sale that’s proceeding, is there any update from the company’s perspective from where this is going and what essentially might be the outcome here?
Sandeep Modi — Deputy And Interim CFO
As you know, Arun has said here, as you know, after the Supreme Court’s decision, it is government’s internal working has to be completed before they declared the stake sale. And I think the procedures, how this will be done, what would be the quantity, what will be put out in the market for this investment, all those rooms are being worked out, and that is what is our update that we have. Once that is done, I am sure government will go ahead with it.
Abhiram Iyer — Deutsche CIB Centre — Analyst
Got it, sir. And just one last question, you mentioned that the project capex is around $125 million to $150 million, what would be sort of total capital expenditures incurred any kind of any other new project or any maintenance capex, what would be the total figure?
Sandeep Modi — Deputy And Interim CFO
So, maintenance capex, there is no change in the guidance which we had given earlier. And with these two new projects announced, we still maintain the same guidance for the project capex between $125 million to $150 million.
Abhiram Iyer — Deutsche CIB Centre — Analyst
Got it. Sir. So, and what’s the maintenance capex, if I may request it.
Sandeep Modi — Deputy And Interim CFO
The maintenance capex amount remain between $350 million to $400 million dollar.
Abhiram Iyer — Deutsche CIB Centre — Analyst
Got it sir. Thank you very much.
Operator
Thank you. Our next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Amit Dixit — Edelweiss — Analyst
Thanks for the opportunity and congratulations for a good set of numbers. I have two questions —
Operator
Sir, I am sorry to interrupt. If you are using a handset, your speaker mode, switch it to handset and speak.
Amit Dixit — Edelweiss — Analyst
Yeah, am I audible now?
Arun Misra — Chief Executive Officer
Yes.
Amit Dixit — Edelweiss — Analyst
Yeah, hi, thanks for the opportunity and congratulations for good set of numbers. I have couple of questions, the first one is on the coal cost and the sourcing mix during this quarter, if you could throw light on the mix like and how is the cost sourcing expected to evolve over the next quarter? That is the first question.
Arun Misra — Chief Executive Officer
So Amit, thanks for the question. Moving forth, as you see our sourcing markets are largely Australian and Indonesian and Australian index Newcastle has increased significantly. Still, we have been able to hold our cost within the range bound and the coal index, if you see compare Y-o-Y, it has increased to 250% and if you see our core around Y-o-Y around 20%. So we continue to do the various innovation and operational efficiency to control the cost and I say in my opening thing that we continue to maintain the same guidance for the full year and we will remain watchful and take all the necessary action to contain the cost and meet the guidance.
Amit Dixit — Edelweiss — Analyst
Okay. The second question is essentially on the production guidance. Now, I am a little bit intrigued on the guidance, because you mentioned that you have made some structural changes and that’s why the performance in Q1 was still and we are also expecting few commissioning then followed by would be Rajpura, Dariba mill also coming up. So aren’t we being a little bit conservative about our guidance because if we price it evenly over four quarters, it could be little higher or at the higher end of [indecipherable] so can this guidance be surpassed in FY23?
Arun Misra — Chief Executive Officer
So Amit, let me explain. Last year we crossed 1 million ton in metal — mined metal production, whereas on the finished goods, we are still about 970,000 tons. So that means that we lost the race somewhere in the first quarter itself and in normally what happens is, first quarter is generally subdued marked by more of shutdowns and maintenance or things like that. Those are the structural changes in maintenance practice I was referring to when we say distinct first quarter, it is almost at par with quarter four, if you recall your last last year first quarter call always we would hear how come sequentially we are down on production. That said, sequentially we have scaled the production, which is at the quarter four, which is active. That gives us confidence that last year we did mined metal more than 1 million ton but finished goods less than 1 million ton. This is a year where our finished goods will also crossed 1 million ton work so that’s one and we are hopeful on that we are absolutely clear that the guidance given, we will live up to it.
Amit Dixit — Edelweiss — Analyst
Okay, thank you.
Operator
Thank you. We will take our next question from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Thank you very much for the opportunity. Sir, my first question was with regard to your production projects. So what is the due date for the fertilizer plant and the roaster?
Arun Misra — Chief Executive Officer
So fertilizer plant and roaster both have been approved due date so from date of placement of quarter, anywhere between 18 months, to 24 months. So since we are sitting in 2022 in first quarter end, I would expect anywhere in 2024 quarter two or early quarter three this would be in-line operation.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
And for the roster?
Arun Misra — Chief Executive Officer
Both, both same time.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Both. Okay. And are you still sufficient on the captive power before the expansion beyond 1.2 or beyond 1.2 you would be looking at some power expansion also because I understand till 1.2 million ton, you would be capped at 40 power.
Arun Misra — Chief Executive Officer
So, we currently have about more than 500 megawatt of internal captive power plant. And as you know on the EHV front, we are tying up with renewable power of about 200MW which should come in line from 2024. So if that comes in line 200 megawatt of our captive power, it is surplus and available with us. So I don’t see any threat of not having captive power going forward. In fact even after 2024, we will increase the renewable power from 200MW to 450MW or 500MW. So power, we have no challenge as far as our expansions are concerned.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Just a follow-up on this power cost, the power you mentioned on the renewable side, what would be the expected power cost over here compared to our existing power?
Arun Misra — Chief Executive Officer
As of now, it is cheaper than our own thermal coal-based production power. Best part of it is, it will be unchanged over 25 years time.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
So there is a long-term PPA that we are looking at?
Arun Misra — Chief Executive Officer
Correct.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Without any escalation or that be with some escalations?
Arun Misra — Chief Executive Officer
Without any escalation as of now.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
So, could you please help us with the power cost number in this case sir.
Arun Misra — Chief Executive Officer
Power cost number?
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
On the renewables front, what would be the power cost going forward?
Arun Misra — Chief Executive Officer
As of now, unless the commercial agreements are final, it will not be proper for me to go public with those numbers.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Sure. Thank you very much.
Operator
Thank you. Our next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Anuj Singla — Bank of America Merrill Lynch — Analyst
Thank you very much for the opportunity. Sir. Couple of questions, firstly on the fertilizer plant and the roaster, can you quantify what is the total capex, we will be incurring and over what time period?
Arun Misra — Chief Executive Officer
So capex. If we see overall between fertilizer and roaster together anywhere between INR2000 crores to INR2,200 crores somewhere in between, we should be able to manage.
Anuj Singla — Bank of America Merrill Lynch — Analyst
Like I said, it’s 18 months to 24 months. So this will be this year primarily FY23 and maybe first half of FY24?
Arun Misra — Chief Executive Officer
Right now, we have got approval now. In the next six months will be design, negotiation all that will happen. Maybe cash payouts will start from quarter four of this financial year. And then go through the entire financial year of next year.
Anuj Singla — Bank of America Merrill Lynch — Analyst
Okay. Got it. And sir, secondly on the coal side, can you quantify what kind of materialization of the coal linkage we had in this quarter. And a follow-up to that is, we are calling out for a significant decline in production in the cost of production in the second half given that the global coal prices are still very sticky. What are the key drivers there?
Sandeep Modi — Deputy And Interim CFO
So Anuj, Sandeep here. Thanks for asking the question. For the coal — linkage coal methylation, this quarter has been a bit better than quarter four. In quarter four was around 3% and in this quarter we have got around 8% linkage coal consumption. So situation seems to be improving. We have almost 1 ton backlog unallocated — allocated coal. However, this methylation had to happen and we also have a transfer to 0.7 million ton FX [Phonetic] already signed up with us Coal India. So almost it gives the confidence that during this monsoon season they should include a production and supply to us in the industry was very much, it should have a significant reduction in the cost on account of the linkage coal.
Anuj Singla — Bank of America Merrill Lynch — Analyst
So just to clarify, sir, the guidance we have given that includes an improved materialization of linkage from Coal India for this — for us to achieve this guidance, is that the right understanding?
Arun Misra — Chief Executive Officer
Of course.
Anuj Singla — Bank of America Merrill Lynch — Analyst
Okay. Got it, sir. And and lastly, sir, on terms of the hedging, we have done. So 21% is for the full year. And I think it’s not uniform all across quarters. Can you probably hand hold us in what kind of, this is already consumed in 1Q, and what is spending for the next n months and how should we will be looking at the quarter per se?
Arun Misra — Chief Executive Officer
So Anuj, it is front ended. So, from the hedging point of view, out of this 21%, around 10%, 11% has already been consumed and the remaining will be in the next quarters.
Anuj Singla — Bank of America Merrill Lynch — Analyst
Okay. Got it. Very clear. Sir, thank you very much.
Operator
Thank you. Our next question is from the line of Kirtan Mehta from BOB Capital Markets. Please go ahead.
Kirtan Mehta — BOB Capital Markets — Analyst
Thank you sir for giving the opportunity. Am I audible?
Arun Misra — Chief Executive Officer
Yeah, absolutely.
Kirtan Mehta — BOB Capital Markets — Analyst
On the — just going back to the fertilizer plant where you indicate, sort of the capacities that you are finally planning, what would be sort of the cost advantage that you have with it and how we get there, what kind of return you are targeting?
Arun Misra — Chief Executive Officer
So on the fertilizer side, we are picking the first phase of 5 lakh tons, although we are blueprint it on 1 million ton capacity, but we will be putting up 5 lakh tons to begin with because we will have a new entry, setup the new business, so it’s a different business altogether. Also, we would recoup this project through a subsidiary. So that right focus is there on this kind of a business with the right set of people and the organization selling fertilizer is a different ballgame altogether. So with that organization would have a different culture than metal culture that we have in Hindustan Zinc. If we look at project cost-wise, as I have said, between the two projects anywhere between 2,000 to 2,200 kind of kind of a number. And if we look at fertilizer separately anywhere between 1,300 to 1,400 kind of number. We will finally arrived for spending in that fertilizer project over 24 months. Return on investment, if we look at it, it does qualify for our capital allocation policy and we have just got the approval, we are still wholly work on the capex and this strategically most important for us because we are as we crossed — we have crossed 1 million ton as we start making 1.2 million ton there is so much of assets from the roaster. We are putting up one more roster. So all that asset and continuing to run the business under the pressure of asset evacuation does not leave as much of a headroom to get the best value for the assets that we produce. Although right now, we do have a better value than years before. But going forward to ensure that the best value that we get and to keep the operations sustainable is to convert it into a usable product based fertilizer, which will be consumed mostly between the regions Rajasthan, UP, Western MP and Haryana where most of the fertilizers of VAP today are imported, and are not made locally and we will — this will be also a first land based fertilizer plants producing VAP with local rock phosphate Rajasthan and selling the fertilizer to this zone. Also, gives us a good branding for better use of hazardous chemical that gets produced as part of roaster process with sulfuric acid.
Kirtan Mehta — BOB Capital Markets — Analyst
Thank you sir for the detailed explanation. One more question, if I may, in terms of the current cost of production is higher than 11 — guidance of $1,125 to $1,175 to come back to the annual run rate, what are the drivers that you are advertising which will help to come sort of to your annual guidance?
Arun Misra — Chief Executive Officer
So it is I would rather see it is not one driver. You have to work across the entire value chain that causes cost, so there are operational efficiencies in mining. So that means how to reduce the equipment costs, how to increase productivity, how to increase utilization of machines, how to rationalize the deployment of medicines in the underground. So we have got some internal team, which is working day in and day out with the operating teams to kind of to generate more and more ideas to cut. On the mining side, I would look at one grid control that produced to the design grid with Lyft dilation [Phonetic] to maximize the recovery, we have already implemented automated process control gain, which means we are currently implementing it in impairment Zawar mill and SK mill. So all this new area will have automated digital process control. We intend to add improve recovery by 1.5% to 2% through those processes that would cut costs and of course in the smelting major cost being pulled our idea would be that, how do we optimize between various price values of pool that we buy, currently we do have some high coal [Technical issue] — position on the coal that we buy going forward. We have already started consuming biomass as a replacement of coal as a fuel and we have increased the percentage from 3% to currently about 5% and we want to increase it to 10%. So, increase the biomass percent will give us a cost advantage and also we would, we are looking at the initiatives which are power consuming initiatives but we implemented because of high ambient temperature in the summer months would not be needed going forward. So things like thinners [Phonetic] for underground mines, additional ventilation capacities we have to commission. So things like that would be on our positive side and would reduce the power consumption in the mines going forward.
Kirtan Mehta — BOB Capital Markets — Analyst
Can I get the opportunity to ask one more question, particularly on the value-added projects you have launched one capacity value addition project apart from that, which are the ones on the planning board that could — we could see sort of getting finalized over the next couple of years.
Arun Misra — Chief Executive Officer
You are talking about value-added products?
Kirtan Mehta — BOB Capital Markets — Analyst
Yeah.
Arun Misra — Chief Executive Officer
Okay. So, traditionally, we have been selling value added products between varying percentages over the year. The changes we have brought in now that we are highly focused on, first, creating our operational capability to produce the value added product of the right quality sustainably over the long run. So if we look at the current numbers of HZDA3 which we have started producing by investing in the production process by putting up new transformer and new handling facilities, so that the industry remains intact and repeatable across all production numbers about 1,000 tons per month we have achieved the capacity and we have already started selling that. So roughly about 15% of our product as today is value added products including jumbo, CGG and and CAGL [Phonetic] Our plan is to take this number to about 20% to 25% value added products. We have already opened a subsidiary company, which specializes in producing value added products in the HELOC product and that company is currently under manufacturing facilities under construction. Once that company comes in line, we will have more value-added products. Goal is to go from 15% to about 20%, 25%, so that we are known in the market not only some good quality ssg, also for good quality HELOC product which allows us to get better premium in the domestic market.
Kirtan Mehta — BOB Capital Markets — Analyst
And could you also quantify the premium that you are currently getting on the value added products and how much could it expand when you actually reach up to 20%, 25% after completion of project and also in terms of the sort of net of operating cost, how much EBITDA could it get?
Sandeep Modi — Deputy And Interim CFO
So in my view, I think as Mr. Misra said, we have to look at how do we see the more value addition into this so that we are immune to the LME. So I think that is more visible from the point of view the value addition of the product. And secondly, we will with value addition product, it will also reduce our energy export. So you can compare the duty factor whatever we get on the value-added products that will be a direct benefit to Hindustan Zinc.
Kirtan Mehta — BOB Capital Markets — Analyst
Thank you, sir. Thank you for the detailed answer.
Arun Misra — Chief Executive Officer
Thank you. Thank you. Ladies and gentlemen we would request you to please limit your questions to two per participant. Time permitting, you may come back in the queue for a follow-up question. We will take our next question from the line of Rahul Jain from Systematix. Please go ahead.
Rahul Jain — Systematix — Analyst
Thanks for taking my question. Sir. On the Gujarat smelter, you have any update? And also, secondly, we are seeing a very sharp surging TCRC prices across the world except in Europe and what kind of opportunity we think we can tap onto this?
Arun Misra — Chief Executive Officer
So, currently, if you ask me, we are Gujarat smelter public hearing and things happen. So we are not very active on that front, we are concentrating on increasing the production from the current assets and first goal remaining that we cross 1 ton mark in TCRCs. Whenever that opportunity arises in Gujarat solar smelter with the public hearing happening, then we will redesign and we think that project based on the current realities of that.
Rahul Jain — Systematix — Analyst
And sir, on the situation that we are seeing TCRCs premiums are rising, what is your take on that. Would you — how would you, is there any way we can capitalize on that?
Arun Misra — Chief Executive Officer
That’s what I would say is that whenever we think of restarting that project, it will be based on the current realities of that day because it will be standalone smelter so TCRC will be an important aspect of that, as I have said we our case is concerned, current operations, it doesn’t apply to us. So how we are integrated producer. So we are not affected much but the TCRC numbers.
Rahul Jain — Systematix — Analyst
Right. Thank you so much.
Operator
Thank you. We will take our next question from the line of Pallav Agarwal from Antique Stock. Please go ahead.
Pallav Agarwal — Antique Stock Broking — Analyst
Yeah, good evening, sir. Sir, I had a question on with the inventory is declining so sharply, why are still seeing a very sharp fall in zinc prices and at what levels do you see some support from the global cost curve. So in the case of aluminum, we have probably seen more stable pricing of late because the cost of production is now pretty close to the marginal cost smelters, so what level of zinc prices do you think you will start seeing some support from the global cost curve?
Arun Misra — Chief Executive Officer
So if I — I have been saying this for long that for us and for almost all smelters very stable operations can be achieved anyone — anywhere between $3,000 to $3,200 per ton of price of LME and zinc. If I were to put a red line somewhere around $2,200 to $2,300 would be a red line when all of us will be in trouble as far as continuing our operation cutbacks high cost operations are continuing only with the high grade mining and hybrid operations. So we are much above those red lines as of now and we have further work on our cost that we have currently. And if we are able to cut down our costs to our guidance numbers, we have got much better off [Technical issue] —
Pallav Agarwal — Antique Stock Broking — Analyst
Sure sir, also if you could just help us with the demand in China and the level of exports. So because that’s been sort of a concern for the whole metals packs?
Arun Misra — Chief Executive Officer
So current world order all the movement of goods or the economic growth or lack of it across the geographies for last, about 3 year to 4 — 3 years or so, post COVID and also various geopolitical events that have been happening it’s very difficult to predict alone. Even if China demand started firming up then again re-surges of COVID came, again the lockdown started. Again as of now, we are hearing that there are zero COVID policy, they would be re-looking at it and hence the sudden tightening up on the society that we saw in Shanghai recently perhaps will not be repeated, but I think those are the people which I would not like to get into. Russia, Ukraine war the pressure on gas, global warming has been — sudden heat wave in Europe, need for air conditioning in Europe in summer in summer — traditionally summer of India was winter or cold weather in Europe people who would like were going for travel nowadays that has become summer in Europe. So, all these have very difficult to connect the dots and see what would happen going forward, six months, but I firmly believe that post COVID era world is going through a transition phase, it would settle down in about six months to 12 months time. Pressure on coal cost will remain. In the sense that there would be pressure on coal producers to go out of coal business coal production, because of the pressure on ESG or commitment to net zero. So that supply side shrinkage will keep on adding more cost. So as a smelter operator, we have to move out of coal-based power and go to renewable power. That would be the strategic solution to control the input cost. If I look at demand side, we are not dependent on the demand of China. However, the LME prices do fluctuate based on the stock level and the demand in China. We — our export market of Southeast Asia have a robust demand as of now. Going forward, very difficult to predict, but as far as all the reports that we read, it is fair to expect 1% to 1.5% growth across the globe as far as demand is concerned, it may be slightly subdued compared to 2.5% that we– that was predicted sometime back.
Pallav Agarwal — Antique Stock Broking — Analyst
Sure sir, thank you for the answer.
Operator
Thank you. Our next question is from the line of Shreyans Daga from Barclays. Please go ahead.
Shreyans Daga — Barclays — Analyst
Thank you for the opportunity and congratulations on the good set of numbers. My question is one the cash and investments. So the company is interested in Asia for Phase to begin the —
Arun Misra — Chief Executive Officer
We are not able to get anything what you are saying. Can you — either you are not close to the mic or you are using some other device.
Shreyans Daga — Barclays — Analyst
Sorry, am I audible now?
Arun Misra — Chief Executive Officer
Now you are clear.
Shreyans Daga — Barclays — Analyst
Okay, thanks. Sorry. So Hindustan Zinc has reported 242 billion of investments and cash equivalents as of June, ’22. So could you give us some breakdown as to how much is liquid cash and how much is it liquid instruments?
Arun Misra — Chief Executive Officer
So, Shreyans I think this is — the breakup, I think is quite sensitive. What I can say we continue to invest in the high-quality debt instruments and that has been our philosophy. And it is a mix of both liquid and the long-term instruments.
Shreyans Daga — Barclays — Analyst
Okay, sir. And after the dividend announcement that figure would be around INR88 billion down?
Arun Misra — Chief Executive Officer
So, as of now, after the dividend it’s around INR15,000 crore.
Shreyans Daga — Barclays — Analyst
Okay. I see. yeah, that’s it from me. Thanks.
Arun Misra — Chief Executive Officer
Thank you.
Operator
Thank you. Our next question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.
Pinakin Parekh — JP Morgan — Analyst
Yes, thank you very much. Maybe this question once how was answered earlier but just would like to understand the hedging strategy, so at what zinc price would the company be open to start hedging again because you mentioned, most of the hedges would get consumed in the next quarter?
Arun Misra — Chief Executive Officer
So Pinakin, thanks for the question. I think it is quite dynamic situation, it will also depend upon what cost levers, we are. So it is a 1,000 of the cost level somebody may be lucrative for $3,500 and 1,300 there would be lucrative of $4,000. So, we have to continue to wait and watch. There cannot be anything at this point of time. I think we can indicate that is the price level, but it will be a dynamic situation.
Pinakin Parekh — JP Morgan — Analyst
So it’s fair to say that you won’t be hedging at $3,000 zinc price?
Arun Misra — Chief Executive Officer
From what I can say that we will continue to wait and watch $3,000 or over $3,500. We will have to see how the market dynamics going on and what the reports suggest and how is the LME inventories and other situations are there.
Pinakin Parekh — JP Morgan — Analyst
Understood. Thank you very much.
Operator
Thank you. Our next question is from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Yes, sir. Thank you very much for the opportunity. My question was again with respect to your guidance on cost of production. You mentioned that you would like to continue with the guidance that you have given in the last year of $1,125 to $1,175 per ton. Q1 cost came at $1,264 per ton. If I do a simple math, what we are implying is for rest of the nine months, our cost of production would be about 14% to 15% lower versus what Q1 is and you also mentioned that the coal prices are still not trending downwards. So if you could just help me reconcile how are we planning to achieve a 15% reduction in cost when coal prices do not seem to be moving down anytime soon are we expecting a significant addition from FSC or coal or is there something else that you have missed out?
Sandeep Modi — Deputy And Interim CFO
So what I say, on the cost part I would refrain from shooting in the dark and take any call today as if it’s prudent to wait it out until the next quarters for the LME and cost to play out. Yes, you are right. Despite the increase if you see I give some data point during the Y-o-Y the cost has increased on the power cost has increased by almost 200% whereas our total cost increased by 20% and power component is seen dumper of 26%. This is despite the linkage domestic coal already. And as I said earlier, there has been improvement in the linkage coal supply and we have been making the Coal India and various subsidiary company exceed [Phonetic] the materialization and there the negative number in the Q4. Today, we are roughly at 7.8% EPS and given the backlog from the Coal India 1 million ton and transport excessive 0.7 as I stated earlier, we get to start for us we hope because it’s some transfer auction, materialization has already started for the company, which are nearby the coal mines, but for the far the mines — the far away factory like us, it is yet to start. We hope this to benefit us in the coming quarters of the year. So overall, if I keep it all factors into consideration. I would choose to remain optimistic on the cost front. Some of the internal sector, which will help us to what Mr. Misra said in detail power visibility in keeping tight control on the cost through all the work well is such a reduction in admin fixed cost, increase in the use of alternate fuel oil, sourcing the low cost parcel of apart from the operational efficiency will actually help us to in the cost reduction.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
So just to add on to this, are we also sourcing some thermal coal from Russia to bring down our costs?
Sandeep Modi — Deputy And Interim CFO
We haven’t. So some of the coal is coming from Indonesia and Australia.
f Vishal Chandak — Motilal Oswal Financial Services — Analyst
Okay. Thank you very much for the elaborate answers.
Operator
Thank you. Our next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Amit Dixit — Edelweiss — Analyst
Yes, sir. Thanks for taking my questions. Again I have two data keeping questions questions. The first one is on grade of material, what was the grade in this quarter and the second question is on capital mine development and what might have been.
Arun Misra — Chief Executive Officer
In this quarter grade of the material was around 7%. And capital mine development was 15 kilometer.
Amit Dixit — Edelweiss — Analyst
And revenue was?
Arun Misra — Chief Executive Officer
Revenue was almost equal to 14 kilometers, so 50%, 50%.
Amit Dixit — Edelweiss — Analyst
Yes. Okay, that’s great. Thank you, sir.
Operator
Thank you. We will take our last question from the line of Ashish Kejriwal from Centrum Broking. Please go ahead.
Ashish Kejriwal — Centrum Broking — Analyst
Yeah, hi, thanks for the opportunity. Sir, this is on sulfuric acid, is it possible to share what was the realization of sulfuric acid this quarter and how it has been panning out for last two or three quarters and our outlook?
Arun Misra — Chief Executive Officer
Sulfuric acid our more than sales have been apart from long-term customer agreements mostly through auction and whatever is the best realization [Technical issue] I can give you that but our realization through auction this quarter has been better, but let us see. We are seeing a pulling off in the sulfuric acid prices as well, so that will restrict our time.
Ashish Kejriwal — Centrum Broking — Analyst
Sir, is it possible to share what’s the average utilization for this quarter.
Arun Misra — Chief Executive Officer
Since it is not my primary focus and not, I would not — I would rather not be able to say what was the exact number, but I can give you a trend that realization this quarter has been better than last quarter, and that has helped us to make it part of the rising costs because of input commodities.
Ashish Kejriwal — Centrum Broking — Analyst
Okay. Secondly, we were contemplating to acquire zinc assets in overseas market. So, any update on the same?
Arun Misra — Chief Executive Officer
No. So, it remains in our strategic map and whenever the situation matures and we do get all the regulatory approvals that is required, we will come to — come back to it.
Ashish Kejriwal — Centrum Broking — Analyst
So, sir, what kind of situation actually if you can elaborate what kind of situations we required to get into it or what kind of regulatory approvals are required?
Arun Misra — Chief Executive Officer
So, we had discussed it last — we have discussed in few last calls amongst the target is also our own group Zinc International, which is in South Africa. So given that makes the best sense for us to acquire and use zinc to grow in that region. But that would require permission from government and all that. So once that happens, then we will come to it and we can discuss.
Ashish Kejriwal — Centrum Broking — Analyst
Sure sir. Sure, thanks, and all the best.
Arun Misra — Chief Executive Officer
Thank you.
Sandeep Modi — Deputy And Interim CFO
Thank you.
Operator
Thank you. I would now like to hand the conference back to Ms. Shweta Arora for closing comments. Over to you, ma’am.
Shweta Arora — Head of Investor Relations
Thank you all for joining us on the call today. Before we close today’s call, I am happy to share that we are progressing well on our journey of adapting global best putting practices and holistic disclosures. And towards this end I wanted to update you all that we have published our third integrated annual report for the financial year 2021-22. From this year, we have also voluntarily embarked on reporting our biggest responsibility and sustainability reporting VLSI framework that was launched by SEBI in May 2021. We look forward to your valuable feedback on the. And also just tax transparency report is now available on our website. So with this, I will close today’s call for any follow-up questions or clarifications, please feel free to reach out to the Investor Relations team. Thank you.
Operator
[Operator Closing Remarks]