Hindustan Zinc Ltd (HINDZINC) Q2 FY23 Earnings Concall Transcript

Hindustan Zinc Ltd (NSE:HINDZINC) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Shweta Arora — Head of Investor Relations

Arun Misra — Chief Executive Officer

Sandeep Modi — Deputy And Interim Chief Financial Officer

Analysts:

Amit Dixit — ICICI Securities — Analyst

Pallav Agarwal — Antique Stock Broking — Analyst

Vishal Chandak — Motilal Oswal — Analyst

Saket Reddy — Polsani Enterprises — Analyst

Unidentified Participant — — Analyst

Vikash Singh — PhillipCapital — Analyst

Rahul Jain — Systematix — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY ’23 Earnings Conference Call of Hindustan Zinc Limited. [Operator Instructions]

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

Good afternoon, everyone. I welcome each of you to Hindustan Zinc second quarter and half year ended FY ’23 results briefing.

Today on the call, we have with us our CEO, Mr. Arun Misra; and the Deputy and Interim CFO, Mr. Sandeep Modi. Mr. Mira will throw light on our business performance, while Mr. Modi will walk you through financial performance, after which we will open the floor for questions.

As many of you requested this time to have an early call owing to multiple results in Diwali weekend, we are starting 15 minutes earlier than usual schedule, and we also try to wrap-up in next 45 minutes. Also, I would like to request you all to please open both the press release and the presentation for quick reference during the session.

I now request Mr. Misra to begin today’s call. Over to you, sir.

Arun Misra — Chief Executive Officer

Thank you, Shweta. Good afternoon, and a very happy Diwali to everyone. Thank you for joining us today for the second quarter and half year FY ’23 results briefing.

Before I begin today’s results presentation, I regret to inform you all that we had an extremely unfortunate incident at Chanderia on 12th of August, where there was a sudden rupture and subsequent breakdown of an acid storage tank. This incident, which led to acid gushing out of the tank, costed us valuable lives, including our own employees and business partner colleagues who were standing in the vicinity. I would like to offer my deepest condolences to family and friends of the deceased. We commit to stand by the families in this hour of distress. In-depth investigation has been carried out, and the findings have been reviewed and we’ll be implementing all the findings across all operating assets. We have also continued our proactive safety and health initiatives during the quarter.

At Hindustan Zinc, it is our sincere belief that people are our [Indecipherable], and we nurture our talent with best-in-class people practices. This is also reflected in external recognitions that we received. And on this count, I’m happy to share that Hindustan Zinc has won the prestigious PeopleFirst HR Excellence Award for leading practices in diversity and inclusion initiatives and talent management. After recognized as great place to work, we are now also recognized happiest workplace in line — in light of our best-in-class people practices.

An update on the ESG front. In line with our commitment to net zero by 2050, we have entered a power delivery agreement with Serentica Renewables India 4 Private Limited. PDA is signed for renewable power, aggregating up to 200 megawatt. And under the Group Captive Scheme, INR105 crores has been invested in the second quarter.

I’m also happy to inform that our Pantnagar plant in Uttarakhand is sourcing 100% of its power requirement from renewable hydropower now. This makes Pantnagar the first unit of Vedanta which is using 100% green power. This is only a first step towards many more milestones in our ESG journey and commitment to net zero.

I’m also elected to inform you that Hindustan Zinc was awarded at the 3rd Edition of the CII Climate Action Program 2.0 under the Oriented category. In addition, our smelters were also awarded a GreenCo Summit 2022. Dariba Smelting Complex and Chanderiya Lead Zinc Smelter received Gold rating, while Debari Zinc Smelter got Silver. All of these collectively play an important role when it comes to marching ahead in our ESG journey. You may also look at Slide 8 to 11 in the presentation for further details.

Coming to an update on our on-ground CSR activities, our CSR team continues to make a positive impact across area of fields and they’re delivering on initiatives and activities across the areas of education, sustainable livelihood, women empowerment, health, water, community asset creation, sports and culture, and volunteering through their well-rounded on-grounded efforts. It gives me immense pride to inform that Hindustan Zinc has been proliferated with seven hours at the 26th Bhamashah awards for our initiatives and projected — projects in the education sector. These awards are recognition of our continued commitment towards education. In the last three years, around INR50 crores were spent by the units of Hindustan Zinc in Rajasthan towards education-related initiatives, benefiting more than two lakh children every year.

I would also like to hear that Sahil Poonia, our star goalkeeper at the Zinc Football Academy, has been inducted into India Under 17 team and has won the Best Goalkeeper award and Championship on his debut at the — under 17 tournament held in Colombo. Key highlights of our CSR initiative is also covered on Slide 12 of the presentation.

Quickly an update on the market. Supply and demand forces remain largely in balance, however, macro uncertainty has put LME under pressure. On the supply side, rising energy prices across Europe has brought news of smelters being put into care and maintenance, leading to concerns around the supply of metal. At the end of September, LME stocks stood 54,000 tons as compared to 140,000 tons at the start of April 2022, whereas stocks in Shanghai warehouse stood — at the end of September stood at 38,000 tons as compared to 176,000 tons at the start of April 2022.

On demand side, global uncertainties are casting dark clouds on metal demand with rising interest rates, energy prices and other inflationary pressure continues. The S&P Global Eurozone Construction PMI fell to 48.5 in September from 56.5 in April, and the Construction PMI for August 2022 fell to 44.2 points from 50.4 in April on account of higher costs and supply chain constraints, which affected output as well as demand. The supply chain issues including component shortages in automotive sector in Europe is continuing and is evident at the data from European Automobile Manufacturing Association that the new passenger vehicle registrations have declined by 13.7% year-on-year.

Touching briefly on lead. Lead prices witnessed a significant amount of volatility during H1 and closed out the half $1,889 [Phonetic] per ton, approximately a 22% decline from April 1, 2022. Some of the reasons attributed to this drop where the strengthening of US dollars, the increase in energy cost supported by global interest rates, the deepening crisis due to the Russian war on Ukraine, and the resulting overall pessimism for base metals demand. Lead prices are expected to remain subdued for the rest of the year as the automobile sector globally is facing constraints in production.

Coming to silver. We have witnessed an uptick in silver demand in light of upcoming festive season and lowering of prices, which witnessed their share of ups and downs, and closed out the half $19.02 per troy ounce, a drop of approximately 23% from the start of financial year.

On the domestic front, the economic environment in India remained buoyant. The same was reflected in the S&P Global Manufacturing PMI in August 2022, which was at 56.2, indicative of the expansion in manufacturing activities. The Indian domestic zinc demand has been stable during H1 half of this year, on the back of robust growth in Infrastructure, pipes and alloys segment, which resulted in project orders that was stalled in 2021.

We also witnessed strong demand for lead domestically largely on the back of excellent automotive demand ahead of festive season. The demand of lead in the industrial battery segment has also been robust, as battery replacements in datacenters, bank, ATMs and other critical application gathered pace. Additionally, the Indian secondary lead market continues to remain tight due to poor availability and limited imports. You can also refer to Slide number 7 of the presentation for details.

Coming to an update on operational performance. Without delving too much into the details, which are already available in the press release and presentation, I’m happy to inform that Hindustan Zinc has delivered a record first half with highest-ever mined metal, refined metal and silver production. With consistent MIC flow from the mines, better plant availability and with better grades and improved recoveries, our volume delivery is on the up [Phonetic] with increasing uniformity, and to an extent, also negating the effect of traditional seasonality with proactive planning and effective removal of any roadblocks.

Here I would also like to bring to your attention that if looks at least — if I look for last 12 months, even after factoring in some of the one-offs with operational challenges and unforeseen events, we are comfortably sustaining over 1 million ton run rate on both mined metal and refined metal. With our valuable learning and some of the key structural changes that we have discussed over the last few quarters, alongside increased use of technology as well as learning deployed, we are confident to deliver the projected volumes for FY ’23 and with increasing uniformity in the quarters to come.

With this, I hand over the call to Sandeep for an update on financial performance.

Sandeep Modi — Deputy And Interim Chief Financial Officer

Thank you, Mr. Misra, and good afternoon, everyone.

I’m happy to present to you another good set of results amid macro headwinds, input commodity inflation and softening LME. It was a record first half where we touched significant milestones and continued positive momentum of our financial performance. We delivered historic high first half in terms of revenue, EBITDA, as well as net profit. The success can be largely attributed to our agile decision making to cashing the favorable LME by embarking on a strategic hedging on the right time, this along with the [Indecipherable] when it comes to operational efficiency initiatives. Cost rationalization, as well as volume delivery is keeping us ahead in this uncertain times and helping us stay in the first quartile of global cost curve. All of this has enabled us to protect our margin despite grappling with the increasing energy prices and input commodity inflation. Refer to Slide 17 for an update on our financial performance for the second quarter and first half year ended September 2022,

For the first half FY ’23, revenue from operations stood at INR17,723 crores, an improvement of 40% from the same period last year. This was supported by improved zinc LME prices and volumes gains from strategic hedging, favorable exchange rates, and better lead and silver volumes, which were partially offset by low lead and silver LME prices. Similarly, revenue from operation during the quarter was INR8,336 crores, which is an increase of 36% Y-o-Y, led by higher refined metal and silver volume and LME prices gain from strategic hedging and the favorable exchange rates, partly offset by lower lead and silver LME prices. Sequentially, revenue decreased 11%, primarily due to lower zinc prices and volume, low lead and silver prices, partially offset by our gain from strategic hedging, favorable exchange rates and improved lead and silver volume.

For H1 ’23, COP stood at $1,260 per ton — metric ton, 15% higher Y-o-Y in USD terms and 22% in INR items. The COP was affected largely on account of higher coal prices, lower domestic coal linkage availability, input commodity inflation, being partially offset by higher volume and improved operational efficiencies. Zinc cost of production before royalty during the quarter was $1,259 per metric ton, higher by 12% Y-o-Y and almost flat sequentially. In INR terms though, it was 21% Y-o-Y and 3% sequentially higher.

This resulting EBITDA for H1 FY ’23 was at INR9,665 crore, an increase of 40% Y-o-Y, driven by input — improved metal and silver volume, zinc prices, gain from strategic hedging and favorable exchange rate, partially offset by higher cost and lower lead and silver prices, EBITDA for the quarter was INR4,387 crore, up 32% Y-o-Y, though down 17% sequentially. This movement was primarily driven by the higher revenue, being offset by increased cost on account of the prevailing input commodity inflationary environment. Please refer to EBITDA bridge given on Slide 18 to 20 for the various periods for the detail.

Net profit for H1 was INR5,772 crores, a strong growth of 44% Y-o-Y, led by higher EBITDA, partially offset by increase in tax and depreciation and amortization. For the quarter, net profit was INR2,680 crores, a Y-o-Y growth of 33% led by higher zinc volumes and prices, and favorable exchange rate, while being partially offset by the rising input commodity prices and lower lead and silver prices. On a sequential basis, net profit was 13% lower due to lower metal production and lower zinc and silver prices, being partially offset by strategic hedging gain and favorable exchange rates.

Effective tax rate for the second quarter was close to 32%. And if we see H1, it will be approximately 33%. That said, our cash tax is much lower due to available MAT credit, plus once we move to new regime from next financial year, our tax rate will be around 25%. As far as our ETR guidance is considered, I would leave it unchanged at 32% for the full year.

Kindly turn to Slide 22 of the presentation for our cost and capex guidance for the fiscal year ’23. In the previous quarter, I had mentioned that across the industry, there an upward pressure on input commodity inflation, which we are also facing. While we have been doing our best to combat it through levers available to us in form of delivering higher volume, operational efficiency, especially focused on improving and maintaining metal recovery and exploring all possible avenues to reduce our procurement cost, the input commodity inflation continues to weigh on us, as no process improvement can combat such a steep increase in coal cost in near-term. Hence, management has taken the considerate call to revise the cost guidance and expect zinc COP in the rate of $1,225 to $1,275 for the FY ’23, which is inclusive of higher mine development expenditure to support future volume growth. As you would understand and appreciate that this revision comes in the light of an extremely uncertain environment with rising imported coal prices, lower domestic coal availability and geopolitical tension, which is impacting supply chain globally. That said, we remain confident to maintain our leadership position in the global zinc costs and will continue to protect and improve our margin. Project capex guidance for the year remain unchanged and expected to be in the range of $125 million to $150 million.

With this, I open the floor for your questions. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities. Please go ahead.

Amit Dixit — ICICI Securities — Analyst

Yes. Hi. Good evening, everyone. Congratulations for a good set of numbers, in otherwise, a very challenging quarter. I have just couple of questions. The first one is, if you can quantify the gain from hedging? And is there a portion of hedging is still left? And if so, at what price? So, that is the first question.

The second one is, on your production guidance, this seems to be slightly conservative given that we — I expect that acid tank storage [Indecipherable] would have been repaired and contribution from [Indecipherable] is also expected. So, I mean, what drives this rather conservative pricing?

So, these are the two questions I have. Thank you.

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, I will — thanks, Mr. Amit. I will answer the first question. The quarter two strategic hedging gain was around INR500 crores, taken into the quarter two. And to answer your question, nothing much significant strategic hedging open position now stands.

Arun Misra — Chief Executive Officer

And Amit, thanks for the question. On the volume portion, we are — as you can look at last four quarters, if you add up, we are already more than 1 million ton plus, and H1 itself is 0.5 million ton and above. Yes, we all hope that we crossed 1 million ton mark by a good margin, but I think let’s do quarter three right and then we’ll better know how much more we can add in quarter four. And we are all very eager to cross that mark of 1 million ton by good margin as far as the FGs are concerned. But I would not like to be unnecessarily optimistic, but rather I would say that we will — we are all committed to do better.

Amit Dixit — ICICI Securities — Analyst

Okay. Great, sir. Thanks, and all the best. I’ll get back in the queue. Happy Diwali.

Arun Misra — Chief Executive Officer

Happy Diwali.

Operator

Thank you. The next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.

Pallav Agarwal — Antique Stock Broking — Analyst

Yes. Good evening, everyone. Happy Diwali to all. Sir, I had a question on the coal availability and linkages. So, after the monsoons, are we seeing any improved availability of coal? And so, do you expect that coal cost could moderate in Q3 or Q4?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, Pallav, I’ll address this question. The coal — linkage coal availability has bit improved. In the quarter one, it was 10%. In the quarter two, it has been around 14%. We believe that we have been meeting and representing everywhere, and we expected after the monsoon, the linkage coal availability should improve. But what can be the quantum? 20% or 25%? We don’t know. But at this point of time, we remain optimistic as the Coal India has also been stating that their production is going to improve, and especially with the mines which we held. And coal procurement cost is the driver. Second, I think the imported coal prices are also going down in the market, especially if you see the Mozambique or South Africa and Indonesian. That should also help us to reduce the coal cost.

Pallav Agarwal — Antique Stock Broking — Analyst

Sure, sir. But the INR is also depreciating, so considering that, we still probably expect cost to go down?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, INR is depreciating — as far as my EBITDA margin is considered, I mean, naturally hedged. So, INR depreciation is also giving a much, much benefit in case of my exports. And if you see in the US dollar terms, cost — the denominator will be remain the higher USD-INR. So, my cost per ton should not be that much of — resulting into the negative.

Pallav Agarwal — Antique Stock Broking — Analyst

Yes, fair enough, sir. So, also a question of — I think, if I got the number right, the strategic hedging gain you mentioned was about INR500 crores for this quarter. Is that correct?

Sandeep Modi — Deputy And Interim Chief Financial Officer

Yes.

Pallav Agarwal — Antique Stock Broking — Analyst

So, this is actually, sir, is that helping the zinc? If I just compute the zinc premium, physical premium of LME, so that has again improved over the last quarter. So, is this also being driven by the strategic hedging gains?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, strategic hedging gain is completely different. It is not having any premium, so it’s only a delta between what is the market price of the — in the LME and what has been actually we have sold forward. So, you will see this delta in the revenue from operations.

Pallav Agarwal — Antique Stock Broking — Analyst

Yes, sir. So, indirectly this is coming into the zinc realization?

Sandeep Modi — Deputy And Interim Chief Financial Officer

Yes, which is zinc realization as part of the revenue from operations.

Pallav Agarwal — Antique Stock Broking — Analyst

Yes. So, that’s why I’m saying the derived premium seems to be on the higher side, okay. So, this may probably normalize once — yes, okay. Yes, sir. Thank you. Those are my questions.

Operator

Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead.

Vishal Chandak — Motilal Oswal — Analyst

Thank you very much, sir, and wish you all a very, very happy Diwali. Sir, my question was with respect to this Group Captive Scheme. So, if you could just elaborate on what kind of investments are there? What kind of ROEs are expected? And what is the cost of production? And also, a bit more on this group company Serentica, who are the owners, etc.? Thank you very much.

Arun Misra — Chief Executive Officer

So, Group Captive Scheme is standard scheme in case of power, production and transmission, if you’re not trying to own 100% of any power plant that we put up and you want somebody else to put up a power plant and — but you want to get the benefit of being a captive producer in terms of other duties and taxes that are applicable to a power producer, then you go for the Group Captive Scheme mandated by government, be it thermal, be it RE power or any kind of power plant. So that requires that one has to make a 26% equity investment in a power producing company. So that is plain and simple as per the law of law that one has to do and that’s what we have done.

Serentica is part floated by our Group. It is the group company, which is into RE power production. And we see that this — considering all the businesses of the Group, RE power requirement is very high. And also, all our operations will be totally banking on continuity of supply of RE power. So, while one can try to ensure that through contract, but having own investments, at the same time being a listed entity, having a 26% Group Captive Scheme investment helps us to ensure the continuity of business with all risks factored in with the RE power, which is going to replace about 40%, 45% of my total power generation capacity.

Vishal Chandak — Motilal Oswal — Analyst

Thank you for the elaborate answer, sir. Just [Indecipherable] couple of points, which I wanted to understand. Number one, Serentica, is this a promoter entity or is this Vedanta Limited group company? That’s number one.

Number two. I understand Group Captive means you’ll have to invest at least about 26% of the equity to be eligible for that, but so far, your investment is about INR105 crores. Does that mean that is your 26% equity contribution? If so — if not then, how much extra we need to put in?

And thirdly, by what time do we expect this 200 megawatt power to start flowing into Hindustan Zinc?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, Pallav [Phonetic], I will answer that. The total investment which Board has approved for 26% equity is INR350 crores, which we well announced in the market. And we have invested as of now 30%. And this entity is expected to commission its operation in the next two years. So, by FY ’25 or early quarter one of FY ’26, we should be in the start of the operation. Yes, this is not a part of the Vedanta Limited.

Vishal Chandak — Motilal Oswal — Analyst

That helps. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Saket Reddy from Polsani Enterprises. Please go-ahead.

Saket Reddy — Polsani Enterprises — Analyst

Good evening, sir. Am I audible?

Arun Misra — Chief Executive Officer

Yes. Good evening.

Saket Reddy — Polsani Enterprises — Analyst

Yes. So, I have seen you’ve done an NCD payment of INR700 crores this quarter. So, when is the next one due?

Sandeep Modi — Deputy And Interim Chief Financial Officer

The remaining is INR2,100 crores, that is due in September ’23.

Saket Reddy — Polsani Enterprises — Analyst

September ’23, okay. And one more thing, your saleable silver guidance, isn’t that too conservative? Like you’ve done 371 metric tons I think in H1, 371 MT. You guided for 700 metric tons to 725 metric tons for the whole year. So H2 will see some let down or is it a conservative guidance?

Arun Misra — Chief Executive Officer

No, it is in line with the metal prices that we have given. There is always a certain proportion that gets maintained with the metal production. And as of now, unless I’m changing the metal guidance, I’ll not be able to change the silver guidance as well. But as I’ve said — commented earlier, H1 being already crossed 0.5 million ton and silver at 340 metric ton or so, so H2, we are all hoping it will be much better. And let’s see by how much margin we cross the guidance that we’ve given.

Saket Reddy — Polsani Enterprises — Analyst

Okay. And so, we already, I think, around three weeks into Q3. So, you still maintain the fumer at Chanderiya to get commissioned by end of Q3?

Arun Misra — Chief Executive Officer

Yes. Because the only thing that was stuck was the visa issue. And as we speak, yesterday itself, some clearances have been given for visa approval from Beijing embassy. So, I’m sure in the matter a week or so, we would have the experts here, and then we should be able to complete the work. Only — everything is done, it’s only the commissioning, which is the matter of 10, 15 days work, but we need the experts to be here, that’s the only issue.

Saket Reddy — Polsani Enterprises — Analyst

Okay. And last question, sir. The Chanderiya plant back on track, like post the issue…

Arun Misra — Chief Executive Officer

Yes, plant is back on operation. So, we had taken some — preponed some of the shutdown work, which we — initially as we had planned to do later — at the latter part or the early part of this quarter, so we have preponed that, completed those shutdowns and restarted all operations. So, everything is normal as far as operations are concerned.

Saket Reddy — Polsani Enterprises — Analyst

Okay. Thank you, sir. Thank you, and all the best. Happy Diwali to everybody.

Arun Misra — Chief Executive Officer

Thank you. Happy Diwali.

Operator

Thank you. The next question is from the line of Pritesh [Phonetic] from Investec. Please go ahead.

Unidentified Participant — — Analyst

Yes. Hi, sir. Thanks for the opportunity. Sir, just two questions. First, we have really solid cash flows. We have lot of cash on the books, and we have limited capex. So, sir, how should one look at the dividend payouts going forward?

Arun Misra — Chief Executive Officer

So, as I keep saying, dividend is the matter for the Board to consider. As far as my job is concerned to ensure EBITDA and we generate cash flows. And I’m sure the Board in their best interest would take that decision right time. But we are also putting up two good projects, which I informed earlier, work as a new roaster which will add to our calcined making capability and also one fertilizer plant. And I’m sure, this year, when we do the business planning, we will come up with some more projects to make better utilization of the cash that we have.

Unidentified Participant — — Analyst

Right. Sir, if I [Technical Issues] take a step back, when we look at a particular payout ratio, just want to understand how you think about it. Like, we have adequate cash on the book, but still if I look at like last two annual reports and if I just dig into a bit of regulatory filings, we do understand that the Company is also looking to move capital from GR to RE. So, what is the need for us to actually execute that, specifically given that is adequate cash which is already there on the books?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, if you see, general reason to retain earnings, it’s a long-drawn process. So, we initiatives this causes almost eight, nine months back, and currently, the SEBI’s approval is in the NCLT. So, this is just enabling provision which will allow us the flexibility for using it. It may not be immediate, but it will be in the interest of the shareholders. So, it will go through the process, so that’s why we’ve taken to enable us [Indecipherable] anything we want to reward the shareholders.

Unidentified Participant — — Analyst

Sir, my question is what is it that triggered us to do something of that sort right now, probably why not like, say, three years back or four years back? I’m just trying to understand the thought process, trying to understand the concept.

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, if you see any time, it’s — what is the right time, nobody can comment, but we have also taken as a part of various other companies who took — recently, in the past, Tata Power, let’s say [Phonetic], they have also taken, so we also took around a year back. And as, I said earlier, it’s a long-drawn process. It doesn’t require like just one week or one month job. So it has been almost a year job. So, we too thought that it will take time, so we — triggered this thing in the — around eight, nine months back.

Unidentified Participant — — Analyst

Sure, sir. And sir, you said we already have approvals from both SEBI as well as NCLT. Did I hear it right?

Sandeep Modi — Deputy And Interim Chief Financial Officer

The SEBI has approved. NCLT is to yet to approve.

Unidentified Participant — — Analyst

Okay. And sir, do we need creditor approval here when we do GR to RE?

Sandeep Modi — Deputy And Interim Chief Financial Officer

It will be through NCLT process, and after than, shareholder approval will be required.

Unidentified Participant — — Analyst

Okay. And sir, when we actually give a payout from the GR to RE, does it also call for a shareholder’s approval or a creditor approval?

Sandeep Modi — Deputy And Interim Chief Financial Officer

No. Once the NCLT approves, then after that shareholder approval would be required, and automatically then it will go to the retained earning and after that it becomes a part of the free reserve [Phonetic].

Unidentified Participant — — Analyst

Okay. So, if there is an incremental payout, we do not require any separate creditor approval right? Is that understanding right?

Sandeep Modi — Deputy And Interim Chief Financial Officer

No.

Unidentified Participant — — Analyst

That helps. Perfect. And sir, can you highlight the update or progress on the fertilizer expansion, given I think scenario that the country is in? I think if we fast-track something of this sort, it will, I think, be not good.

Arun Misra — Chief Executive Officer

Absolutely correct. So, we have got the Board approval and after that our project team has completed the design, pre-feasibility, and then now we are busy in negotiation for appointment of EPC contractor. I guess by the end of this month, the business — the contractor will be onboard. And I can see we’ll be hitting the ground anywhere between second or third week of November to start construction.

Unidentified Participant — — Analyst

Sure, sir. Thank you so much for answering all my questions.

Arun Misra — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.

Amit Dixit — ICICI Securities — Analyst

Yes. Thanks for taking my questions again, sir. I have couple of data questions actually. The first one is what was the grade in Q2 FY ’23? While you have mentioned, that has improved. So just wanted to understand how much it has improved. That is question number one.

The question number two is on the revenue — the capital development and the revenue development fee, and just to highlight it, revenue mined…

Arun Misra — Chief Executive Officer

So, grade for this quarter has improved to 7.4%. And capital mined development for this quarter was around 13 kilometers.

Amit Dixit — ICICI Securities — Analyst

And revenue, sir?

Arun Misra — Chief Executive Officer

Revenue was INR25 crores [Phonetic]. Sorry, remaining with us — 50%, almost 13 kilometers.

Amit Dixit — ICICI Securities — Analyst

13 kilometers. So, 13 kilometers each.

Arun Misra — Chief Executive Officer

Yes.

Amit Dixit — ICICI Securities — Analyst

Okay. Great, sir. That answers my question. Thank you.

Operator

Thank you. The next question is from the line of Vikash Singh from PhillipCapital. Please go ahead.

Vikash Singh — PhillipCapital — Analyst

Good evening, sir, and Happy Diwali.

Arun Misra — Chief Executive Officer

Good evening, and Happy Diwali.

Vikash Singh — PhillipCapital — Analyst

Sir, I just want to understand on the market side, so there was a news that big couple of smelters has also closed down in the European region. So looking at the current cost kind of the scenario, if you have some idea about what percentage of capacity would be now in a cash losses or what kind of market balance you are expecting in the next five to six months? If you could just give us some your thought process on that?

Arun Misra — Chief Executive Officer

So, if you look at one or two smelters which are supposed to have been closed down or in care and maintenance, anywhere between 300,000 tons to 400,000 tons will be out of circuit. But Europe also is facing a demand issue. It’s just not the production issue, also there is a demand issue, as the — even the auto production are also in under stress, because of the cost of energy. So, as far as we are concerned, we are currently looking at the reduction in — or the lowering of trend of shipping costs across the globe. We are now looking at, of course, Europe and USA as a better margin-paying destinations. But nevertheless, our first priority continues to remain serving domestic customers where we are already at 79% of the market. And any augmentation, I would prefer first in domestic, then in European market.

As far as prices are concerned, there are two sides to it. As I’ve spoken in my talk, the stocks are at one of the lowest levels. If we look at the LME stock, but on the other side, there are two schools of stories. One says it will keep on fluctuating between $2,900 to $3,100 for another three, four months. But I see current report of Goldman Sachs which also claims that in four to five months’ time, it can touch anywhere between $3,700 to maybe $3,900 per ton. So, anyway price is not something which is in our hand. We can only speculate. As far as we are concerned, we should be producing above the guidance and that should comfort us.

Vikash Singh — PhillipCapital — Analyst

Understood, sir. And sir, sorry, if I missed on the hedging part, so if I’m repeating the same question. I just wanted to understand, since the LME is pretty lower and we won’t like to hedge at those point, are we looking to hedge the dollar affecting the US dollar, because in that, say, in case if tomorrow the LME keeps on increasing, we would get a benefit under at least the dollar side if rupee appreciates — it looks very good range. So, just wanted your thought process on that.

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, as we — our policy has been continue to keep the dollar side open in both kind of import, because naturally hedge is there. As of now, we have not thought through on this aspect, and we continue to remain the — same in line with the policy. But surely, we can look at it.

Vikash Singh — PhillipCapital — Analyst

Understood, sir. Sir, just one last question. Since our fumarate is almost completed, what is the ramp-up period it would take if we have that kind of understanding?

Arun Misra — Chief Executive Officer

So, in Q3, if we commission, we should be anywhere between, say. February — January, we should be starting up, and then by February, we should be ramped up to the capacity. And I’m expecting it to add 30 tons of silver in the year, so roughly about seven to eight tons of silver in a quarter, so anywhere between another three to six tons extra in quarter four, if we add up the numbers like that.

Vikash Singh — PhillipCapital — Analyst

Okay, sir. So that seems that our silver guidance was also being lower, so would — you can expect surprises there?

Arun Misra — Chief Executive Officer

I have already communicated — I have already told that both silver is tied to hedging [Phonetic] and I’m — all like you, I’m also equally optimistic we will be doing better in H2, cross the 1 million ton mark by a good margin I hope, and accordingly silver should follow. And I’m sure, we’ll do that. But as far as guidance is concerned, it is only the minimum milestone that we set for ourselves. I don’t think that I work for the guidance. We will still be better than guidance by good [Phonetic] margin.

Vikash Singh — PhillipCapital — Analyst

Understood, sir. Thank you for taking my questions. And once again Happy Diwali to all.

Arun Misra — Chief Executive Officer

Happy Diwali.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahul Jain from Systematix. Please go ahead. Rahul Jain, your line is in talk mode. Kindly go ahead with your question please.

Rahul Jain — Systematix — Analyst

Yeah, hi. Thanks for taking my question, and wish everybody a very Happy Diwali. Sir, on the volumes, sir, you’ve done a pretty good run rate in this quarter and also the previous one. So, how should we look two years down? Do we — is this the peak that we have achieved or we should keep looking at some 5% to 10% kind of incremental output, giving debottlenecking initiatives and things like that? Because, very long time capex ongoing. So, how should we see volumes two years down?

Arun Misra — Chief Executive Officer

No way I can tell you that this is the peak we have achieved and it will continue like this, absolutely no way, because then I don’t need to be here. If I am here, then we need to have 10% more production every quarter, if not, every year. So we not go — we need to go up like that, and my reason I had painted in sometime back that Hindustan Zinc in India must produce 1.2 million ton finished goods. Currently, it is just for the first time we will cross 1 million ton this year, I hope, by a good margin. So I should say that another one-and-a-half year, if I commission another roaster, then maybe I’ll come through a project of some more hydro circuit, and so, 1.2 million metal is not very difficult target for Hindustan Zinc, and I should be able to deliver that.

Rahul Jain — Systematix — Analyst

Right. So, we should see incrementally moving in that direction, obviously it’ll not be consistent every quarter, but…

Arun Misra — Chief Executive Officer

I can assure you that my — one of my — first target in my job is make it consistent in every quarter. I have delivered in quarter one equivalent to quarter four. Quarter two would have been quarter one had there been not unknown breakdown in Chanderiya. Quarter three, quarter four, you will — you are going to see all four quarters almost equal production, summing up to, say, 1.1 million ton, then 1.2 million ton, but quarter-wise variations, we will remove. And that’s the best way to run a business.

Rahul Jain — Systematix — Analyst

Right. And sir, actually, secondly on the cost front, we have seen — I mean obviously cost are high. So I missed the part on incremental. From here on, do you expect cost to be trending higher? Because you also mentioned coal prices are coming down. So, I mean, are we reaching the peak, or how would you probably look at it?

Sandeep Modi — Deputy And Interim Chief Financial Officer

So, I think, the cost has to be seen more on dynamic situation. If you see what we are thinking the inflationary pressure, it has actually forced us to revise our guidance. So, I can tell you the quantum would have been much higher if we would have taken the best of the efforts to reduce the cost through various internal measures. So, we are taking the best of the internal measures. And Mr. Misra ji has said, the quarter three, quarter four, we should be seeking more volume, and that should reduce the cost, because large part is also the fixed cost.

And secondly, yes, you are right, since the cost has increased on account of the largely the input commodity inflation and as I was saying earlier, we expected the linkage coal availability should be improved, and imported coal cost should also be lower. I expect it from December onwards, so maybe the Q3-end, and going to the Q4, we should see good amount of reduction in the cost.

Rahul Jain — Systematix — Analyst

Right. And sir on the government stake sale front, any update? Anything you’ve heard? Anything you want to share? Thanks.

Arun Misra — Chief Executive Officer

No. So, government has appointed the bankers, and we are in discussion with the government to help them in this process. So, very soon, you would see our team along with the government on the roadshow. So, things are moving very fast in last about 15, 20 days time.

Rahul Jain — Systematix — Analyst

Okay. And sir, would the Vedanta management be keen to participate in that, or it is just for the public? I mean, obviously, it is different management, but obviously you can share something.

Arun Misra — Chief Executive Officer

Right now being on Hindustan Zinc seat, I would not dare to comment on intention of Vedanta. When I’m on Vedanta seat, I would do that.

Rahul Jain — Systematix — Analyst

Sure. Thank you so much, sir.

Arun Misra — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead.

Vishal Chandak — Motilal Oswal — Analyst

Thank you, sir. Sir, I know you just mentioned about hitting the 1.2 million target in terms of total mined production. But the way we are looking at it, how — Q1 was definitely very good. Q2 looks to be good. But given your guidance, how should we look at it? Because your guidance of close to 1 million only, it’s far below what you’re actually doing in terms of your refined metal production or mined metal production. This number itself point to a slightly higher than just 1 million ton number. How should we look at the guidance?

Arun Misra — Chief Executive Officer

As I told you, two things there. 1.2 million tons is not immediate. As I said, another one-and-a-half year from FY ’23-end, then we would see 1.2 million tons would be achievable, somewhere around 2024-end or so, that is one. Second is, yes, guidance is just something that we set out for, but we will surely outnumber the guidance by a good margin if we can continue the same rate. But there is no reason for me to unnecessarily becoming too optimistic or too ecstatic about it. We will do that. So, our numbers are there behind us. Had a plus four quarters, we have more than 1 million tons, two quarters or H1 itself is 0.5 million tons, so nothing — I don’t see any headwind as far as volumes are concerned.

Vishal Chandak — Motilal Oswal — Analyst

Right. Sir, I hope I’m not repeating the question. My apologies in advance. I just wanted to understand what is the scenario with respect to the costal project where you were working for some time? Is it still on the backburner or some promises actually there?

Arun Misra — Chief Executive Officer

We are not actively working on it as of now. So we are concentrating our own operations. So, we will bring a roaster here in our operations, and increase our calcined making capacity and move one step closer to realizing 1.2 million tons. And we will also put up the fertilizer plant to bring more value from the assets that we have. And we are concentrating on those two kind of projects as of now.

Vishal Chandak — Motilal Oswal — Analyst

Thank you very much, sir.

Arun Misra — Chief Executive Officer

Thank you.

Operator

Thank you. As there are no further questions, I now hand the conference over to Ms. Shweta Arora for closing comments. Over to you, ma’am.

Shweta Arora — Head of Investor Relations

Thank you, everyone, for joining us today on the call. On behalf of Hindustan Zinc, I wish you and your family a very happy and safe Diwali.

For any follow-up questions or clarifications, please feel free to reach out to Investor Relations team.

With this, I close today’s call. Thank you.

Operator

[Operator Closing Remarks]