Hindustan Zinc Ltd (HINDZINC) Q4 FY23 Earnings Concall Transcript

Hindustan Zinc Ltd (NSE: HINDZINC) Q4 FY23 earnings concall dated Apr. 21, 2023

Corporate Participants:

Jhalak Rastogi — Associate Director – Investor Relations

Arun Misra — Chief Executive Officer

Sandeep Modi — Deputy and Interim Chief Financial Officer

Analysts:

Abhiram Iyer — Deutsche Bank — Analyst

Amit Dixit — ICICI Securities — Analyst

Love Sharma — Lombard Odier Investment Managers — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Rahul Jain — Systematix — Analyst

Pinakin Parekh — JPMorgan — Analyst

Ritesh Shah — Investec — Analyst

Ketan Mehta — BOB Capital Markets — Analyst

Pallav Agarwal — Antique Stock Broking Limited — Analyst

Vishal Kulkarni — S&P Global — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Hindustan Zinc Fourth Quarter and Full-Year FY ’23 Earnings Call. [Operator Instructions]

I now hand the conference over to Ms. Jhalak Rastogi, Associate Director – Investor Relations. Please go ahead.

Jhalak Rastogi — Associate Director – Investor Relations

Thank you. Good afternoon, everyone. I welcome you all to Hindustan Zinc’s fourth quarter and full-year FY ’23 ending 31st March ’23 results briefing. In this call, we will refer to Q4 FY ’23 investor presentation available on our Company’s website. Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on Slide number 2 of the set presentation.

Today on the call we have with us our CEO, Mr. Arun Misra; and our CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through financial performance. Afterwards, we’ll open the floor for questions.

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

Arun Misra — Chief Executive Officer

Thank you, Jhalak. A very good afternoon to all of you. Thank you for joining us today for the fourth quarter and FY ’23 results briefing. At the outset, I’m very happy to share with you that Hindustan Zinc has achieved highest ever metal production in FY ’23, crossing 1 million tonne metal mark, which was promised at the beginning of the year. We could do this through relentless efforts on our operational efficiencies in our smelters, backed by consistent mined metal production in our mines. With our ever-increasing silver production, it brings me great pleasure to share that Hindustan Zinc has now become the fifth largest silver producer globally. A quick snapshot of developments met in the year are given on Page 6 and 7 for reference.

Coming to our key priorities on safety front, in line with our commitment, we ensure zero harm to employees. The leadership has undertaken the prime responsibility of providing a safe workplace for all employees entering our premises. We have started implementing critical risk management to prevent further fatalities and it gives me satisfaction to report fatality-free operation during last two quarters. Safety of our people is the top most priority for us at Hindustan Zinc and it is our commitment to ensure that all our employees return home safely.

An update on key priority, on the ESG front, we continue to make progress on our sustainability journey to achieve net zero by 2050 via multiple pathways. During the quarter, we entered into another power delivery agreement with Serentica Renewables for sourcing renewable power of 250 MW, thereby aggregating such contracts to 450 MW under the Group captive scheme. We inaugurated 550 tonnes per hour paste-fill plant at Rajpura Dariba Complex, which affirm our commitment towards a safe, smart and sustainable operation.

I’m also elated to inform you that Hindustan Zinc is transitioning towards a low-carbon vehicle fleet, we flagged off the first underground mining EV Hills SK Mine, first LNG vehicle for transportation, and first EV truck for carrying concentrate from banks to smelter. Hindustan Zinc ranked amongst top 5% ESG scorers in the metals and mining sector in S&P Global Sustainability Yearbook 2023. We have been featured for the sixth consecutive year reaffirming our best-in-class sustainable practices. We have also been recognized with prestigious A rating for climate change and A- rating for water security.

In addition, Rampura Agucha mine became India’s first mine to be GreenCo certified, and four of our mines are now five-star rated under A list category of mines by Indian Bureau of Mines. These endorsements play a significant role in motivating us to consistently march ahead on our ESG journey.

Coming to an update on our on-ground CSR activities. It gives me immense satisfaction to inform that we are progressing well on our special sustainability goal. We could outreach and favor has number of more than 1.72 million beneficiaries in FY ’23 through our sustained CSR initiatives.

Strengthening our commitment towards education, sessions on digital literacy and life skill training were important to deaf and dumb students, promoting sustainable likelihood and skill development Hindustan Zinc’s Kaushal Kendra has trained successfully its first all-female batch for unarmed security guards with 100% placement at reputed organizations. Reinforcing the goal of diversity and inclusion, we achieved 19.5% gender diversity as of March ’23, inclusive of all genders and sexual orientation.

I would like to share that Hindustan Zinc signed MoU with Rajasthan Cricket Association for developing India’s second-largest cricket stadium in Jaipur. Zinc Football Academy gets second position in the Khelo India Under 17 World Football League and at Rashtramand [Phonetic] we also supported regional cricket match of Waladia Panchayat League [Phonetic] held at Pratap Pura with about 150-plus participants across Udaipur.

Moving on to the market. The global economy continues to remain impacted by external factors, though the previous quarter did begin with optimism from the global economic outlook on account of easing supply chain disruptions and expectations of China’s economic recovery, supported by positive hope on broad-based recession avoidance. However, the same was shortlived with the potential banking meltdowns and mounting inflation in the US, supplemented by China showing few signs of strong economic recovery yet broader market sentiments continue to remain weak.

Further, as per IMF, 2023 will be another challenging year with global growth of less than 3% majority impacted on account of monetary tightening, COVID aftermath and the war in Ukraine. Zinc supply and demand forces remained underperforming, the LME stocks stood at 45,000 tonnes as compared to 140,000 tonnes at the start of April 2022. Whereas stocks in [Indecipherable] warehouse at the end of March stood at 97,000 tonnes as compared to 176,000 tonnes at the start of April 2022.

Stocks have done a multi-decade low levels. On demand side, there has been a fall in global consumption by 3% in 2022, amidst the slowdown of China economic recovery and possibility of US banking crisis impacting the construction and automotive sector for the first-half, global consumption is forecast to grow by 1.5% in 2023.

Touching briefly on lead, lead prices in Q4 exhibited an improvement of 2% Q-on-Q closing at $2,145 a ton. Global lead demand exceeded supply in 2022 with lead metal supply down by 0.7% and demand up by a modest 0.5% predominantly in China, India, Japan and US. However, in the first half of 2023, muted and balanced lead prices are expected driven by same supply and demand expectations on account of lead smelters going into maintenance in China, combined with off season of lead acid battery market.

Coming to silver, prices have been on an upside closing at $23.89 million per dry ounce. Silver inventory in London vaults touched six-year low levels in November 2022 and continues to trend downwards. For 2023, silver demand is expected to be bullish, driven by increasing industrial offtake augmented by rising focus on green economy, including renewable energy products like solar cells, vehicle electrification and investment in 5G infrastructure.

On the domestic front, the Indian economy continued to show strong resilience. This was reflected in the S&P Global manufacturing PMI in March 2023, which was at 56.4 indicative of expansion in the manufacturing activities. Q4 experienced a strong demand for [Indecipherable] maximizing output in the last quarter.

Now coming to an update on operational performance. This financial year, we surpassed our own records. I’m happy to report mine metal production of 1,062-kilotonnes, up 4% year-on-year and record-high refined metal production of 1,032 kilotonnes, up 7% year-on-year. This was supplemented by highest-ever mine development during the year crossing 110-kilometer mark with life-of-mine ventilation system fully commissioned and operational at Agucha and in progress at SK and Zawar mines. [Indecipherable] continuity of superior performance while maintaining our mine life at 25-plus years. During the quarter, our mined metal and refined metal production was ever highest at 301,000 tonnes and 269,000 tonnes respectively, demonstrating our capability to produce 1.2 million tonnes MIC. Record performance was majorly driven by higher ore production, improved grade and better plant availability.

We also delivered ever highest silver during the year, in line with lead metal production. We entered the new financial year on the back of such stellar performances. Such resilient efforts blended with softening input costs enabled delivery of strong operational performance, successfully achieving the annual guidance with an EBITDA margin of 52%, some of the automation projects like smoke hour drilling have helped increase volume with marginal operating costs.

On projects front, happy to inform that our alloy plants execution is in process and commissioning is scheduled in quarter one of this financial year. For fertilizer plant, order placement is scheduled in this quarter and RD mill commissioning is also targeted in quarter one of FY ’24. Also, we have successfully maintained a mine life of 25-plus years with strong R&R, demonstrating an increase of 2.7% year-on-year and factoring production of FY ’23, the increase is 7%. Maintaining a portfolio of mines with long-life remains one of our key focus areas.

Before I hand over the call to Sandeep for an update on financial performance, I would like to present our production guidance for the fiscal year 2024. We expect mined metal for the year to be in the range of 1,075,000 to 1,100,000 tonnes and refined metal production for the year to be in the range of 1,050,000 to 1,075,000 tonnes while FY ’24 sellable silver production is expected to be between 725 to 750 tons.

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

Sandeep Modi — Deputy & Interim Chief Financial Officer

Thank you, Mr. Mishra; and a very good afternoon to everyone. Supported by a consistent financial performance across the quarter, Hindustan Zinc experienced yet another record-setting annual performance, delivering historic high revenue, EBITDA, net profit and cash flow generation. This splendid performance is an accurate demonstration and the testimony of our continued efforts on operational efficiency, volume enhancement, cost optimization, backed by agile decision-making and a favorable LME environment. All of this has enabled us in sustaining robust and resilient margin even in an input commodity inflationary environment.

Coming to an update on the financial performance for the fourth quarter and the full-year ended March ’23. Revenue from operation for the year was at a record INR34,098 crores, an improvement of 16% Y-o-Y. This was supported by improved zinc LME and volumes gained from strategic hedging of approximately INR800 crores, favorable exchange rates in metal lead and silver volume, which was partially offset by lower lead and silver prices.

Revenue from operation during the quarter was INR8,509 crores, down [Technical Issues] majorly on account of lower zinc, lead and silver prices, which was partially offset by improved refined metal and silver volume and favorable exchange rates. Sequentially, revenue improved by 8%, primarily due to improved metal and silver volumes along with metal zinc, lead and silver prices.

Zinc cost of production before royalty during the quarter stood at $1,214 per tonne, the lowest quarterly COP in FY ’23, which was 6% better sequentially though 7% Y-o-Y in USD — 6% better sequentially, 17% higher in INR terms if we compared with the Y-o-Y. The sequentially improvement was mainly on account of better volume, improved rate, strong operational efficiencies, and supported by smoothen coal cost. For the full year zinc COP stood at $1,257 per tonne, 12% higher Y-o-Y in USD term and 21% higher in INR term.

Though well within the guidance given in October ’22, the COP was up mainly on account of elevated coal prices for domestic coal linkage availability still December ’22 and input commodity inflation, partially offset by higher volume and improved operational efficiency. The resulting EBITDA for the full year was record INR17,590 crores and increased 8% Y-o-Y driven by improved metal and silver volume, higher zinc LME prices, gains on strategic hedging of INR800 crores and favorable actions were partially offset by higher costs in lead and lower lead and silver prices.

EBITDA for the quarter was INR4,208 crores, down 16% Y-o-Y, and up 13% sequentially. The quarter-on-quarter improvement was primarily driven by better revenues due to higher volume and prices coinciding with improved cost on account of indexing input commodity inflation, further supported by better volume, mining grades and operational efficiency. Please refer to EBITDA bridge from Slide 23 to 25 for further details.

Consolidated net profit for the year was at historic high level of INR10,511 crores, a growth of 9% Y-o-Y, majority led by higher EBITDA, partially offset by an increase in tax. Net profit for the quarter stood at INR2,583 crores, up 20% quarter-on-quarter. The sequential improvement was majorly on account of higher EBITDA and lower tax expenditure.

Effective tax rate for the fourth quarter was 26.3% and for the full year was 31.2%. The tax expense and ETR was lower in Q4, mainly on account of a one-time investment as the Company is opting for the new tax regime from FY ’24 paying tax at 25.17% instead of current ETR of 34.9%, deferred tax-rate liabilities have reinstated at 25.17%.

That said, our cash tax outflow has gone up for the year due to a lesser amount of accumulated net credit, further as well be moving to the new tax regime from the fiscal year, our tax rate will be around 25%.

I’m also happy to state on record that in March ’23, the Board has approved an interim dividend of INR26 per equity share with 1,300% basis face value of INR2 per share, it amounts to INR10,986 crores. This reinforces our commitment of providing superior shareholder returns continuously. Further, during the year, we contributed INR24,949 crores to exchequer including the dividend paid to Government of India in associated tax of INR10,855 crores.

Coming to our cost and capex guidance for the fiscal year ’24. We expect our zinc cost of production to be in the range of $1,125 to $1,175 per tonne for the upcoming fiscal year, which is inclusive of higher mine development expenditure to support future volume growth. The guidance is contingent on the macroeconomic factors impacting input commodity prices. Having said that, given the fact that we have maintained our leadership position in the global cost curves, we remain confident to protect and improve our margin going forward as well. Project capex for this year is expected to be in the range of $175 million to $200 million. We will continue to have a focused approach to invest in strategic projects with higher IRR and towards the sustainability aspect of the business.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.

Abhiram Iyer — Deutsche Bank — Analyst

Thanks for taking my question. This is pertaining to the current cash balance that the company has. Given the fact that we paid the dividend primarily by taking a smaller short-term debt, is the Company looking to use this cash for any inorganic acquisition or what’s the sort of medium-term goal here?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, the [Indecipherable] any acquisition which will happen will be on the basis of the Board approved decision and any valuation of good investment, given the fact, as of now, our focus is to invest in the fertilizer and roaster projects, and currently, the Company has INR10,000 crores of the gross investment in cash and cash equivalents and the borrowing is smaller and compared to the borrowing, our quarter one cash flow should be basically recouping the whole whatever the negative we are having. And if you see our guidance which we have given, I’m sure you can do your math and comfortably we can generate in year one more than INR1,000 crore of the cash flow.

Abhiram Iyer — Deutsche Bank — Analyst

Got it. So broadly, this is not going to be the short-term debt would then be converted to more longer-term debt, because as per your statement it’s around INR11,000 crores?

Sandeep Modi — Deputy & Interim Chief Financial Officer

Yeah. So we don’t intend to do any short-term to long-term. Given that our cash flow position, which I’m again saying that reinstate our position of the cash flow generation that historically we have been generating the cash flow, we should be able to pay within this financial year.

Abhiram Iyer — Deutsche Bank — Analyst

Got it, sir. And just a follow-up to that, given — could you just give the nature of investments which are present? Are all of these liquid investments in mutual funds?

Sandeep Modi — Deputy & Interim Chief Financial Officer

I think that is not a standard disclosure, but we invest in the high-quality debt instruments as per our investment policy.

Abhiram Iyer — Deutsche Bank — Analyst

Got it, sir. Thank you very much. I’ll get back in queue.

Operator

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

Amit Dixit — ICICI Securities — Analyst

Yeah. Hi. Congratulations for a good set of numbers and thanks for taking my question. My question is with respect to the mined metal production guidance. So if I look at your guidance, I mean, it is — the upper end of guidance is also at 5% high value buy we have hit the mined metal rate of 1.2 million tonnes in this quarter. While I understand that it’s not that every quarter, inform, but just wanted to understand why we have given such a subdued guidance and what are the key enabler for us reaching 1.2 million tonnes per annum and when we will reach it?

Arun Misra — Chief Executive Officer

So if I can remind you, we started off the discussion of the growth project at 1.2 million at MIC. So while we can still produce 1.2 million tonne MIC what we have demonstrated in quarter four our focus going forward is actually moved from MIC to finished metal. So we are looking at now putting one roaster and then we will try to do some debottlenecking of the leaching circuits to actually build up a capacity of 1.2 million tonne.

So, our immediate focus is to with the eligible capacities at produced 1,120 of — more than 1,100,000 tonnes of metal first and then whatever is that metal that we produced correspondingly backed up by MIC production. So that’s why the numbers are set the focus moves from MIC to metal, so somewhere around 1,050,000 to 1,075,000 tonnes of metal if we can produce then we have calculated the MIC accordingly. Otherwise with the roaster and few debottlenecking in the leaching, we will be able to go to that 1.2 million tonne metal capacity instead of talking about MIC capacity.

Amit Dixit — ICICI Securities — Analyst

Okay. Just a follow-up, sir, when can we expect to reach this 1.2 million tonne in metal?

Arun Misra — Chief Executive Officer

After this roaster, we are taking, say, 18 months of commissioning from the time of construction, which will begin somewhere in June or July. Then another 18 months. So maybe FY ’25 ’24-’25 or ’25-’26, one of these two years should be close to 1.2 million tonne.

Amit Dixit — ICICI Securities — Analyst

Okay. Thanks a lot. I will be back in the queue.

Operator

Thank you. Our next question comes from the line of Love Sharma from Lombard Odier. Please go ahead.

Love Sharma — Lombard Odier Investment Managers — Analyst

Hi. Thank you for taking the question. I had a question about I think from basically [Indecipherable] onwards, you are going to take some brand fee. And I understand that amount has already been saved in [Technical Issues]. And if so, how much is that? And a generic question would be paid directly to [Technical Issues]? Thank you.

Sandeep Modi — Deputy & Interim Chief Financial Officer

There is some background noise, but I’m sure you are trying to ask what is the brand fee expenditure. So during the year, the brand fees was approved from the 1st October. So this financial year, you’ll see the impact of INR318 crore and the next year will be depending upon the turnover only 2% of the turnover by roughly, it should be between INR650 crore to INR700 crore.

Love Sharma — Lombard Odier Investment Managers — Analyst

Okay. Thank you. Can I ask one more question on the JE to retain earnings conversion. I know that you’ve got the shareholders vote for that. Do you have any other creditors vote to happen or is the process pretty much done and only NCLT approval is remaining?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So all the processes have been done and the is a formal procedure is going for the second motion to the NCLT. This has also been filed on the 10th April by Zinc. And once it is done, then it will require a Board approval. So no separate creditor approvals are required.

Love Sharma — Lombard Odier Investment Managers — Analyst

Okay. And what is the day sorry for the NCLT meeting, NCLT approval?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So we have filed on 10th April. So NCLT whenever it will give the hearing then only we can comment upon that.

Love Sharma — Lombard Odier Investment Managers — Analyst

Okay. Understood. Thank you so much.

Operator

Thank you. Our next question comes from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah. Thanks. My first question is on the dividend payout. Now, given that we’ve moved to a marginal net debt level, should we expect dividend payouts to be restricted by the cash flow or we are also okay by taking more direct and pay higher dividend like we did in FY ’23? And also, given our FY ’23 payment was much beyond our cash internal approval, I mean, should we consider this as frontloading of FY ’24 dividend in FY ’23 given that you commented that FY ’24 cash flows will be used to repay the short-term debt?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, thanks for the question. So first of all, dividend payment is, I think, a Board decision. So whenever it will happen, we will come to know. Obviously any decision which will be taken up by the Board it will be dependent upon strong financial management. So I am sure Board will consider all these factors before approving any dividend, which will happen in the future.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. All right. And just one last thing, on this Zinc International acquisition, is it completely on the back burner fall down or there were reports that the government is suggesting that we should consider other payment, sounds like some non-cash method of acquiring or something of that is under consideration?

Arun Misra — Chief Executive Officer

No. So all we can comment here is that Zinc International acquisition was a great idea. We have got the Board approval and we have filed it in the stock exchange. There is a letter, which has been received from government, where they are majority of the minority shareholder, where Zinc is in public place. So we are working on it and we still believe that this is something that we must do for the set of Hindustan Zinc. So we will see where it ends, but we are very hopeful and we are on the job all the time.

Sumangal Nevatia — Kotak Securities — Analyst

So as of now, it’s not been called, which is still under work right?

Arun Misra — Chief Executive Officer

Unless we — the Board passes a resolution withdrawing this, till that time, it is not called down.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Thank you and all the best.

Operator

Thank you. Our next question comes from the line of Rahul Jain from Systematix. Please go ahead.

Rahul Jain — Systematix — Analyst

Yeah. Hi. Thanks for taking my questions. There are two things. One is on the cost of production that you have mentioned. Does it include the brand fee?

And secondly, we have given some [Technical Issues] reduction in cost, which I think could have been a lot higher, because the way coal prices have come off. And can you give us some color what has been our coal procurement cost and how we see going forward? Thanks.

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, Rahul, thanks for the question. The cost which we report to the market is a V1 cost, which is for the conversion cost total cost of production, but that does not include the brand fee. I think, coming to the cost of coal, if we talk about that, as we said in the last quarter that we were having certain high cost coal inventory, obviously that was taken for a decision for the purposes of protecting the coal for the purpose of production, that has been depleted and our coal cost have gone drastically reduced and that’s why you see compared to quarter three versus quarter four $80 cost reduction. And we believe that our current import coal prices are around $150 to $160 per tonne for the import of prices and we’ve also got up almost 26% linkage coal in the last year quarter four, and I’m sure this will continue. With that, we are quite confident that this guidance whatever is given for the cost, we are achievable. And given that our volumes will be also higher and since our 30% to 35% cost remains [Indecipherable] benefit will come to us.

Rahul Jain — Systematix — Analyst

Sir, just one more [Indecipherable] to add to that, we also have a captive coal mine development. Any progress on that?

Arun Misra — Chief Executive Officer

We don’t have any captive coal mine development, Rahul.

Rahul Jain — Systematix — Analyst

No? Okay. Fine. Thanks.

Operator

Thank you. Our next question comes from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

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

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, I will say directly that this — as I answered for the earlier question also, at its current level of the guidance and we are sure that we will achieve this guidance 100% and if I take the current LME level also we are comfortably should be able to generate the cash flow INR10,000 crore. And if you bifurcate in the quarters also, we should be by May-end even we should be able to recoup whatever the marginally INR1,700 crore, INR1,800 crore net debt is there. Coming back to this cash flow generation, I’m sure at the March-end, we should be able to, in a position if we generate the INR10,000 crore of cash, it will get netted off in the debt.

Rahul Jain — Systematix — Analyst

But sir, that would be — that will only happen if there are no dividend payouts, right, in the course of FY ’24, because if the Company pays out dividends, then effectively this debt balance won’t come down, right. So are you saying that the dividend payouts will reduce from here and hence the cash flows will be reserved to reduce the debt?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So I would like to answer in a different manner also. First of all, dividend is a Board decision. So whenever it will happen, you will come to know. And secondly, if even something happens from the dividend point of view, you will always have a investment against those whatever the borrowings are there. So you will never be in a position where you are seeing marginally that because the retained earning is also not limited, so that retained earnings, whatever is there, we want to be able to give the dividend beyond that retained earning.

Pinakin Parekh — JPMorgan — Analyst

So, just to simply ask that, you don’t expect on an absolute basis, Hindustan Zinc to pay down the debt, right? Or would you reduce on an absolute basis, the gross debt that is sitting on its books?

Sandeep Modi — Deputy & Interim Chief Financial Officer

Our target is to reduce the debt as per the whatever the maturity is coming from the generation of the cash or the investment which we have in our books.

Pinakin Parekh — JPMorgan — Analyst

Understood. Thank you very much.

Operator

Thank you. Our next question comes from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

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

Sandeep Modi — Deputy & Interim Chief Financial Officer

Hi, Ritesh. So exact quantum of the retained earnings excluding the [Indecipherable] is INR1,700 crore. And [Indecipherable] is INR10,384 crore.

Ritesh Shah — Investec — Analyst

Perfect. That helps. Sir, second question is, when we look at the holding at Hindustan Zinc, we find 88% either pledged or encumbered. Sir, can you please detail what this corresponds to and how should we look at this number, can it go down going forward or are we okay that this number at 88%?

Sandeep Modi — Deputy & Interim Chief Financial Officer

I think place of the shares is something in the hands of the Vedanta. I don’t think we can comment upon this. What we read in the media is that today that 91% of total there, I think there is something non-disposal [Indecipherable] all there, but I think me and Misra ji will not be in a position to comment upon that part.

Ritesh Shah — Investec — Analyst

Right. But sir, is it pledged or is it encumbered?

Arun Misra — Chief Executive Officer

Please, this is something to be either asked I think in the Vedanta after Board meeting, they would be open up for question. It is better to keep that question there.

Ritesh Shah — Investec — Analyst

Sure, sir. Sir, any update on the OFFs?

Arun Misra — Chief Executive Officer

Well, update on the OFFs. So right now, I have not heard and since we were expecting before March 31st, but it has not happened. I’m sure government will be looking at some suitable opportune time in the market when the market will have the capacity to absorb then they would release maybe.

Ritesh Shah — Investec — Analyst

Right. And sir, hedges, last —

Operator

Ritesh, sorry for the interruption. If you could please join back in queue. Our next question comes from the line of Ketan Mehta from BOB Capital Markets. Please go ahead.

Ketan Mehta — BOB Capital Markets — Analyst

In terms of these capital projects ahead, apart from the fertilizer in the roaster plant that we are discussing, are there any other projects on the drawing board at this stage?

Arun Misra — Chief Executive Officer

Of course. We have our next target will be 1.5 million tonne. It may have its internal some stage of 1.35 million tonne before actually going to 1.5 million tonne. So maybe another one month, we should be able to come clean on what would be the next dates when should we launch the project, what will be the investment outlay. So all that we had on the drawing board, we’re close to finalization them.

Ketan Mehta — BOB Capital Markets — Analyst

Thank you, sir. And if you can clarify the hedges, what Ritesh was asking?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So as of now, we don’t have any open hedge position.

Ketan Mehta — BOB Capital Markets — Analyst

Thank you, sir. That’s about.

Operator

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

Amit Dixit — ICICI Securities — Analyst

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

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, Amit, the grade of ore this quarter was 7.42% compared to the last quarter of 6.96%.

Amit Dixit — ICICI Securities — Analyst

Great. Thank you. That’s all.

Operator

Thank you. Our next question comes from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Yeah. Hi, sir. Sir, one question. The brand fee element which is there, does it accrue to Vedanta India or does it go to the parent?

Sandeep Modi — Deputy & Interim Chief Financial Officer

It goes to Vedanta Limited, Ritesh, as we already disclosed in our annual results — this results also last time, brand fee agreement has been signed with the Vedanta Limited.

Ritesh Shah — Investec — Analyst

Perfect. And sir, just one question, hypothetically, GR to RE will come through give that another INR10,000 crores of [Indecipherable] on the books. What is the ideal capital structure that you will be comfortable with?

Sandeep Modi — Deputy & Interim Chief Financial Officer

I think this is a forward-looking thing. We will have to see what would be the ideal and I think GR to RE what will be the manner of the use, it is up to the Board. And whenever it will happen, I think, we’ll be able to tell — comment at that point of time.

Ritesh Shah — Investec — Analyst

Sure, sir. This was helpful. Thank you so much.

Sandeep Modi — Deputy & Interim Chief Financial Officer

Thank you, Ritesh.

Operator

Thank you. Our next question comes from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.

Abhiram Iyer — Deutsche Bank — Analyst

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

Sandeep Modi — Deputy & Interim Chief Financial Officer

I’m not sure. Where you are seeing the — INR11,917 crore is the debt we are having and INR10,061 crores in the gross investment, and cash and cash equivalents.

Abhiram Iyer — Deutsche Bank — Analyst

Yeah. And one thing is if I add up the investments, cash, and bank balances given in the balance sheet, I get INR11,200 crores, so just asking [Speech Overlap]

Sandeep Modi — Deputy & Interim Chief Financial Officer

Okay. Yeah, yeah. So I got your point. So there are certain unpaid dividend, because if you see the way the — just deposit and the dividend on February 1st. So there are certain dividends account which is there in which the dividend money is there, which is a restricted cash, which we can’t use, that is funded for the dividend purpose.

Abhiram Iyer — Deutsche Bank — Analyst

Understood, sir. And this would be part of the bank balances, is it?

Sandeep Modi — Deputy & Interim Chief Financial Officer

It will be part of the bank balance, but not — because — but at the same time, there will be a dividend liability sitting on the liabilities side.

Abhiram Iyer — Deutsche Bank — Analyst

Understood. Understood. Thank you. Thanks for the clarification.

Operator

Thank you. Our next question comes from the line of Pallav Agarwal from Antique Stock Broking Limited. Please go ahead.

Pallav Agarwal — Antique Stock Broking Limited — Analyst

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

Arun Misra — Chief Executive Officer

Fantastic. I must appreciate your question. This has to do with — absolutely you have hit the nail on the head. Our entire operating proceed is comprising of zinc plus lead as a medium of production in the pyro and instead of doing only lead production in the pyro plant of Chanderiya. Whenever we do this, we always have lead MIC getting converted to metal and that is line-in stock, even last year also, we ended up with having lot of lead MIC stock, which if we could convert, we could have produced some more silver. But we always preferentially use SK Mine lead concentrate to get to maximize the silver production with the strategy adopted this year.

Going forward, we have to unlock the lead production to do the unlock the lead production, we have to increase the zinc production capacity [Indecipherable] that is where the investment in roaster and it will be followed by some debottlenecking proposal in the leaching circuit, then in the pyro can operate only lead more and then this 750 number for us, it go to 800 or 825 tonne once we do that, so which is within one year away.

Pallav Agarwal — Antique Stock Broking Limited — Analyst

Sure, sir. Also in terms of you mentioned the project capex, but what is the normal maintenance capex level that we incur every year?

Sandeep Modi — Deputy & Interim Chief Financial Officer

It will be around $400 million.

Pallav Agarwal — Antique Stock Broking Limited — Analyst

The total you’re talking about or it will be $400 million plus $200 million.

Sandeep Modi — Deputy & Interim Chief Financial Officer

$400 million plus $200 million.

Pallav Agarwal — Antique Stock Broking Limited — Analyst

Sure. And this covers any explanation on fertilizer and other projects as well?

Sandeep Modi — Deputy & Interim Chief Financial Officer

So $150 million, $200 million primarily comprise the fertilizer and roaster and RE power investment and $400 million is largely pertains to the mine development and mining equipments.

Pallav Agarwal — Antique Stock Broking Limited — Analyst

Sure, sir. Yeah. Thank you. That’s it from my side.

Operator

Thank you. Our next question comes from the line of Vishal Kulkarni from S&P. Please go ahead.

Vishal Kulkarni — S&P Global — Analyst

My question is about your cash management generally, because in the past we have seen some cash in the form of uncoated mutual funds and perpetual securities. Can I understand how easy this is to liquidate when you have to, let’s say, for dividends or any other purpose? That’s first question.

And second on the status of your transfer of retained earnings to general reserves, where do we stand on that one? Thanks.

Sandeep Modi — Deputy & Interim Chief Financial Officer

So, if you see the investment, the investments are quite liquid whenever we want to sale. And while it is a long-term investment [Indecipherable] in the market, but however, we have been able to liquidate. And we also can have a repurchase borrowing from these investments. So beyond that, I won’t be able to comment upon the investment part. And GR to RE, I think, I’ve already answered that INR10,384 crore is there and the second motion has been filed in the NCLT on the second upgrade and we await the hearing from them.

Vishal Kulkarni — S&P Global — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Sorry, thanks for taking the question. Sir, I just want to rewind a bit back, this is pertaining to Hindustan Zinc, Zinc International transaction. I just wanted to understand, sir, how will the flow of capital work. To my limited understanding, I think that we had taken approval to create a wholly-owned subsidiary, an overseas subsidiary, I think it was called HZWOS. And then basically we had to purchase subscribe to the shares of Zinc International just the DHL zinc. And this was like up to $3 billion, $2.98 billion, to be precise. So I just wanted to understand, sir, how will the capital flow. So you have one overseas subsidiary, which has been created, so does the money flow from India to that particular entity and then to Vedanta, how does that work, sir?

Arun Misra — Chief Executive Officer

You know we have not incorporated any wholly-owned subsidiary. It is part of the whole proposal. Since the proposal is yet to be approved, how can we create the subsidiary.

Ritesh Shah — Investec — Analyst

Okay. But, sir, hypothetically, if it had been done, how would have the money flowed?

Sandeep Modi — Deputy & Interim Chief Financial Officer

Money — if hypothetically will happen, it will happen from here to wholly-owned subsidiary, wholly-owned subsidiary buying from [Indecipherable]. But till now I think we’ll not able to — will be able to comment, given that it is not yet approved by the Board — yet not taken up from the shareholder purpose.

Ritesh Shah — Investec — Analyst

Okay. Sure. Thank you. Thank you so much. Thanks.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the conference over to Jhalak Rastogi for closing comments.

Jhalak Rastogi — Associate Director – Investor Relations

Thank you, everyone. With this, we close today’s earnings call. For any follow-up questions or clarifications on the results, please feel free to reach out to Investor Relations team. Thank you.

Arun Misra — Chief Executive Officer

Thank you.

Sandeep Modi — Deputy & Interim Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]