Hindustan Zinc Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Hindustan Zinc Ltd (HINDZINC) Q4 FY23 Earnings Concall

Management Update:

• [00:16:26] Cost and capex guidance for FY24 is expected to be in the range of $1,125-1,175 per tonne for zinc and $175-200 million for projects.

Q&A Highlights:

• [00:17:58] Abhiram Iyer from Deutsche Bank asked if the company is looking to use the current cash balance for any inorganic acquisition. Sandeep Modi Interim CFO said the company currently has INR10,000 crore of gross investment in cash and cash equivalents and smaller borrowing. 1Q cash flow should recoup any losses and the guidance suggests more than INR1,000 crore could be generated in year one from an acquisition if it is approved by the Board.

• [00:20:04] Amit Dixit from ICICI Securities asked why the mined metal production guidance is subdued despite reaching 1.2 million tonnes in 4Q and what the key enablers are for reaching 1.2 million tonnes per annum. Arun Misra CEO replied HINDZINC is shifting its focus from producing 1.2 million tonnes of MIC to producing 1,100,000-1,075,000 tonnes of finished metal by installing a roaster and debottlenecking the leaching circuits in order to reach the target capacity.

• [00:21:46] Amit Dixit from ICICI Securities queried when the company can expect to reach the 1.2 million tonne in metal. Arun Misra CEO clarified that the estimated production of 1.2 million tonnes should be achieved by FY25-FY26.

• [00:22:29] Love Sharma from Lombard Odier enquired about the brand fee expenditure. Sandeep Modi Interim CFO answered that in this financial year, the impact of brand fees will be INR318 crore. The amount for the next financial year should be between INR650-700 crore, depending on turnover.

• [00:24:05] Sumangal Nevatia from Kotak Securities asked if the company is willing to take on more debt to pay a higher dividend in FY24 and if the FY23 payment was frontloading for FY24. Sandeep Modi Interim CFO replied that any decision about dividend payment will be taken by the Board and will depend on strong financial management. HINDZINC will inform when the decision is made.

• [00:28:10] Pinakin Parekh at  JPMorgan asked if HINDZINC’s management will use operating cash flows to reduce the gross debt of INR12,000 crores in FY24 or if the debt will increase. Sandeep Modi Interim CFO replied that the company is confident that it will generate INR10,000 crore in cash flow by the end of March, which should be enough to offset any net debt.

• [00:29:20] Pinakin Parekh with JPMorgan asked will debt balance be reduced if there are no dividend payouts in FY24. Sandeep Modi Interim CFO answered that dividends are a board decision and will be informed when they occur. Investing in the company ensures that the investments are protected from any potential losses due to borrowings. Retained earnings can be used to give out more dividends than expected.

• [00:31:01] Ritesh Shah from Investec asked about HINDZINC’s holding, where 88% of it is either pledged or encumbered and whether this percentage can decrease in the future. Arun Misra CEO clarified that Vedanta holds the majority of the shares and it is not possible for HINDZINC to comment on this.

• [00:32:35] Kirtan Mehta from BOB Capital  queried if there are any other capital projects on the drawing board apart from the fertilizer and roaster plant that were discussed. Arun Misra CEO said that the company has its next target set at 1.5 million tonnes and will finalize the project details such as launch date and investment outlay in the next month.

• [00:33:38] Amit Dixit of ICICI Securities asked about the grade of ore in 4Q23 and how it compares QoQ. Sandeep Modi Interim CFO answered that the grade of ore in 4Q23 was 7.42% compared to the last quarter of 6.96%.

• [00:36:38] Pallav Agarwal from Antique Stock enquired why has the target for silver production been reduced from 1,000 tonnes to 750 tonnes and when can the target of 1,000 tonnes be achieved. Arun Misra CEO said investments in a roaster and debottlenecking of the leaching circuit at Chanderiya’s pyro plant will increase zinc and lead production, maximizing silver production to 800-825 tonnes within a year.

• [00:40:22] Ritesh Shah from Investec asked how the flow of capital will work for the HINDZINC, Zinc International transaction through the overseas subsidiary HZWOS and the purchase of shares of Zinc International. Sandeep Modi Interim CFO said since the proposal for a wholly-owned subsidiary has not yet been approved, HINDZINC cannot create the subsidiary yet. If it does happen, money will be transferred from the current company to the subsidiary, and the subsidiary would purchase the necessary assets.