Hindustan Zinc Ltd:Annual Report 2023-24 Analysis

Hindustan Zinc Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Hindustan Zinc Limited (HZL) was established in 1966 as a Public Sector Undertaking (PSU). It was later privatized in 2002 when Vedanta Resources acquired a majority stake.

Headquarters Location and Global Presence:

The company is headquartered in Udaipur, Rajasthan, India. While primarily operating in India, it has a growing international presence through exports and partnerships.

Company Vision and Mission:

• Vision: To be a global leader in the integrated zinc-lead-silver business, through sustainable and responsible mining and smelting practices.
• Mission: To create value for all stakeholders by optimizing resource utilization, fostering innovation, and ensuring the well-being of employees and communities.

Key Milestones in Their Growth Journey:

• 1966: Incorporation as a Public Sector Undertaking.
• 2002: Privatization with Vedanta Resources acquiring a majority stake.
• Subsequent Years: Expansion of mining operations, modernization of smelters, and focus on increasing production capacity.
• Recent: Significant investments in renewable energy and sustainable practices.

Stock Exchange Listing Details and Market Capitalization:

HZL is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India. As a large-cap company, its market capitalization is substantial and fluctuates based on market conditions and financial performance.

Recent Financial Performance Highlights:

• HZL consistently showcases robust revenue and profit figures driven by strong demand for zinc, lead, and silver.
• The company continues to focus on cost optimization and operational efficiency to maintain healthy profit margins.
• Financial reports are regularly released and analyzed by investors and financial analysts.

Management Team and Leadership Structure:

The company is led by a team of experienced professionals with expertise in mining, metallurgy, finance, and corporate governance. The leadership team oversees strategic planning, operational execution, and stakeholder engagement.

Notable Awards or Recognitions:

• HZL has received several awards and recognitions for its performance in environmental sustainability, corporate social responsibility, and workplace safety.

Their Products #

Complete Product Portfolio with Categories:

• Zinc: Zinc Ingots, Zinc Alloys, Zinc Die Casting Alloys
• Lead: Lead Ingots, Lead Alloys
• Silver: Silver Ingots
• By-products: Sulphuric Acid, Cadmium
• Value-added Products: Silver Jewellery, Zinc Fertilizers

Flagship or Signature Product Lines:

Zinc and Silver are HZL’s flagship products, contributing significantly to the company’s revenue and profitability.

Key Technological Innovations or Patents:

HZL focuses on continuous technological improvements in mining, smelting, and refining processes. They have implemented advanced technologies to enhance efficiency, reduce environmental impact, and improve product quality.

Manufacturing Facilities and Production Capacity:

HZL has multiple mining and smelting facilities across India, with a significant presence in Rajasthan. The company boasts considerable production capacity for zinc, lead, and silver.

Quality Certifications and Standards:

HZL adheres to stringent quality control measures and holds certifications such as ISO 9001, ISO 14001, and ISO 45001, demonstrating its commitment to quality, environmental management, and occupational health and safety.

Primary Customers #

Target Industries and Sectors:

• Automotive: Zinc die-casting alloys for automotive components.
• Construction: Galvanized steel for infrastructure and building applications.
• Battery: Lead for lead-acid batteries.
• Chemicals: Sulphuric acid as a raw material.
• Jewellery: Silver for jewellery making.
• Agriculture: Zinc sulphate for micronutrient fertilizers.

Geographic Markets (Domestic vs. International):

HZL serves both domestic and international markets. While the Indian market is a major consumer of its products, it also exports to various countries across Asia, Europe, and North America.

Distribution Network and Sales Channels:

HZL employs a robust distribution network, including direct sales to large industrial consumers, distribution through authorized dealers, and exports via trading partners.

Major Competitors #

Direct Competitors in India and Globally:

• Within India: Vedanta’s other subsidiaries, government-owned mining companies, and private players.
• Globally: Glencore, Teck Resources, Nyrstar, and other major zinc and lead producers.

How They Differentiate From Competitors:

HZL differentiates itself through its integrated operations, large-scale production capacity, technological expertise, and commitment to sustainability.

Industry Challenges and Opportunities:

• Challenges: Fluctuations in commodity prices, environmental regulations, geopolitical risks, and cyclical nature of the industry.
• Opportunities: Increasing demand for zinc and silver in emerging markets, rising adoption of electric vehicles (increasing demand for lead-acid batteries and zinc alloys), and growing focus on sustainable mining practices.

Market Positioning Strategy:

HZL aims to maintain its leadership position in the Indian zinc market and expand its presence in international markets through strategic investments, operational efficiency, and sustainable practices.

Future Outlook #

Expansion Plans or Growth Strategy:

HZL has ambitious plans to increase its mining capacity, expand its smelting operations, and diversify into new product segments. The company is also focused on exploring and developing new mineral resources.

Sustainability Initiatives or ESG Commitments:

HZL is committed to sustainable mining practices and has implemented several initiatives to reduce its environmental footprint, conserve resources, and promote social responsibility. These include investments in renewable energy, water conservation, waste management, and community development programs.

Industry Trends Affecting Their Business:

• Growing demand for electric vehicles and energy storage systems.
• Increasing awareness of environmental sustainability.
• Adoption of advanced technologies in mining and metallurgy.
• Geopolitical and trade dynamics impacting commodity markets.

Long-Term Vision and Strategic Goals:

HZL’s long-term vision is to be a global leader in the zinc-lead-silver business, known for its sustainable practices, operational excellence, and value creation for stakeholders. Their strategic goals include increasing production capacity, reducing costs, enhancing sustainability, and expanding into new markets.

Hindustan Zinc Limited: Financial Analysis and Strategic Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Decreased from ₹34,098 crore in FY 2022-23 to ₹28,932 crore in FY 2023-24.
• EBITDA: Decreased from ₹17,590 crore in FY 2022-23 to ₹13,677 crore in FY 2023-24.
• EBITDA Margin: Remained strong, at 47% for FY 2023-24.
• Net Profit: Decreased from ₹10,511 crore in FY 2022-23 to ₹7,759 crore in FY 2023-24.
• Earnings Per Share (EPS): Decreased from ₹24.88 in FY 2022-23 to ₹18.36 in FY 2023-24.
• Zinc Cost of Production (COP): Lowest annual zinc COP in the last three years at US$1,117 per MT in FY 2023-24.
• Return on Net Funds for Business Operations: Decreased to 58%
• Return on Capital Employed (ROCE): at 35%
• Total dividend: Decreased to ‘5,493 crore.
• Net Worth: Increased from ₹12,932 crore in FY 2022-23 to ₹15,195 crore in FY 2023-24.
• Gross Cash and Cash Equivalent: Marginally increased from ₹10,061 crore to ₹10,187 crore.
• Mined Metal Production: Increased by 2% year-on-year, reaching a record high of 1,079 kt.
• Refined Metal Production: Remained relatively stable with a slight year-on-year increase, reporting a record high of 1,033 kt.
• Silver Production: Increased by 5% year-on-year, achieving a record high annual production of 746 MT.

Business Segment Performance #

• Zinc and Lead: Revenue decreased, primarily due to lower zinc prices on the London Metal Exchange (LME), despite strategic hedging gains in the previous period. Refined lead production increased by 3% y-o-y
• Silver: Silver segment revenue increased, silver sold on MCX for better realization.
• Wind Energy: Performance remained consistent, with details on revenue generation available.
• Value-Added Products: Increased from 15.5% to 19.7% of total refined metal production.

Major Strategic Initiatives and Their Progress #

• Exploration and Mine Life: Focused on continuous mineral resource addition and ore reserve upgrades. Formed ‘Hindmetal Exploration Services Pvt. Ltd.’ to explore strategic minerals.
• Capacity Expansion: Commissioned India’s first fumer facility and the Rajpura Dariba mill. Progress on a new roaster and fertilizer plant is on track. Regulatory approvals for the Bamnia Kalan mine were received.
• Cost Leadership: Achieved the lowest annual zinc cost of production in the last three years. Implemented cost optimization initiatives, including operational efficiencies and automation. Renewable energy power delivery agreement (PDA) for 450 MW to improve cost visibility.
• Customer-Centricity: Commissioned a new 30 ktpa alloy plant and plan to commission a 510 ktpa fertilizer plant, expanding the value-added product portfolio.
• Silver Maximization: Maximised silver production to leverage pricing opportunities.

Risk Landscape Changes #

• Commodity Price Volatility: Continued focus on cost efficiencies and hedging strategies to mitigate the impact of fluctuating zinc and lead prices.
• Geopolitical Risks: Red Sea Crisis had a minimal impact.
• ESG Risks: Increased stakeholder interest in ESG; the Company is actively managing and reporting on ESG performance.
• Cybersecurity risks: Addressed through enterprise risk management.

ESG Initiatives and Metrics #

• Environmental:
  • Ranked #1 globally in the S&P Global Corporate Sustainability Assessment in the metals and mining sector.
  • Achieved A- Leadership Band scores from CDP for climate change and water security.
  • Commissioned India’s first fumer plant.
  • Progressed on the renewable energy power delivery agreement (PDA).
  • Deployed EV trucks and LNG-powered trucks.
  • Commissioned a zero liquid discharge plant at Zawar Mines.
• Social:
  • Maintained fatality-free operations for six consecutive quarters.
  • Expanded CSR footprint to over 3,500 villages, benefiting 1.9 million people.
  • Promoted gender diversity and inclusion, with c.22% women in executive positions.
• Governance:
  • Maintained robust governance frameworks, including a Board-level Sustainability and ESG Committee.
  • Engaged in responsible advocacy and policy engagement.

Management Outlook #

• Expects higher mined metal and refined metal production in FY 2024-25.
• Projects saleable silver production between 750-775 MT.
• Expects zinc cost of production to be between US$1,050-1,100 per MT in FY 2024-25.
• Positive outlook due to recovery in zinc and lead markets and potential for silver market growth.
• Expansion projects, including a roaster and fertilizer plant, are progressing.

Detailed Analysis #

Hindustan Zinc Limited Financial Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(Consolidated Figures, in ’ Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Current Assets: Decreased by 14.71%, primarily due to reduction of other bank balances.
• Non-Current Liabilities: Increased by 54.64%, mainly due to a rise in borrowings.
• Current Liabilities: Decreased by 37.88% due to repayment of short-term borrowings.
• Total Equity: Increased by 17.47%, mainly due to retained earnings.

Working Capital Trends #

*Excluding current maturities of long-term borrowings

Working Capital has decreased substantially.

Asset Quality Metrics #

Other than that, claims and other receivables were fully provided for. No concerns on asset quality identified.

Debt Structure and Maturity Profile #

(Consolidated Figures, in ’ Crores)

There is a increase in total borrowing in comparison to last year

Maturity Profile of Term Loans

Debt Structure Analysis

• The increase in non-current borrowing can be attributed to additional term loans, with focus on long term borrowings.
• There has been significant decrease in the current maturities of long term borrowing.
• The Borrowings are majorly related to working capital, with a substantial portion having maturity of less than one year.
• Interest rate risk is present due to the presence of loans tied to floating interest rates, that have increased over the last two years.

Off-Balance Sheet Items #

(Consolidated Figures, in ’ Crores)

*The other commitments includes an additional committment towards equity in power delivery.

Off-Balance Sheet Items Analysis

• Contingent Liabilities decreased slightly year-over-year.
• Capital Commitments increased, indicating ongoing investment activities.
• Other commitments has been decreased from the previous year.

Operating Performance #

Income Statement #

Revenue Breakdown by Segment #

• Segment Revenue (FY 2023-24):

  • Zinc and Lead: ₹22,558 crore
  • Silver: ₹5,368 crore
  • Wind Energy: ₹156 crore

• Segment Revenue Growth Rates (YoY):

  • Total mined metal production increased 2%.
  • Refined lead production grew by 3%.
  • Refined Silver Production was up by 5%

Revenue Breakdown by Geography #

• Geographic Revenue (FY 2023-24):

  • India: ₹21,405 crore
  • Asia (excluding India): ₹6,232 crore
  • Rest of the World: ₹445 crore

• Geographic Revenue Growth Rates (YoY):

  • India: Domestic sales mix increased from 59% in FY 2022-23 to 71% in FY 2023-24, Domestic primary zinc market grew by 20%
  • Overall, consolidated revenue from operations (including other operating income) decreased by 15%

Cost Structure Analysis #

• FY 2023-24 Zinc Cost of Production (COP): US$1,117 per MT, representing the lowest annual zinc COP in the last three years and a reduction of c.US$240/MT, over five consecutive quarters.
  • Power costs were 40% lower.
  • Raw material costs have been impacted by lower coal & input commodity prices.

Margin Analysis #

• EBITDA Margin (FY 2023-24): 47% (down from 52% in FY 2022-23).
• Net Profit Margin (FY 2023-24): 27% (down from 31% in FY 2022-23).

EPS Analysis #

• Basic EPS (FY 2023-24): ₹18.36 (down from ₹24.88 in FY 2022-23).
• Diluted EPS (FY 2023-24): ₹18.36 (down from ₹24.88 in FY 2022-23).

Quarterly Trends #

• Sequential change in Zinc COP during FY 2023-24: Cost reduction achieved over five consecutive quarters, totaling c.US$240/MT.

Cash Management: Financial Analysis #

Cash Flow and Liquidity Analysis #

OCF, ICF, FCF Components (Consolidated) #

• OCF: FY24: ₹13,346 crore, FY23: ₹15,162 crore. Decrease attributed to the net effect of decrease in realised LME, operational efficiencies, and softened coal and input commodity prices.
• ICF: FY24: ₹(3,406) crore, FY23: ₹6,529 crore. Change driven by large capital expenditure and lower cash generated from operations.
• FCF: Not directly provided, but can be inferred. Significant cash outflows for investing and financing activities, relative to OCF, indicate a likely negative or significantly reduced FCF for FY24 compared to FY23.

Working Capital Management Efficiency (Consolidated) #

• Gross Working Capital Cycle: Decreased to 33 days in FY24 from 38 days in FY23.
• Inventory Turnover Ratio: Marginally lower in FY24 at 8.06 times versus 8.65 times in FY23 due to lower cost of goods sold.
• Debtor Turnover Ratio: Increased to 106.96 times in FY24 from 62.22 times in FY23, primarily due to lower trade receivables.
• Trade Payable Turnover Ratio: Decreased to 7.31 in FY24 from 7.96 in FY23.

Capex Analysis by Segment #

• Total Capex: Additions to property, plant, and equipment (including intangibles, CWIP, and capital advances) amounted to ₹3,758 crore for Zinc, Lead, Silver & others segment.
• CWIP: Opening of 2237 cr, addition of 2952 cr, reduction of 3493 cr was capitalised during the year.
• Focus: Major projects are for expanding mining and ore treatment capacity, roaster plant upgrades, a fumer plant, and a fertilizer plant.

Dividend and Share Buyback Trends #

• Dividends: FY24: Total interim dividend of ₹5,493 crore (₹13.00 per share). FY23: ₹31,901 crore (₹75.5 per share). A significant decrease y-o-y.
• Share Buyback: No share buybacks were mentioned in the provided data for either year.

Debt Service Coverage (Consolidated) #

• Debt Service Coverage Ratio: FY24: 4.57, FY23: 17.65. The large decrease indicates a reduced ability to service debt obligations with operating income.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio: Increased to 1.56 in FY24 from 0.97 in FY23, indicating improved short-term liquidity.
• Cash and Cash Equivalents: Decreased to ₹53 crore at the end of FY24 from ₹59 crore at the end of FY23.
• Gross Cash and Cash Equivalents: FY24: ‘10,187 crores, FY23: ‘10,061 crores.

Financial Ratio Analysis: 2023-24 #

Profitability Ratios #

Return on Equity (ROE) #

• FY 2023-24: 55%
• FY 2022-23: 45%
• 5-year Average: 47.4%

ROE increased in FY24.

Return on Capital Employed (ROCE) #

• FY24: 35%
• FY23: Not available.
• 5-year Average: 52.8%

ROCE decreased compared to the five-year average.

EBITDA Margin #

• FY 2023-24: 47%
• FY 2022-23: 52%
• FY 2021-22: 55%

EBITDA margin has decreased over the three years.

Net Profit Margin #

• FY 2023-24: 27%
• FY 2022-23: 31%
• FY 2021-22: Not available.

Net profit margin decreased.

Liquidity Metrics #

Current Ratio #

• FY 2023-24: 1.56
• FY 2022-23: 0.97

The current ratio increased.

Efficiency Ratios #

Inventory Turnover Ratio #

• FY 2023-24: 8.06
• FY 2022-23: 8.65

Inventory turnover ratio decreased.

Receivables Turnover Ratio #

• FY 2023-24: 106.96
• FY 2022-23: 62.22

Receivables turnover ratio increased.

Leverage Metrics #

Debt/Equity Ratio #

• FY 2023-24: 0.56
• FY 2022-23: 0.91

Debt/Equity ratio decreased.

Interest Coverage Ratio #

• FY 2023-24: 4.57
• FY 2022-23: 17.65

Interest coverage ratio decreased sharply.

Working Capital Ratios #

Days Working Capital #

• FY24: 33 days
• FY23: 38 days

Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Zinc, Lead, and Silver: FY 2023-24 revenue was ₹27,926 crore, a decrease of 15% from ₹33,120 crore in FY 2022-23. Segment results were ₹10,307 crore, also showing a significant year-over-year reduction.
• Wind Energy: FY 2023-24 revenue was ₹156 crore, a increase of 2.6% from ₹152 crore in FY 2022-23. Segment results were ₹82 crore versus ₹95 crore the prior year.

Market Share and Competitive Position #

• Zinc and Lead: Hindustan Zinc holds a 75% market share in India’s primary zinc industry. Globally, it is the 2nd largest integrated zinc producer.
• Silver: Hindustan Zinc is the 3rd largest silver producer globally. Its Sindesar Khurd Mine is the world’s 2nd largest silver-producing mine.

Key Products/Services Performance #

• Mined Metal: Record production of 1,079 kt was achieved, increasing by 2% year-over-year.
• Refined Metal: Record production of 1,033 kt was achieved, was flat, year-over year.
• Refined Lead: Production was 216 kt, up 3% from the previous fiscal year.
• Silver: Achieved the highest annual silver production to date at 746 MT, up 5% year-over-year.
• Value-Added Products (VAPs): The share of VAPs increased to 19.7% from 15.5% in FY 2022-23, with a new 30 ktpa alloy plant commissioned.

Geographic Distribution and Market Penetration #

• Domestic Market (India): 71% of refined zinc production was sold domestically, a 12% increase from previous year.
• Export Market: Remainder was exported, showing a focus shift towards local demand. Presence has been noted in 40 countries across Middle East, South East Asia, Europe and other regions.

Segment-wise CAPEX and ROIC #

• CAPEX: Specific breakdown for segment CAPEX for FY23-24 is available in document. Total CAPEX during year was 3758cr.
• ROIC: Not directly stated, but overall ROCE was 35%, stated in the context of capital management.

Operational Efficiency Metrics #

• Zinc Cost of Production (COP): Achieved the lowest annual zinc COP in the last three years at US$1,117 per MT, placing the Company in the 1st decile of the global zinc mines cost curve.
• Mine Life: Secured by an overall mine life of 25+ years, backed by a robust resources and reserves.
• Waste recycling: Recycled 6.32 million MT of waste.
• Mill Recovery: Zinc Mill recovery was increased and Lead was lower on account of new RD mill stabilization.

Growth Initiatives and Challenges #

• Initiatives:
  • Commissioned India’s first fumer plant to improve metal recovery and support waste recycling.
  • Progress on a new roaster and a fertilizer plant is on track.
  • Strategic mineral exploration through a new subsidiary.
  • Continued focus on expanding resources and reserves.
  • Increased silver production to capitalize on rising prices.
  • Significant investments in renewable energy (450 MW power delivery agreement).
  • Deployment of electric vehicles (EVs) and LNG trucks to reduce emissions in operations and logistics.
• Challenges:
  • Zinc prices declined 25% year-on-year, impacting financial performance.
  • Lead prices softened during FY 2023-24.
  • Global economic challenges that impact financial performance.