Hindustan Zinc - Galvanize Capital of Investors?

The upcoming board meeting on July 17 could be significant. Government-nominated directors are reportedly planning to question HZL’s management about its financial relationship with Vedanta Ltd (our promoter) — especially the ₹1,560 crore in brand fees paid to Vedanta.

This comes after Viceroy Research’s short report, which accuses Vedanta Resources— the parent of Vedanta Ltd — of being financially distressed and using group companies like HZL to stay afloat.

While HZL says the brand fee is standard and board-approved, the lack of transparency around these payments and the scale of related-party transactions is something we, as shareholders, should be watching closely.

The parent company is under pressure, we need to ensure HZL’s cash flows and independence aren’t compromised. The UK parent company is hurting Indian listed subsidiaries

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Update:
Millions of USD brand fees have been paid to UK parent company, while not taking any approval from the government.

Hindustan Zinc (HZL) may have violated its shareholder agreement (SHA) with the Government of India by entering into a brand fee agreement with Vedanta in 2023 without government approval.

It could trigger what’s called an “event of default” under the SHA.

Explained in the article:
If HZL breaches the agreement, Vedanta (as the majority shareholder) has 15 days to fix it.
If they don’t, the Government of India has two powerful options:
Buy Vedanta’s stake in HZL at a 25% discount to market price.
Force Vedanta to buy the government’s stake at a 25% premium.

This clause was built into the original privatization deal to protect public interest and ensure checks on promoter control.

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Vedanta is Crippling HZL — A Must-Read Perspective from an Industry Insider

Ashok Sharma, a former Planning Commission advisor and senior geologist, has published a powerful piece on Countercurrents that lays bare how Vedanta’s financial practices are undermining Hindustan Zinc

Whoever invested in HZL - You need to pay attention:

HZL’s cash reserves are being drained through aggressive dividend payouts — not for reinvestment, but to service Vedanta Resources’ offshore debt.
This has crippled HZL’s ability to invest in zinc exploration and long-term growth, despite India’s strategic need for domestic zinc production.

Sharma argues that HZL is being treated as a cash extraction vehicle, with little regard for its operational health or shareholder value. He warns that this could jeopardize India’s mineral security, and calls for urgent government intervention to protect public interest. This article adds weight to the concerns raised by Viceroy, Sucheta Dalal, and others
— and it comes from someone who understands both the geology and the governance.

Read the full article here:

If you’re invested in HZL, this is essential reading!

and check the video by Sucheta Dalal professional, which is very credible. My summary and post:

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Hindustan Zinc -

Q1 FY 26 results and concall highlights -

Total Reserves and Resources @ 453 MMT. Company has world’s second largest Zinc reserves and resources with 25 yrs + of mine life

In last 5 yrs, company has added 131 MMT to its reserves and resources and used 81 MMT from its reserves and resources. Net addition of reserves and resources stand @ 50 MMT which has taken R&R from 403 to 454 MMT

454 MMT ore R&R correspond to 13 MMT of metal resources / 30 MMT of metal R&R. Company’s ore material is graded @ 5.6 pc Zn, 1.6 pc Pb and 55gm/ton of Ag. Company has added 9 MMT and used 6 MMT of metal’s resources in last 5 yrs - taking total metal resources from 10 MMT to 13 MMT. Company targets disciplined exploration to maintain its mine life > 25 yrs

Company has set up a dedicated subsidiary - Hindmetal Exploration Services Pvt Ltd - to continuously focus on exploring, discovering, developing and tapping mineral resources. The subsidiary has interest in exploration of all minerals across the globe by implementing best in class technologies and practices

Zinc smelting capacity @ .913 MMT
Lead smelting capacity @ .210 MMT
Silver refining capacity @ 800 MT

Captive power generation capacity @ 625 MW

Among India’s largest producer of Wind Power with a generation capacity of 274 MW - spread across 5 states

Company’s mkt share wrt Zinc in domestic mkt stands @ 77 pc. With rising domestic steel production, demand for Zinc is expected to also keep rising ( for Galvanising )

Company produced 687 MT of Silver in FY 25 making it world’s 4th largest Silver producer. Aiming to produce 700 and 750 MTs of Silver in FY 26, 27

Company’s last 5 yrs CAGR wrt Zinc mined and refined stands @ 4 pc - expected to incline further in FY 26

Q1 FY 26 outcomes -

Revenues - 7723 vs 8130 cr
EBITDA - 3816 vs 3951 cr ( margins @ 49 vs 49 pc )
PAT - 2204 vs 2358 cr

In Q1, company’s zinc COP stood @ $ 1010 vs $ 1052 ( avg for FY 25 ) - led by better grade ore, soft input commodity pressures, improved coal linkages, increased renewable energy use, automation and digitisation

Company has entered into a 25 yr long renewable power purchase agreement with Serentica ltd - this would @ a fixed flat rate of energy buying without any inflation and would help the company move towards its stated goal of reducing costs to $ 1000 / Ton

Company’s 5.1 lakh tons per annum fertilizers plant is under construction @ Chanderia. It ll be producing DAP fertiliser and NPK nutrients. Likely to go live by Q4 FY 26. The fertiliser plant that the company is expected to commission next yr has the potential to do peak EBITDA of 450 - 500 cr / yr

FY 26 guidance -

Mined metal production @ 1.125 million MT ( vs 1.095 million MT in FY 25 )
Silver production @ 700 MT ( vs 687 MT in FY 25 ) COP @ $ 1025 - 1050 / ton ( vs $ 1052 in FY 25 ) Capex @ Rs 1900- 2100 cr

FY 25’s avg prices vs current metal prices -

Zinc / MT - $ 2875 vs 2826 ( as on 31 Aug ) - in Q1, they were lower
Lead / MT - $ 2046 vs 1997 ( as on 31 Aug ) - in Q1, they were lower
Silver / Oz - $ 31 vs $ 40.3 ( as on 31 Aug ) - have been climbing steadily from Q1 into Q2

In FY 25, 13 pc of total power used by the company came from renewable sources. Company aims to take it to 30 pc by FY 26 end !!! By FY 28, they aim to take their renewable power usage to a massive 70 pc

A 5 pc drop in COP inclines the company’s EBITDA by 400-450 cr

Company is slated to commission a new zinc Roaster ( @ Debari ) with a capacity of 0.16 MMT / yr - making it ready to produce > 1.2 MMT of refined metal per year. It should be commissioned by middle of Q2

Also implementing advanced technologies at its facilities to recover additional Pb and Ag. These advanced technologies ( in addition to fuming technologies ) should help them recover additional 27 Tons of Ag and 6000 Tons of Pb per year. This should be commissioned by Q4 FY 27

In medium to long term, company aspires to increase its metal production to 1.5 MMT / yr ( initially ) and then to 2 MMT ( eventually ). Also intend to increase their reserves to 2X of current levels by indulging in domestic and international exploration activities. This would entail a lot of CAPEX - should be doable with internal accruals as the company produces a lot of cash / yr

Concall notes from Q1 FY 26 -

Zinc and Lead prices in Q1 were soft - recovering towards the end of the Qtr. Have held up well in July and Aug

Q1 mined metal production @ 265000 MT = 0.265 MMT

Mined Silver worth 149 MT in Q1

Have secured mining rights for 3 new blocks @ -

UP for Rare earth metal ( Monazite ore - used to produce Neodymium - a key component for rare earth magnets ) mining
Rajasthan for Potash mining ( an important step towards securing India’s potash fertiliser demands )
Andhra for Tungsten mining ( Tungsten is widely used in defence, electronics and clean energy technologies )

In Q1, company use of renewable energy has already increased to 19 pc ( vs an avg of 13 pc for LY ). This is happening as Serentica’s renewable energy capacities are coming on stream

In Q1, COP is generally higher by 4 pc vs full yr avg. This indicates, company is on track to achieve a COP of well below $ 1000 / MT for full FY

Coal mix for energy production @ 55:45 between Domestic : Imported coal. As the ratio of imported coal reduces, the COP should reduce further

The Potash mine block that the company has got shall eventually be integrated with their fertiliser plant

Company is also bullish about Monazite Ore extraction. If the reserves are found of be attractive and if they can crack the technology of extracting Neodymium from Monazite - it can add a lot of value for the company

Roughly speaking - company generates 10k cr of free cash / yr. Capex requirements for next 3-4 yrs shall be around 30-32k cr. That means 18k cr shall still be available for distribution to the shareholders

For the upcoming fertilisers plant, total capex requirement is around 1800 cr out of which 1000 cr has been spent and the rest shall be spent over the course of current FY. Expecting aprox 2000 cr of revenues @ 20-23 pc EBITDA margins from this plant. Expecting a quick ramp-up - should happen within FY 27

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation, posted for educational purposes

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If promoter of this company is not Mr. Anil Agrawal, with this huge tail wind shares should be frying. Only incremental profit of 4000 cr due to silver..

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Great point :+1:.

But do also note that some MFs have recently begun adding this, perhaps opportunistically (eg. silver exposure) or maybe due to the fact that ‘this time might be different’.

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Hindustan Zinc -

Q2 FY 26 results and concall highlights -

Q2 outcomes -

Mined metal production - 2.58 vs 2.56 lakh tons
Refined metal production - 2.46 vs 2.62 lakh tons
Avg cost of production @ $ 994 / ton vs $ 1071 / ton

Avg silver prices in Q2 @ $ 39 / ounce, up 30 pc YoY. Avg prices in Oct + Nov are in the range of $ 49-50 / ounce. Silver mkt continues to remain in deficit led by increased industrial demand from renewable energy, electronics, auto and 5G applications

Silver contributes to 40 pc of company’s EBITDA. Surge in silver prices is a great outcome for Hind Zinc

Company produced 144 tons + 149 tons of silver in Q2 and Q1 respectively. Company is 4th largest silver producer - globally

Progress on ongoing projects -

1.6 lakh MTPA Roaster @ Derbari - commissioned in Q2 FY 26

5.1 lakh MTPA fertilisers plant expected to be commissioned in Q1 FY 27. It ll be producing DAP fertiliser and NPK nutrients. The fertiliser plant that the company is expected to commission next yr has the potential to do peak EBITDA of 450 - 500 cr / yr

Hot Acid leaching plant - to a recover additional 27 tons of Silver and 6000 tons of Lead / yr from smelting waste is expected to be ready in Q4 FY 26

De-Bottlenecking @ Chanderia Zinc smelter expected to be commissioned in Q3 FY 26

De-Bottlenecking @ Dariba Lead smelter commissioned in Q2 FY 26

Notes from last 2 concalls -

In FY 25, 13 pc of total power used by the company came from renewable sources. Company aims to take it to 30 pc by FY 26 end !!! By FY 28, they aim to take their renewable power usage to a massive 70 pc

In medium to long term, company aspires to increase its metal production to 1.5 MMT / yr ( initially ) and then to 2 MMT ( eventually ). Also intend to increase their reserves to 2X of current levels by indulging in domestic and international exploration activities. This would entail a lot of CAPEX - should be doable with internal accruals as the company produces a lot of cash / yr

Company has set up a dedicated subsidiary - Hindmetal Exploration Services Pvt Ltd - to continuously focus on exploring, discovering, developing and tapping mineral resources. The subsidiary has interest in exploration of all minerals across the globe by implementing best in class technologies and practices

Have secured mining rights 3 new blocks @ -

UP for Rare earth metal ( Monazite ore - used to produce Neodymium - a key component for rare earth magnets )

Rajasthan for Potash mining ( an important step towards securing India’s potash fertiliser demands ). The Potash mine block that the company has got shall eventually be integrated with their fertiliser plant

Andhra for Tungsten mining ( Tungsten is widely used in defence, electronics and clean energy technologies )

Company’s smelting capacities -

Zinc smelting capacity @ .913 MMT + .16 MMT ( recently commissioned @ Derbari )
Lead smelting capacity @ .210 MMT
Silver refining capacity @ 800 MT

Power generation capacities - Captive power generation capacity @ 625 MW. Among India’s largest producer of Wind Power with a generation capacity of 274 MW - spread across 5 states

Company has entered into a 25 yr long renewable power purchase agreement with Serentica ltd - this would @ a fixed flat rate of energy buying without any inflation and would help the company move towards its stated goal of reducing costs to $ 1000 / Ton

Notes from Q2 concall -

Revenues - 8525 vs 8242 cr, up 3 pc
EBITDA - 4426 vs 4104 cr, up 8 pc ( margins @ 52 vs 50 pc )
PAT - 2632 vs 2298 cr, up 14 pc ( due higher other income and lower interest outgo )

Zinc prices continue to remain firm crossing and sustaining above $ 3000 / Ton on LME ( in Oct - Nov ). Silver prices continue to remain buoyant, sustaining @ around $ 50 / Ounce in Oct - Nov. Lead prices are holding steady - at similar levels as Q1

In H1, company’s zinc COP stood @ $ 1002, down 8 pc vs LY H1. For full year FY 26, Zinc’s COP should remain at < $ 1000, one full year before the initial tgt year of FY 27

Growth capex for FY 26 should be around 3500 cr - includes all the ongoing projects like Fertiliser plant, de-bottlenecking of Zinc and Lead smelters, hot acid leaching plant ( as mentioned above ). Maintenance capex for current FY should be around 400 - 500 cr

Company’s full yr tgt for Silver production stands @ 680 Tons. In H1, company has produced aprox 290 Tons. For H2, company is diverting resources from other mines to SK mines, incentivising contractors and workers at the sites - to ensure that they r able to meet the targeted silver production in H2 ( specially when the Silver prices are so good ). For FY 27, Silver production should be between 700 - 750 tons

Have announced a capex of 12000 cr for setting up of 250 KTPA zinc smelter @ Debari. Have already started work on ground ( yet to finalise the technology to be used in the Smelter ). This should take 2.5 - 3 yrs before it goes commercial

Percentage of power used by the company that came from renewable sources in Q2 stood @ 19 pc. Aim to exit FY 26 with renewable share of power consumption @ 25 pc

By the end of FY 26, company’s net cash position should be neutral / near Zero ( ie Cash on books - Debt on books )

Company’s hedged positions in Zinc / Silver continue to be at around 20 pc of their annual production. Rest 80 pc remains unhedged

With the commissioning of 1.16 lakh MTPA smelter at Derbari ( as mentioned above ), company should be able to achieve high single digits / low double digits volume growth in FY 27

Disc: holding, biased, not SEBI registered, not a buy sell recommendation, posted only for educational purposes

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“Given the phenomenal rise in silver prices, the company is projected to earn an additional ₹5,000 crore in bottom line. This estimate reflects the direct benefit from higher realizations on silver-linked products."

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