Ladies and gentlemen, good day, and welcome to Hindustan Zinc's third quarter and nine months FY 2024 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Jhalak Rastogi, Associate Director, Investor Relations. Thank you, and over to you, ma'am.
Thank you, Neeraj. Good afternoon, everyone, and a very Happy New Year. I welcome you all to Hindustan Zinc's third quarter and nine months ending thirty-first December results briefing. In this call, we'll refer to Q3 FY24 investor presentation available on our company's website. Please refer to the glossary and notes in the presentation for additional reference. 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 said 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. After which, we'll open the floor for questions. I now request Mr. Misra to begin today's call. Over to you, sir.
Thank you, Jhalak. A very good afternoon to all of you, and I wish you and your family a Happy New Year. Thank you for joining us today for the third quarter and 9-month FY 2024 results briefing. This quarter marked a noteworthy milestone for us as we celebrated remarkable achievements spanning across multiple facets of our business. Before delving into further details, I would like to initiate by addressing the crucial topic of safety. Our unwavering focus on safe operations, the dedication of our employees, and our robust operational processes, coupled with consistent investment in safety measures and technology, resulted in another quarter of fatality-free operations, making the fifth consecutive quarter with zero fatalities. Even as we look ahead, our commitment to safety remains resolute.
On this note, I'm happy to share that our all-women mine rescue team took the limelight by securing the first place, outperforming 24 participating teams in the 52nd All India Mines Rescue Competition, held in Telangana. Notably, our team stood out as the sole women's squad in the competition. It was a dual celebration as our all-boys team also achieved a commendable third place in the competition. On our sustainability journey, the company ascends the S&P Global Corporate Sustainability Assessment Leaderboard, claiming the highest spot with 238 companies in metal and mining sector in 2023. With a commendable score of 85 out of 100, we successfully climbed from seventh position to the top of the chart over the past six years, underscoring and reaffirming our steadfast commitment to ESG initiatives.
Continuing on our decarbonization mission, we have forged strategic partnerships within the industry and commenced the deployment of electric and LNG vehicles in our operations. These series of strategic partnerships propel us forward in our decarbonization journey, bringing us closer to achieving our Net Zero and GHG emission targets. On community development front, our holistic strategy and people-led, institution-based approach to CSR endeavors have earned us recognition among top 10 CSR companies in India. A quick snapshot of developments made in the quarter are given on page 4 for reference. Moving on to the markets, though the quarter started on weaker market sentiments, news of Chinese central government's additional investment on infrastructure helped improve the market. In the quarter, Chinese economic grew 4.9% year-on-year on the back of a rally in industrial production.
The US economy also demonstrated strength and resilience during the quarter, driven by robust customer spending and high service sector activity. European economy, in contrast, has persistently struggled to regain strength. Further, the easing of inflationary pressure in some of the world's major economies also suggests that the global supply chains are returning to normal. The global manufacturing PMI dropped marginally from 49.2 in September to 49 in December, indicating a slight contraction in output. The S&P Global India Manufacturing PMI also fell from 57.5 in September to 54.9 in December. Despite the decline, the December figure marked 30 months of the index remaining above 50, reflecting manufacturing expansion. Factory orders and output experienced a moderate yet notable rise, accompanied by an enhanced business confidence in the upcoming year's outlook.
Zinc prices were marginally better this quarter, despite the strengthening of US dollar, attributed to incidents such as suspension of Nyrstar's Middle Tennessee mine, fire at the upcoming Ozernoye mine, et cetera, pushing the prices above $2,600 per ton level during the quarter, before closing a monthly average of $2,500 per ton in December. While the global production has been stressed, however, the impact of the same has been insufficient to overcome the faint demand, particularly in Europe. This resulted in a surplus of refined zinc in LME warehouses during the quarter. Regarding the zinc outlook, usage in anticipated rise in India, Mexico, China, and Vietnam on the back of increased focus on infrastructure, while the demand in Europe and USA is likely to remain flat.
Coming to lead, during the quarter, the price remained volatile, averaging $2,123 per ton, down 2% sequentially, up 1% year-on-year. This is consistent with the pileup surplus driven by secondary market, despite a modest recovery in mines and primary smelter output. Moving forward, lead prices are expected to remain reasonably supported by healthy demand, driven by automotive industry and relatively tight supply due to recent suspensions. In domestic market, PLI schemes and emerging cash-rich middle class families are expected to fuel the expansion of automobile industry, thereby supporting lead demand. Coming to silver, prices averaged $23.2 dollars per Troy ounce, down 2% sequentially and up 10% year-on-year.
In India's industrial consumption of silver is relatively lower as compared to global levels, and is expected to increase going forward on the back of new age technological developments like EVs and 5G, and shifting priorities towards renewable energy, et cetera. Silver market has been in deficit in 2023 for third consecutive year in a row. Considering the current macroeconomic environment and the supply and demand dynamics, we hold a strong positive outlook for silver prices. Coming to an update on the operational performance, I am pleased to reaffirm that we achieved our highest ever 9-month mine metal and silver production. During the quarter, our emphasis on proactively maximizing silver production in response to heightened prices led to attainment of our highest level third quarter silver production at 197 tons, up 9% sequentially and 22% year-on-year.
Anticipating significant potential in the silver industry, our consistent enhancements in silver production propelled the company's global ranking from 23rd in 2014 to 5th largest silver producer in 2023. Please refer to slide 20 for further information. I would also like to highlight that our company has an industry-leading 5-year production compounded annual growth rate of 4.5 year, production compounded annual growth rate of 4.3% in mined metal, 4.1% in refined metal, and 3.9% in silver, showcasing a steadfast commitment to growth. This accomplishment is significant considering the backdrop of numerous mines and smelter closures and suspensions in the complex global business landscape. Before handing over the call to Sandeep, I would like to give an update on our projects. The Fumer and our Alloy plant are under operation currently.
Progress of the new roaster and fertilizer project is also on track. Further, based on the current run rate, ongoing developments, key structural changes, and valuable learnings, alongside an increased integration of technology, we are confident in our ability to deliver the projected volumes for the financial year. With this, I hand over the call to Sandeep for an update on financial performance.
Thank you, Mr. Misra, and a very good afternoon, everyone. Firstly, I would like to extend my wishes for a joyous New Year to everyone as we connect for the first time in this year. In speaking about the quarter that went by, the operational performance at Hindustan Zinc was notably positive, as detailed by Mr. Misra. There was a favorable momentum observed in the economic variables as well. As a result of the ongoing cost optimization initiatives in the company towards achieving the desired cost of $1,000 per ton, this quarter recorded the lowest cost in the past 10 quarters, achieving a sustained cost reduction in last four consecutive quarters. These persistent improvements solidify our position as a global cost leader, placing Hindustan Zinc in the first decile of the global zinc mining cost curve. Please refer slide 24 for further details on the cost.
Further, though it is challenging to achieve intermittent cost reduction, however, the crucial and the more complex aspect is sustaining it over an extended period, which is one of our main strategy to navigate through a so-called LME environment resiliently. As a result, our EBITDA margin increased from 46% in previous quarter to 49% in quarter 3 FY 2024. It was supported by prioritizing silver production as well. While the pursuit of better operational efficiencies continues, we are supplementing it with investment in diverse digitalization, automation solution, facilitating better value accrual in the upcoming quarters, providing a more comprehensive picture of the company's financial performance for the third quarter and the 9 months ended December 2023.
Revenue from operations during the quarter was INR 7,310 crore, 8% better sequentially on account of higher zinc prices and better zinc and silver volume, partly offset by lower lead and silver prices and volume. Though it was down 7% YOY, due to significantly lower zinc prices and lower zinc volume, partly offset by favorable exchange rate, higher lead and silver prices and volume. For the nine months, the revenue from operations stood at INR 21,383 crore. It was impacted YOY, due to reduced zinc prices and volume, being partly offset by improved lead and silver volume and prices and favorable exchange rates. Coming to the zinc cost of production before royalty, during the quarter, it was $1,095 per ton, 4% better sequentially and 15% better YOY in USD terms.
For the nine months, the FY 2024 COP was $1,142 per ton, 10% better YoY. The cost improvement was mainly on account of better volume, soft on coal prices, operational efficiency, partly offset by lower actual realization due to market, further supported by better grade and better linkage coal availability and utilization year on year. The resulting EBITDA for the quarter was INR 3,559 crore, up 14% sequentially, impacted by revenue from operational cost of production on a YoY basis, 4%. For the nine months, EBITDA was INR 10,040 crore, down 25% YoY, largely due to the lower LME.... Please refer to Annexure from slide number 26-28 for further detail.
Consolidated net profit for the quarter stood at INR 2,028 crore, up 17% sequentially, though down 6% YOY, in line with EBITDA, offset with tax expenses. For the nine months, the net profit stood at INR 5,721 crore, down 28% YOY, primarily on account of lower EBITDA, partly offset by lower tax expenses. The effective tax rate for the third quarter is 24% in accordance with the new tax regime, in which the company has already moved. During the quarter, Hindustan Zinc has also paid an interim dividend of INR 2,535 crore, contributing to the cumulative dividend payout of INR 5,493 crore for the ongoing fiscal year, reflecting our commitment to deliver value-effective returns to our shareholders.
Further, in giving a sense of our commitment to nation building, we contribute almost 23% of revenue, 45% of EBITDA, 59% of profit before tax to the exchequer through the royalty and income tax alone, highlighting the financial strategy we implemented to leverage better silver prices. Silver segment now account for over 45% of our profit in FY 2024, as compared to 27% in the last year, underscoring our commitment to maximize shareholder value. Another noteworthy highlight of the year, or quarter, is that our market share in India's private zinc market has increased from 75% to 7 quarter highest of 79%. Despite the challenges posed by the restrained market condition globally, we successfully increased our market share significantly in India.
As we enter into the new year, we plan to intensify our efforts towards achieving our design cost of $1,000 and reiterate our guidance. With this, I conclude my comments, and we open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from Vikas Singh from PhillipCapital. Please go ahead.
Good afternoon, sir. Sir, I wanted to understand the update on the business plan restructuring of the different division. Where we are so far?
So, regarding that Hindustan Zinc being-
Hindustan Zinc.
Hindustan Zinc-
Structural divisions, basically. Yeah. Correct, correct.
So the board has discussed. Now it is between the government nominee directors and the other board members. So I think government nominee directors are yet to communicate their agreement to the proposal. Once that is done, then we'll take it forward.
Understood. Sir, any timelines which you have internally decided, between which you wanted to complete that?
I expect that before the next, that is, we are now sitting in January, before the next board meeting, which can be anytime towards the end of March or April, that should be our internal timeline. We should be able to close it.
Understood, sir. So second question pertains to our volume guidance. So given the nine-month production and sales, our asking rate is a little bit high. So one thing on the mine metal side. So do you think that we will at least meet the lower end of the guidance? And secondly, do you want to increase your guidance on the silver production, basically once since the skews are now completed and they would be ramping up?
So I think with the current rate of production, as you see, and quarter four normally is the best ever quarter that we will present. So achieving the guidance is not, not an issue to us. And just now, we would not be correcting the silver numbers, because it's a matter of both our strategy of operation as well as the grade of silver that we get during mining. We maximize this quarter. However, quarter four, with the mode of operation that we have selected, we will look at it, but, my apprehension or expectation is silver number will be, shared better than what we have committed. And of course, mined metal and finished, finished metal, we will achieve the guidance numbers.
Just to supplement here, Sondeep here. If you even add the last quarter four, which has been our ever best always, and this quarter will be also the same story, even with that, against the guidance of 1,075-1,100, we are around sitting at 1,085 kind of number. I think we are comfortably within the guidance range, and similar is the story for the refined metal and silver, so we are quite confident to achieve the volume guidance.
Understood, sir. Sir, now that we have now run rate of silver is closer to 800 tonnes a year, what is the expected peak?
What is the-
What is the expected peak in the silver production? Because I remember once we guided that we wanted to reach 1,000 tonnes a year of silver. So if anything on that?
No, so the whole world production has to go up. We can always play around with maximizing lead production, maximizing use of SK mines, concentrate and things like that. But overall, see, Hindustan Zinc to move from 700 tons to 800 tons, we need to move, increase our current rate of metal production from, say, 1.105 million tons to 1.2 million tons. I see the target of when we achieve 1.2 million tons, we'll be comfortably achieving around 800 tons of silver, so that we can assume.... at 1.5 million tons, we should be getting closer to 1,000 tons.
Understood, sir. Just one last question, if I may ask. Our Debari roaster, so any timeline for the completion of the same?
By early quarter four of this financial year, so that may be anywhere between January to March, but we are planning to crash it and bring it, you know, closer. Sure, that is the next financial year. Next financial year, which is January to March of 2025.
Okay, next financial year, January to March.
Yeah, yeah.
Okay. Thank you. Thank you. That's all from my side, and all the best for you.
Thank you.
Thank you. Next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Yeah, good afternoon, sir. The first question was on, you know, how the domestic physical premiums have, you know, played out sequentially. Have you seen some drop over there?
Hi, Pallav. Yeah. So first of all, happy new year. Pallav, I think the domestic market premium or export, both have been working in tandem with the market. And I don't think anything insignificantly has happened in the premium. It's all in line with the market and the competition.
Sure, sir. And what about, you know, we were planning to increase our proportional value-added products in the next year, so how has the progress been on that?
So we had that, alloy plant commissioning, which has happened. It is ramping up, and I think by next quarter, we will be able to report a healthy number of special products that we produce from the alloy plant, which will add to a value-added product number. But as of now, the way we produce value-added product in the standard mode like last year, the numbers are not much, around 18%-20%, we have.
Sure, sir. And I think we were targeting, I think, 25%-30%, if I recall well.
That additional will come from our alloy plant also.
Sure, sir. So also just, if you would just, help us out, you know, with how, you know, the coal, domestic coal availability is, and I believe we have, you know, tweaks our power plants to accept your domestic coal. So, you know, so is that started showing results, and, you know, what kind of cost improvements can we see from that?
No, our... See, there are two, two parts to it. One part is general availability of domestic coal. It is not as good as it was in quarter two, however, it is healthy. The percentage of domestic coal consumption is healthy. Second, we have modified our power plants, which are now capable of digesting more and more domestic coal at higher ash. So roughly, if I give you the percentage numbers, we were 45% earlier in quarter two, which is reduced to 30 or 31%. As we have been saying earlier, that we require about 20%-23% of the share of domestic coal, the way the power plants are designed, but we are now able to digest up to 30, 40% of domestic coal. This has, of course, helped us in reducing the power cost.
Also, we have done at a domestic coal and more than 100% power plant load factor kind of a performance. Our power costs are well within our target and which is actually, has started reflecting on our overall, cost of production, which has gone down.
Contribution to overall cost, which used to be 42% last year, has gone down to 35%.
Sure, sir. Okay, and probably this can maybe, probably there's room for further improvement, I guess, going in.
Oh, yes. At the current level of power plant capacity to digest thermal, domestic coal, if we start getting some 45% domestic coal in our total coal mix, the cost will go down further.
Sure, sir. So finally, if you could just help us with, you know, with the broad outlook on, you know, on zinc and lead pricing for the, for CY 2024, given that, you know, Chinese stimulus efforts really haven't, you know, probably had the effect that, you know, that was expected. So at least in steel, we continue to see a lot of exports still coming out of China. So is this any different in terms of zinc and lead, the domestic demand over there?
Yeah, the post-COVID world is such that it's very difficult to predict, because earlier there was a firm equation between countries, and one could predict what will, what price will go up, what will come down. Today, you see even Chinese stimulus, announcement, expenditure is not able to push the prices up, right? Europe has not recovered. Europe remains largely flat and very docile as far as economic growth is concerned. U.S. has registered good growth, but also affected by inflation. Although the inflation numbers have started coming down, gas prices have started coming down, but still U.S. is only geography, which is like-
Please stay connected. The line for the management dropped. Ladies and gentlemen, please stay connected while we return the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may continue.
Yeah. So as I was saying, the overall export, geography-wise, Europe has not shown a very promising recovery, whereas U.S. remains slightly more promising. Indian economy is still strong, perhaps one of the strongest economies among the developing countries. So we are focusing more and more on domestic sales compared to exports. As far as predicting the prices is concerned, and under these conditions, our prediction of the price moving closer to $3,000 has not materialized even in this month of December. So I won't hazard a guess. I would be happy if it continues at the current level, maybe ±$50 for another quarter. I think that will help us out.
Sure, sir. Yeah, thank you both for the detailed answers.
Thank you. Next question is from the line of Alok Deora from Motilal Oswal. Please go ahead.
Good evening, sir. Sir, just one question. So the cost of production has come down pretty well in this quarter as well. So any outlook there? We have kind of maintained the full year guidance, so how, where could we see the COP moving ahead?
So Alok, we continue to remain the guidance of $1,125-$1,175, but I can give you the assurance that we will be at the lower edge of the $1,125-$1,175. And going forward, as I said, that this time we closed $1,095, so accordingly you can do your math. But going forward, we believe that we deserve towards the $1,000 cost, cost design.
Got it. And sir, the debt right now at the company level is, I think, INR 10,000 crore or so. Where do we see that heading, going ahead, so any comment on that?
If you see at the net debt level, we are around INR 360 crore.
Yeah.
Given the healthy cash flow generation, during this year, we have generated the free cash flow of INR 6,900 crore, which is also the post-growth CapEx and RE power investment of INR 1,000 crore. Out of which, INR 5,500 crore was distributed as a dividend, and INR 1,400 crore was used for the debt reduction. So even you safely assume the EBITDA of the Q4, and even at current level, LME, I am confident that minimum by INR 2,000 crore, this debt reduction will happen in the Q4.
Got it, sir. Thank you so much for that.
Thank you. Next question is on the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah, good afternoon, sir, and congratulations for a good set of numbers. I have a couple of questions. The first one is essentially on Fumer. So with the commissioning of Fumer project and with it streamlining by end of Q4 FY 2024, what kind of additional production, we can expect from Fumer?
So we had a plan from the Fumer about 30 tons of silver in the year. I think that level we will achieve by the end of Q4, and next year, full year, we will be taking that into consideration while we plan the numbers.
So that means next year, sir, we are already running at silver production of roughly 197. Of course, that is driven by increased, you know, one of these smelters running in red mode only. So is it fair to assume that next year we could be, like, 800, above, north of 800 in silver production?
I, I won't hazard a guess, but if you say this year, if we close at close around, say, $720, we should add another $30 to that. Or if we close at $700, we will add another $30 to that. Whatever we close at, we'll be adding another $30 to that and then produce accordingly.
Okay. The second one is a bookkeeping question, sir, on the, if you could just say, mention the, revenue and capital mine development this quarter.
Revenue and capital mine development both were around 13 kilometers per so each. So that was the revenue and capital mine development in this quarter.
Okay. And, another one, sir, if I may, I, maybe I missed it because I joined the call a little bit late. You mentioned in the prepared remarks about the, improvement in grade. So what was the average grade realized in this quarter?
So this quarter it was around 7.4, and it is a YOY higher. Last quarter YOY was 6.96. This time it's a 7.36.
Okay, great, sir. Thanks and all the best.
Thank you.
Thank you. Next question is from the line of Shweta Dixit from Systematix Group. Please go ahead.
Hello. Thank you, sir, for the opportunity. I wanted to know, could you throw some light on the operational details of the zinc alloy plant? Like, the volumes and, what was the realization and margin, that can be expected, going forward. And you mentioned, something about it could contribute 20%-25%. What were... I missed what contribution were you talking about there?
No, no, we are talking about one value-added product. Currently, we are at about 18%-20% of our, the total product is value-added product. In the definition that we know, value-added product is to be, which can be jumbo, which can be, you know, uncertain, we, we, which can be Zamak 3, Zamak 5, but mostly produce Zamak 3. Going forward, about 30,000 tons per annum, value-added product will be produced separately by the alloy plant. As of now, it has just been commissioned. It is still going through the teething issues of the plant that has, and we believe that by quarter four it will be stabilized.
Next year, full year, when you look at, we will- it will surely add another 30,000 tons of production and, take our, value-added production percentage from 20% to maybe 25%.
Okay, sir. That's it from my side. Thank you.
Thank you.
...Thank you. Next question is from the line of Shivank Chauhan from Barclays. Please go ahead.
Oh, yeah. Hi. Thank you. Thank you for taking the question. I have a quick one on, if you would have an update on, the transfer balance NCLT hearing that was supposed to happen. Any update on that you could provide?
Yes, Shivank, first of all, happy New Year. We had a GR to RE last hearing on January 24 at the NCLT, Jaipur. This is second motion, and the hearing went very well, almost for one and half hour. We expect the order to be passed maybe in February. So the next date of hearing is on 25th February 2024. All are procedural in nature, given the size and the rare kind of thing. It's taking time.
Okay. Okay. Thank you. Thank you so much. That's all for now. Happy New Year!
Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I would now like to end the conference. Over to Mis. Jhalak Rastogi for closing comments.
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.
Thank you very much. On behalf of Hindustan Zinc, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.