Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations. Thank you, and over to you, ma'am.
Good afternoon, everyone. I welcome each of you to Hindustan Zinc second quarter and half year ended FY 2023 results briefing. Today on the call, we have with us our CEO, Mr. Arun Misra, and identically an interim CFO, which is Sandeep Modi. Mr. Misra will throw light on our business performance, while Mr. Modi will walk you through financial performance. After which, we will open the floor for questions. As many of you requested this time to have an early call owing to multiple results in Diwali weekend, we are starting 15 minutes earlier than usual schedule, and we'll also try to wrap up in the next 45 minutes. Also, I would like to request you all to please open both the press release and the presentation for quick reference during the session. I now request Mr. Misra to begin today's call. Over to you, sir.
Thank you, Shweta. Good afternoon, and a very happy Deepavali to everyone. Thank you for joining us today for the second quarter and half year FY 2023 result briefing. Before I begin today's results presentation, I regret to inform you all that we had an extremely unfortunate incident at Chanderia on 12th of August, where there was a sudden rupture and subsequent breakdown of an acid storage tank. This incident, which led to acid gushing out of the tank, costed us valuable lives, including our own employees and business partner colleagues who were standing in the vicinity. I would like to offer my deepest condolence to the bereaved family and friends of the deceased. We commit to stand by their families in this hour of distress. In-depth investigation has been carried out and the findings have been reviewed, and we'll be implementing all the findings across all operating assets.
We have also continued our proactive safety and health initiatives during the quarter. At Hindustan Zinc, it is our sincere belief that people are our most valued asset, and we nurture our talent with best-in-class people practices. This is also reflected in external recognition that we receive. On this count, I am happy to share that Hindustan Zinc has won the prestigious PeopleFirst HR Excellence Award for leading practices in diversity and inclusion initiatives and talent management. After being recognized as great place to work, we are now also recognized as happiest workplace in light of our best-in-class people practices. An update on the ESG front. In line with our commitment to net zero by 2050, we have entered a power delivery agreement with Serentica Renewables India Private Limited.
PPA is signed for renewable power aggregating up to 200 MW and under the group captive scheme, INR 105 crore has been invested in the second quarter. I am also happy to inform that our Pantnagar plant in Uttarakhand is sourcing 100% of its power requirement from renewable hydropower now. This makes Pantnagar the first unit of Vedanta which is using 100% green power. This is only a first step towards many more milestones in our ESG journey and commitment to net zero. I am also delighted to inform you that Hindustan Zinc was awarded at the third edition of the CII Climate Action program 2.0 under the oriented category. In addition, our smelters were also awarded at GreenPro Summit 2022. Dariba Smelting Complex and Chanderia Lead Zinc Smelter received Gold rating, while Dariba Zinc Smelter bagged Silver.
All of these collectively play an important role when it comes to marching ahead in our ESG journey. You may also look at slide 8 to 11 in the presentation for further details. Coming to an update on our on-ground CSR activities. Our CSR team continues to make a positive impact across an array of fields and are delivering on initiatives and activities across the areas of education, sustainable livelihood, women empowerment, health, water, community asset creation, sports and culture, and volunteering through their well-rounded on-ground initiatives. It gives me immense pride to inform that Hindustan Zinc has been felicitated with 7 awards at the 26th Bhamashah Awards for our initiatives and projects in the education sector. These awards are a recognition of our continued commitment towards education.
In the last three years, around INR 50 crores were spent by the units of Hindustan Zinc in Rajasthan towards education-related initiatives, benefiting more than 2 lakh children every year. I would also like to share that Sahil Punia, our star goalkeeper at the Zinc Football Academy, has been inducted into India under-17 team and has won the Best Goalkeeper award and championship on his debut at the SAFF U-17 tournament held in Colombo. Key highlights of our CSR initiative is also covered on slide 12 of the presentation. Quickly an update on the market. Supply and demand forces remain largely in balance. However, macro uncertainty has put LME under pressure. On the supply side, rising energy prices across Europe has brought news of smelters being put into care and maintenance, leading to concerns around the supply of metal.
At the end of September, LME stocks stood 54,000 tons as compared to 140,000 tons at the start of April 2022. Whereas stocks in Shanghai warehouse stood at the end of September, stood at 38,000 tons as compared to 176,000 tons at the start of April 2022. On demand side, global uncertainties are casting dark clouds on metal demand with rising interest rates, energy prices, and other inflationary pressure continues. The S&P Global Eurozone Construction PMI fell to 48.5 in September from 56.5 in April. The Construction PMI for August 2022 fell to 44.2 points from 50.4 in April on account of higher costs and supply chain constraints, which affected output as well as demand.
The supply chain issues, including component shortages in automotive sector in Europe, is continuing and is evident at the data from European Automobile Manufacturers' Association, that the new passenger vehicle registrations have declined by 13.7% year-on-year. Touching briefly on lead. Lead prices witnessed a significant amount of volatility during H1, and closed out the half at $1,889 per ton approximately, a 22% decline from April 1, 2022. Some of the reasons attributed to this drop were the strengthening of U.S. dollar, the increase in energy costs supported by global interest rates, the deepening crisis due to the Russian war on Ukraine, and the resulting overall pessimism for base metal demand. Lead prices are expected to remain subdued for the rest of the year, as the automobile sector globally is facing constraints in production.
Coming to silver, we have witnessed an uptick in silver demand in light of upcoming festive season and lowering of prices, which witnessed their share of ups and downs, and closed out the half up $19.02 per troy ounce, a drop of approximately 23% from the start of financial year. On the domestic front, the economic environment in India remained buoyant. The same was reflected in S&P Global Manufacturing PMI in August 2022, which was at 56.2, indicative of the expansion in manufacturing activities. The Indian domestic zinc demand has been stable during H1, half of this year, on the back of robust growth in infrastructure, pipes and alloy segment, which resulted in resumption of project orders that were stalled in 2021.
We also witnessed strong demand for lead domestically, largely on the back of excellent automotive demand ahead of festive season. The demand of lead in the industrial battery segment has also been robust as battery replacements in data centers, banks, ATMs and other critical applications gathered pace. Additionally, the Indian secondary lead market continues to remain tight due to poor availability and limited imports. You can also refer to slide number seven of the presentation for details. Coming to an update on operational performance. Without delving too much into the details which are already available in press release and presentation, I am happy to inform that Hindustan Zinc has delivered a record first half with highest ever mined metal, refined metal and silver production.
With consistent MIC flow from the mines, better plant availability, and with better grades and improved recoveries, our volume delivery is on the up curve with increasing uniformity. To an extent, also negating the effect of traditional seasonality with proactive planning and effective removal of any roadblocks. Here, I would also like to bring to your attention. If I look at the last 12 months, even after factoring in some of the one-offs with operational challenges and unforeseen events, we are comfortably sustaining our 1 million ton run rate on both mined metal and refined metal.
With our valuable learning and some of the key structural changes that we have discussed over the last few quarters, alongside increased use of technology as well as learnings deployed, we are confident to deliver the projected volumes for FY 23 and with increasing uniformity in the quarters to come. With this, I hand over the call to Sandeep for an update on financial performance.
Thank you, Mr. Misra, and good afternoon, everyone. I'm happy to present to you another good set of results amid macro headwinds, input commodity inflation, and softening LME. It was a record first half where we touched significant milestones and continued positive momentum of our financial performance. We delivered a historic high first half in terms of revenue, EBITDA as well as net profit. The success can be largely attributed to our agile decision-making to cash in the favorable LME by embarking on strategic hedging on the right time. This, along with the zeal to leave no stone unturned when it comes to operational efficiency initiatives, cost rationalization as well as volume delivery is keeping us ahead in these uncertain times and helping us stay in the first quartile of global cost curve.
All of this has enabled us to protect our margin despite grappling with the increasing energy prices and input commodity inflation. Refer to slide 17 for an update on our financial performance for the second quarter and first half year ended September 2022. For the first half of FY 2023, our revenue from operations stood at INR 17,723 crore, an improvement of 40% from the same period last year. This was supported by improved zinc LME prices and volume gains from strategic hedging, favorable exchange rates and better lead and silver volume, which were partially offset by lower lead and silver LME prices.
Revenue from operations during the quarter was INR 8,336 crore, which is an increase of 36% YOY, led by higher refined metal and silver volume and LME prices gained from strategic hedging and the favorable exchange rates, partly offset by lower lead and silver LME prices. Sequentially, revenue decreased 11%, primarily due to lower zinc prices and volume and lower lead and silver prices, partially offset by our gain from strategic hedging, favorable exchange rates and improved lead and silver volume. For H1 2023, the COP stood at $1,260 per metric ton, 15% higher YOY in USD terms and 22% in INR terms. The COP was affected largely on account of higher coal prices, lower domestic coal linkage royalty, input commodity inflation being partially offset by higher volume and improved operational efficiencies.
Zinc cost of production before royalty during the quarter was $1,259 per metric ton, higher by 12% YOY and almost flat sequentially. In INR terms, though, it was 21% YOY and 3% sequentially higher. This resulting EBITDA for H1 FY 2023 was at INR 9,665 crore, an increase of 40% YOY, driven by improved metal and silver volume, zinc prices gained from strategic hedging and favorable exchange rate, partially offset by higher costs and lower lead and silver prices. EBITDA for the quarter was INR 4,387 crore, up 32% YOY, though down 17% sequentially. This movement was primarily driven by the higher revenue being offset by increased cost on account of the prevailing input commodity inflationary environment.
Please refer to EBITDA bridge given on the slide 18 to 20 for the various periods for the detail. Net profit for the H1 was INR 5,772 crore, a strong growth of 44% YOY, led by higher EBITDA, partially offset by increase in tax and depreciation amortization. For the quarter, net profit was INR 2,680 crore, a YOY growth of 33% led by higher zinc volume and prices and favorable exchange rate, while being partially offset by the rising input commodity prices and lower lead and silver prices. On a sequential basis, net profit was 13% lower due to lower metal production and lower zinc and silver prices being partially offset by strategic hedging gain and favorable exchange rates.
Effective tax rate for the second quarter was close to 32%, and if we see H1, it will be approximately 33%. That said, our cash tax is much lower due to available MAT credit. Plus, once we move to new regime from next financial year, our tax rate will be around 25%. As far as our ETR guidance is considered, I would leave it unchanged at 32% for the full year. Kindly turn to slide 22 of the presentation for our cost and CapEx guidance for the fiscal year 2023. In the previous quarter, I had mentioned that across the industry there is an upward pressure on input commodity inflation, which we are also facing.
While we have been doing our best to combat it through levers available to us in form of delivering higher volume, operational efficiency, a special focus on improving and maintaining metal recovery and exploring all possible avenues to reduce our procurement cost, the input commodity inflation continues to weigh on us as no process improvement can combat such a steep increase in coal cost in near term. Hence, management has taken the considered call to revise the cost guidance and expect zinc COP in the range of $12.25-$12.75 for the FY 2023, which is inclusive of higher mine development expenditure to support future volume growth. As you would understand and appreciate that this revision comes in the light of an extremely uncertain environment with rising imported coal prices, lower domestic coal availability and geopolitical tension, which is impacting supply chain globally.
That said, we remain confident to maintain our leadership position in the global zinc cost curve and will continue to protect and improve our margin. Project CapEx guidance for the year remain unchanged and is expected to be in the range of $125 million-$150 million. With this, I open the floor for your questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, 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. The first question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah. Hi. Good evening, everyone. Congratulations for a good set of numbers in otherwise a very challenging quarter. I have just couple of questions. The first one is if you can quantify the gain from hedging and is there a portion of hedging still left, and if so, at what price? That is the first question. The second one is on your production guidance, which seems to be slightly conservative given that, you know, I expect that acid tank storage at Chanderia would have been repaired and contribution from Fumer is also expected. I mean, what drives this rather conservative guidance? These are the two questions I have. Thank you.
Thanks, Mr. Amit. I will answer the first question. The quarter two strategic hedging gain was around INR 500 crore taken into the quarter two. To answer your question, nothing much significant, strategic hedging open position now stands.
Fine. Amit, thanks for the question. On the volume portion, we are, as you can look at last four quarters, if you add up, we are already more than 1 million ton plus and H1 itself is 0.5 million ton and above. Yes, we all hope that we cross 1 million ton mark by good margin. I think let's do quarter three right, and then we would better know how much more we can add in quarter four. We are all very eager to cross that mark of 1 million ton by good margin as far as FGs are concerned. I would not like to, you know, be unnecessarily optimistic, but rather I would say that we are all committed to do better.
Okay. Great, sir. Thanks and all the best. I'll get back in touch. Happy Diwali to you.
Happy Diwali.
Thank you.
Thank you. The next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Yeah, good evening everyone. Happy Diwali to all. I had a question on the, you know, on the coal availability and linkages. After the monsoons, are we seeing any improved availability of coal? Do you expect that coal costs could moderate in Q3 or Q4?
Pallav, I will address the question. The coal linkage, coal availability has been improved. In the quarter one it was 10%. In the quarter two it has been around 14%. We believe that we have been meeting and representing everywhere, and we expect that after the monsoon, the linkage coal availability should improve. What can be the quantum, 20 or 25%? We don't know. At this point of time, we remain optimistic, as the Coal India has also been stating that the production is going to improve, and especially the effect with the mines which we have. Coal procurement cost is the driver. Second, I think the imported coal prices are also going down in the market, especially if you see the Mozambique, South Africa and Indonesia. That should also help us to reduce the coal cost.
Sure, sir. The INR is also depreciating. You know, considering that, we'd still probably expect costs to go down?
INR is depreciating. As far as my EBITDA margin is considered, I'm a naturally hedged. INR depreciation is also giving a much, much benefit in case of my exports. If you see the US dollar terms cost, the denominator will remain the USD-INR. My cost per ton should not be that much of a resulting in the negative.
Yeah, fair enough, sir. This is also a question, you know, I think, if I got the number right, the strategic hedging gain you mentioned was about INR 500 crore for this quarter. Is that correct?
Yes.
This is actually, sorry, is that helping the zinc? If I just conclude the zinc premium, you know, physical premium over LME, so that has, you know, again, improved over the last quarter or so. Is this also being driven by the strategic hedging gains?
Strategic hedging gain is completely different. It is not having any premium, so it's only a delta between what is the market price of the, in the LME and, what has been actually we have sold forward. You will see this delta in the revenue from operations.
Yes, sir. Yeah, so indirectly it is coming into the zinc realization.
Yes. It is a zinc realization as part of the revenue from operations.
Yeah, yeah. That's why I'm saying the derived premium seems to be on the higher side. Okay. This may probably normalize once. Yeah, okay. Yes, sir. Thank you. Those are my questions.
Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead.
Thank you very much, sir, and wish you all a very, very happy Diwali. My question was with respect to this group captive scheme. If you could just elaborate on what kind of, you know, investments are there, what kind of ROEs are expected, and what is the cost of production? A bit more on this group company, Serentica, who are the owners, et cetera? Thank you very much.
Group captive scheme is standard scheme, you know, in case of a power production and transmission, if you are not trying to own 100% of any power plant that you put up and you want somebody else to put up a power plant and, but you want to get the benefit of being a captive producer in terms of other duties and taxes that are applicable to a power producer, then you go for the group captive scheme mandated by government, be it thermal, be it RE power or any kind of power plant. That requires that one has to make a 26% equity investment in a power producing company. That is plain and simple as per the law that one has to do, and that's what we have done. Serentica is a part floated by our group.
It's a group company which is into hydro power production. We see that considering all the businesses of the group, hydro power requirement is very high. Also all our operations will be totally banking on continuity of supply of hydro power. While one can try to ensure that through contract, but having you know own investment at the same time, being a listed entity, having a 26% group captive scheme in investment helps us to ensure the continuity of business with all risks factored in with the hydro power, which is going to replace about 40%-45% of my total power generation capacity.
Thank you for the elaborate answer, sir. Just, you know, you said a couple of points which I wanted to understand. Number one, Serentica, is this a promoter entity or it is a Vedanta Limited group company? That's number one. Number two, I understand group captive means you have to invest at least about 26% of the equity to be eligible for that. So far your investment is about INR 105 crore. Does that mean that is your 26% equity contribution? If so, if not, then how much extra we need to put in? Thirdly, by what time do we expect this 200 MW power to start flowing into Hindustan Zinc?
Pallav, I will answer that. The total investment which board has approved for 26% equity is INR 350 crore, which we will announce in the market. We have invested as of now 30%. This entity is expected to commission its operation in the next two years. By FY 2025 or early FY quarter one of 2026, we should aim to start the operation. Yeah, this is not a part of Vedanta Limited.
Very good. Thank you so much.
Thank you. A reminder to the participants, to ask a question, please press star and one. The next question is from the line of Saket Reddy from Polasani Enterprises. Please go ahead.
Good evening, sir. Am I audible?
Yes, yes. Good evening.
I have seen that you've done an NCD payment of INR 700 crore this quarter. When is the next one due?
The remaining is INR 2,100 crore. That is the due in September 2023.
September 2023. Okay. One more thing. Your saleable silver guidance, isn't it too conservative? Like, you've done 371, I think in H1. 371 MT. You've guided for 700-725 for the whole year. H2 will see some, you know, letdown or is it a conservative guidance?
No, it is in line with the metal guidance that we have given. There is always a certain proportion that gets maintained with the metal production. As of now, unless I'm changing the metal guidance, I'll not be able to change the silver guidance as well. As I committed earlier, H1 being we already crossed 0.5 million ton on silver at 340 or so. H2 we are all hoping it will be much better. Let's see by how much margin we cross the guidance that we have given.
Okay. We are already, I think, around three weeks into Q3. You still maintain the view more at Chanderia to get commission by end of Q3?
Yes, yes. Because the only thing that was stuck was the visa issue. As we speak, yesterday itself, some clearances have been given for visa approval from Beijing embassy. I'm sure in a matter of week or so, we would have the experts here, and then we should be able to complete the work. Only everything is done, it's only the commissioning, which is a matter of 10-15 days work. We need the experts to be here. That's the only issue.
Okay. The last question, sir. Is Chanderia plant back on track, like, you know, post the issue?
Yeah. Plant is back in operation. We have preponed some of the shutdown work, which we generally as we had planned to do later, at the later part or the early part of this quarter. We have preponed that, completed those shutdowns and restarted all operations. Everything is normal as far as operations are concerned.
Okay. Thank you, sir. Thank you and all the best. Happy Diwali to the team.
Thank you. Happy Diwali.
Thank you. The next question is from the line of Ritesh from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just two questions. First, we have really solid cash flow. We have a lot of cash on the books, and we have limited CapEx. Sir, how should one look at the dividend payouts going forward?
As I keep saying, dividend is a matter for the board to consider. As far as my job is concerned, to ensure EBITDA and we generate cash flows. I'm sure the board in their best interest will take the decision at the right time. We are also putting up two good projects which I have informed earlier, both as a new roaster which will add to our, you know, calcine making capability and also one fertilizer plant. I'm sure this year when we do the business planning, we will come up with some more projects to make better utilization of the cash that we have.
If I just take a step back, when we look at a particular payout ratio, just want to understand how you think about it. Like, we have adequate cash on the books. Still if I look at like last two annual reports and if I just dig in a bit of regulatory filings, we do understand that the company is also looking to move capital from GR to RE. What is the need for us to actually execute that specifically given there is adequate cash which is already there on the books.
If you see general reserve to retained earnings, it's a long run process. We initiated this process almost 8, 9 months back. Currently the SEBI has approved this in the NCLT. This is just a enabling provision which will allow us the flexibility for using it. It may not be immediate, but it will be in the interest of the shareholders. It will go through the process. That's why we've taken to enable us in case of anything we want to reward the shareholders.
Sir, my question is, what is it that triggered us to do something of this sort right now? Probably why not like, say, three years back or four years back? I'm just trying to understand the thought process, trying to understand the concept.
If you see any time, it's. What is the right time? Nobody can comment. We have also taken as a part of various other companies who took recently or in the past Tata Power, Nelco. They have also taken. We also took around a year back. As I said earlier, it's a long run process. It doesn't require like just one week or one month job. It has been almost a year job. We too thought that it will take time, so we triggered this around 8-9 months back.
Sure, sir. Sir, you said you already have approvals from both SEBI as well as NCLT. Did I get it right?
No, SEBI has approved it. NCLT is still yet to approve.
Okay. Sir, do we need creditor approval over here when we do GR to RE?
It will be through NCLT process and then after that shareholder approval will be required.
Sir, when we actually give a payout from the GR to RE, does it also call for a shareholder's approval or a creditor approval?
No, no. Once the NCLT approves, then after that shareholder approval would be required. For automatically then it go to the retained earnings and after that it becomes a part of the free reserves.
Okay. If there is an incremental payout, we do not require any separate creditor approval, right? Is that understanding right?
No.
Okay. That helps. Perfect. Sir, can you highlight the update or progress on the fertilizers expansion, given I think the scenario that the country is in? I think if we fast-track something of this sort, it will look good.
Absolutely correct. We have got the board approval, and after that our project team has completed the design pre-feasibility, and then now we are busy in negotiation for appointment of a EPC contractor. I guess by the end of this month, the contractor will be on board, and I can see we'll be hitting the ground anywhere between second or third week of November to start construction.
Sure, sir. Thank you so much. Answered all my questions.
Thank you so much.
Thank you. The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my questions again, sir. I have a couple of data questions actually. The first one is, what was the grade in Q2 FY 2023? While you have mentioned that it has improved, so just wanted to understand how much it has improved. That is question number one. The question number two is on the revenue, the capital development and the revenue development and just highlight it. Revenue mine development.
Grade for this quarter has improved to 7.4%, and capital mine development for this quarter was around 13 kilometers.
Revenue, sir?
Revenue was INR 25. Sorry, remaining was 50% or almost 13 km.
13 kilometers. 13 kilometers each?
Yes.
Okay, great sir. That answers my question. Thank you.
Thank you. The next question is from the line of Vikash Singh from PhillipCapital. Please go ahead.
Good evening, sir, and Happy Diwali.
Good evening, and Happy Diwali.
Sir, I just want to understand on the market side. There was a news that the couple of smelters has also closed down in the European region. Looking at the current cost kind of a scenario, if you have some idea about what kind percentage of the capacity would be now in a cash losses or what kind of the market balance you are expecting in the next 5-6 months. If you could just give us some thought, your thought process on that.
If you look at 1 or 2 smelters which are supposed to have been closed down or in care and maintenance, anywhere between 300,000-400,000 tons will be out of circuit. Europe also is facing a demand issue. It's just not the production issue. Also there is a demand issue. Whereas the, even the auto production are also in under stress because of the cost of energy. As far as we are concerned, we are currently looking at the reduction in, or the lowering of trend of shipping costs across the globe. We are now looking at, of course, Europe and USA as a better margin paying destinations. Nevertheless, our first priority continues to remain serving domestic customers, where we are already at 79% of the market.
Any augmentation, I would prefer first in domestic than in European market. As far as prices are concerned, there are two sides to it. As I have spoken in my talk track, the stocks are at one of the lowest levels if you look at the LME stock. On the other side, there are two schools of theories. One says it will keep on fluctuating between $2,900-$3,100 for another three, four months. I see a current report of Goldman Sachs, which also claims that in four to five months time, it can touch anywhere between $3,700 to maybe $3,900 per ton. Anyway, price is not something which is in our hand. We can only speculate.
As far as we are concerned, we should be producing above the guidance and that should comfort us.
Understood, sir. Sir, sorry if I have missed on the hedging part, so if I'm repeating the same question. I just wanted to understand, since the LME is pretty lower and we won't like to hedge at those points, are they looking to hedge the dollar or fixing the USD dollar? Because in that way, in case if tomorrow the LME keeps on increasing, we would get a benefit on at least the dollar side if rupee appreciates for that. It looks a very good range. Just wanted your thought process on that.
As we are, our policy has been continued to keep the dollar side open and both sides import because natural hedge is there. As of now, we have not thought through on this aspect, and we continue to remain the same in line with the policy. It's surely we can look at.
Understood, sir. Sir, just one last question. Since our Fumer is almost completed, what is the ramp-up period it would take if we have that kind of understanding?
In Q3, if we commission, we should be anywhere between, say, January, February. January, we should be starting up, and then by February we should be ramped up to the capacity. I am expecting it to add 30 tons of silver in a year, so roughly about 7, 8 tons of silver in a quarter. Anywhere between another 3-6 tons extra in quarter four, if we add up the numbers like that.
Okay, sir. That seems that our silver guidance was also being a lower. Would that we can expect surprises there?
I have already communicated. I have already told that both silver is tied to FG, and I am all like you. I am also equally optimistic we'll be doing better in H2, cross the 1 million ton mark by a good margin, I hope. Accordingly, silver should follow. I'm sure we'll do that. As far as guidance is concerned, it is only the, you know, minimum milestone that we set for ourselves. I don't think that I work for the management guidance. We will surely better the guidance by a big margin.
Understood, sir. Thank you. Thank you for taking my questions. Once again, Happy Diwali to all.
Happy Diwali.
Thank you. Before we take the next question, a reminder to the participants, to ask a question, please press star and one. The next question is from the line of Rahul Jain from Systematix. Please go ahead. Rahul Jain, your line is in talk mode. Kindly go ahead with your question, please.
Yeah. Hi, thanks for taking my question, and wish everybody a very happy Diwali. On the volumes that you've done a pretty good, you know, run rate in this quarter and also the previous one. How should we look two years out? Do we is this the peak that we have achieved or we should keep looking at some 5%-10% kind of incremental output given the de-bottlenecking initiative and things like that, because we really don't have any major CapEx ongoing. How should we see volumes two years out?
No, no, no way can I tell you that this is the peak we have achieved, and it will continue like this. Absolutely no way. Because then I don't need to be here. If I am here, then we need to have 10% more production every quarter, if not every year. We need to go up like that. My vision, and I painted in some time back, that Hindustan Zinc in India must produce 1.2 million ton finished goods. Currently, it is just for the first time we crossed 1 million ton this year, I hope by a good margin. I should say that another one year, another one and a half year, if I commission one other roaster, then maybe I'll come out with a project of some more hydro circuit.
I'm sure 1.2 million ton metal is not a difficult target for Hindustan Zinc, and I should be able to deliver that.
Got it. We should see incrementally, you know, moving in that direction. Obviously, because it may not be consistent every quarter, but over a, say, a year.
No, I can assure you that one of my first target in my job is make it consistent in every quarter. I have delivered in quarter one equivalent to quarter four. Quarter two would have been quarter one, had there been not unknown breakdown in Chanderia. Quarter three, quarter four, you are going to see all four quarters almost equal production, summing up to, say 1.1, then 1.2 million ton. Quarter-wide variation we will remove, and that's the best way to run a business.
Right. Secondly, on the cost front, we have seen, I mean, obviously costs are high. I leave the part on the increment from here on, do you expect cost to be trending higher? Because you also mentioned coal prices are coming down. Are we reaching the peak or how should we look at it?
I think the cost has to be seen more in a dynamic situation. If you see what we are seeing, the inflationary pressure has actually forced us to revise our guidance. I can tell you, the quantum would have been much higher if we would not have taken the best of the efforts to reduce the cost through various internal measures. We are taking the best of the internal measures. Mr. Misra ji has said the quarter three, quarter four, we should be seeing more volume, and that should reduce the cost because large part is also the fixed cost. Secondly, yes, you are right.
Since the cost has increased on account of largely the input commodity inflation, as I said in the earlier, we expect that linkage coal availability should be improved and imported coal cost should also be lower. I expect that from December onwards, so maybe in the Q3 end and going to the Q4, we should have see the good amount of reduction in the cost.
Right. Sir, on the government stakes sale front, any update? Anything you've heard? Anything you want to share? Thanks.
No. Government has appointed the bankers, and we are in discussion with the government to help them in this process. Very soon you would see our team along with government on the roadshow. Things are moving very fast in last about 15, 20 days' time.
Okay. Okay. Sir, would the Vedanta management be keen to participate in that or it is just for the public? I mean, obviously it's a different management, but obviously you can share some.
Right now, being on Hindustan Zinc seat, I would not dare to comment on intention of Vedanta. When I'm on Vedanta seat, I would do that.
Sure. Thank you so much.
Thank you.
Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead.
Thank you, sir. Sir, I know you just mentioned about hitting the 1.2 million target, you know, in terms of coal to mine production. The way we are looking at it, you know, Q1 was definitely very good. Q2 looks to be good. Given your guidance, how should we look at it? Because your guidance of close to 1 million ton only is far below what you are actually doing in terms of your refined material production or mined material production. These number itself point to a slightly higher than just 1 million ton number. How should we look at the guidance there?
As I told you, two things there. 1.2 million ton is not immediate. As I said, another 1.5 year from FY 2023 end, then we would see 1.2 million ton should be achievable somewhere around 2024 end or so. That is one. Second is, yes, guidance is just, you know, something that you set out for, but we will surely outperform the guidance by good margins if we can continue the same rates. But there is no reason for me to unnecessarily be becoming too optimistic or too ecstatic about it. We will do that. Our numbers are there behind us. At a +4 quarters, we are more than 1 million ton. Two quarters or H1 itself is 0.5 million ton, so nothing.
I don't see any headwind as far as volumes are concerned.
Right. I hope I'm not repeating the question. My apologies in advance. I just wanted to understand what is the scenario with respect to the coastal project where we were working for some time? Is it still on the back burner or some progress is happening there?
No, we are not actively working on it as of now. We are concentrating on our own operations. We will bring a roaster here and in our operations and increase our calcine making capacity and, you know, move one step closer to realizing 1.2 million tons. We will also put up the fertilizer plant to bring more value from the assets that we have. We are concentrating on those two kinds of projects just now.
Yes. Thank you very much, sir.
Thank you.
Thank you. As there are no further questions, I now hand the conference over to Ms. Shweta Arora for closing comments. Over to you, ma'am.
Thank you everyone for joining us today on the call. On behalf of Hindustan Zinc, I wish you and your family a very happy and safe Diwali. For any follow-up questions or clarifications, please feel free to reach out to the investor relations team. With this, I close today's call. Thank you.
Thank you. Ladies and gentlemen, on behalf of Hindustan Zinc Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.
Thank you.