Good afternoon, everyone, thank you all for joining us today for Hindustan Zinc Second Quarter and First Half FY 2021 Results Call. Today on the call we have with us our newly appointed CEO, Mr. Arun Misra, and our CFO, Mr. Swayam Saurabh. Mr. Misra will begin with an update on business performance, while Swayam will take you through financial performance. After which, we will open the floor for questions. I now request Mr. Misra to begin today's call. Over to you, Mr. Misra.
Thank you, Shweta. Good afternoon and a very warm welcome to all of you. I trust that you and your families are safe and maintaining all precautions against the spread of COVID-19. As your newly appointed CEO, I'm happy to share that we are continuing our operational excellence in a challenging environment. This showcases our resilience and innovative thinking, as well as our unwavering commitment to become the largest and most admired Zinc-Lead and Silver company globally. While doing so, we remain equally cognizant of our environment, social and governance commitments, as well as sustainability goals. Caring for our communities is a value that all of us at Hindustan Zinc hold very close to our heart. Our CSR team actively engages with the communities surrounding our operations and with other key stakeholders to closely understand their needs and align their initiatives accordingly.
This is also reflected in our ongoing COVID-19 mitigation efforts, for which we are very humbled to have received CSR Health Impact Award by Integrated Health & Wellbeing Council. This was given as a token of appreciation for our exceptional response and on-ground work with extensive focus on life, livelihood, and help mitigate the impact of COVID-19 pandemic. I am also delighted by the fact that safety and sustainability are deeply ingrained in our culture, and all leadership at our operations ensure that business decisions are aligned with the same. This is also reflected in the recognition that we received for our efforts, which continue to encourage and inspire us to stay ahead of the curve. I am happy to share that Hindustan Zinc has won the CII Environmental Best Practice Award 2020 under the Most Innovative Environmental Projects category.
I am also proud to inform you that our 22 MW solar power project at Rampura Agucha, 12 MW at Debari, and 4 MW at Dariba are all registered under Gold Standard, which is the most rigorous certification given globally for carbon offset projects. It is evaluated based on net positive contribution towards economic development, employment opportunities, environmental and social welfare of the local population that hosts the project. Moreover, we have utilized wasteland at all locations for solar panel installation. With this, our complete portfolio of renewable power is registered under Gold Standard. As part of our ongoing drive towards waste to wealth initiatives, Dariba's smelting complex has successfully commissioned a 4,500 tons per annum freeze precipitation technology plant. This will help to recover sodium sulfate from final multi-stage RO projects, which will cater to one-third of Dariba smelter hydro plant input salt requirement.
Coming to quarter performance, I cannot be more proud to share that during the quarter, we touched a few milestones. We saw an ever highest ore production supported by our proactive mine planning, driven by increased use of technology and better targeting. This gives us immense confidence to achieve the goal that we have set for ourselves and be top three primary silver producer globally in the coming years. We focus not only to increase production from our existing resources and enhance recovery via technology-led disciplined operations, but also work towards accessing new mining zones and partnerships. Most importantly, we managed to bring our cost to the lowest level since we transitioned to underground mining operations in March 2018.
All of this further bolsters our confidence in resilience of our people, new age technology in mind, and our long life rich assets. We seamlessly adapted to fast-changing conditions and deployed various initiatives and proactive measures in these challenging times to remain ahead of the curve. Coming to market update. Global mine supply continued to face threats of COVID-related suspension of operations and prolonged delays in new projects. Mines across the world are facing operational challenges to ramp up production while complying with social distancing norms. Moreover, no new major capacity enhancement is going through. According to Wood Mackenzie, compared to the start of the year 2020, mine production forecasts have fallen by over 1.3 million tons, reflecting a 10% drop on mined metal supply. This translates to a 5% global decline in mine production in calendar year 2020 compared to 2019.
A sharp fall in TC for imported concentrate demand in China from $310 in January to $115 in September further points towards an existing deficit in concentrate supply to Chinese smelters. Global demand, on the other hand, is forecasted to contract by 5%-6% in 2020, mostly during the first half. With a V-shaped recovery emerging in China's industrial demand, along with many governments introducing stimulus packages to kickstart industrial activity, we are already witnessing demand bouncing back for base metal. We also anticipate that low interest rates and relative weakness in U.S. dollar would further support physical demand of metals going into quarter three and quarter four. Driven by this fundamental support, zinc prices staged a strong recovery during the quarter and not only returned to pre-COVID levels, but also touched $2,500 per ton mark, last seen in October 2019.
As mentioned earlier, this was primarily driven by Chinese demand, where stocks in Shanghai Futures Exchange bonded warehouses have fallen substantially from 160 kiloton in March to 60 kiloton at the end of quarter two. We expect global warehouses stocks to remain at lower levels, providing fundamental support to prices in coming quarters. In domestic market, as lockdown restrictions eased and India moved to unlock phase, the metal demand has started to recover. In the second quarter, demand revived and reached almost the same level compared to last year's same quarter. Resumption of infrastructure projects, as well as government stimulus, are providing the required support to the recovery. Steel manufacturers, who are our key customers, are now running their plant at near normal utilization rates, with resumption in demand reflecting in their increase of crude steel prices.
Replacement battery segment witnessed an uptick in recent times owing to seasonally related monsoons and also approximately 70 days long complete India lockdown-led inactivity. We expect that linear demand recovery to continue across all segments and remain optimistic for the upcoming festive season. Global investor interest bolstered the prices of silver, which was over 50% up in Q2 compared to Q1 average prices, translating into significantly higher EBITDA contribution from silver. We expect prices to remain strong as physical demand of silver has started to recover globally, as well as locally reflected in lowering arbitrage between LBMA and MCX. Moving on to operational update. During the quarter, our mined metal production was up 9% from a year ago to 238 kilo ton on account of higher ore production.
Subsequently, mined metal production grew by 18%, supported by higher ore production resulting from better mine planning and effective targeting with increased use of technology. However, this was partly offset by declining metal grades and lesser ore treatment. Integrated metal production was 237 kilotons, up 13% from a year ago and 18% sequentially, in line with availability of mined metal, with zinc at 180 kilotons and lead at 57 kilotons. Sellable silver production was 203 metric tons, soaring 51% year on year and 73% sequentially due to increased operation of pyro lead smelter, better grades at SK Mine and higher concentrate inventory. Coming to an update on our projects. I'm happy to share that environmental clearance is recommended by Expert Appraisal Committee for Zawar Mine expansion from four to 4.8 million tons per annum.
Both the battery plants at Zawar are under commissioning and operation is expected to start in November 20. I am happy to share an update on our new sales and marketing initiative. Hindustan Zinc has become the first-ever producer in the non-ferrous space to sell metal online with real-time INR-denominated prices. The platform, called Evolve, went pan-India live on September 18th and was very well received. An update on Fumer commissioning. Due to ongoing COVID-19 disruptions, including visa restrictions for Chinese nationals, final commissioning of Fumer plant at Chanderiya could not be completed in quarter two. Efforts are ongoing for an early resumption. As my closing remarks, I would like to draw your attention to our previously guided FY 2021 volumes for both mined metal and refined metal in the range of 925-950 kiloton each, and silver at around 650 metric ton.
I am happy to inform you that we are on track to achieve the previously guided numbers. With this, I hand over to our CFO, Mr. Swayam Saurabh, to update on the financial performance. Swayam.
Thank you, Arun. Good afternoon, everyone. Before I deep dive into financial performance, I would like to draw your attention towards our targeted efficiency initiatives that we as a management team have initiated since the quarter three of last year, which is transforming Hindustan Zinc and setting stage for consistent volume growth and lowering costs. Our unwavering focus towards strict capital allocation discipline and continuous improvement in cost driven by new age mining technology, rigorous benchmarking, continuous adoption of best practices across the globe is helping us to stay ahead and maintain our first quartile cost curve. Many of these cost optimization initiatives deployed across our operational units are already visible in our financial performance and yielding results. Now, coming to financial performance for the quarter.
Revenue from operation during the quarter witnessed an increase of 25% year-over-year and was at INR 5,660 crores due to higher Zinc volumes, which are up 8% year-over-year, and increase in 30% in Lead volumes year-over-year. This was further supported by higher Silver prices, as well as a significant jump in volume, as well as overall higher price realization as rupee appreciated over the year. Some of these gains were offset by a fall in Zinc Lead LME year-over-year. Compared to the previous quarter, revenue soared 42%, primarily driven by higher Zinc Lead LME prices. Sequentially, Zinc LME rose 19% and Lead LME increased 12%. This was further supported by higher metal premium resulting from revival in domestic demand. After quarter one. Some of the gains were offset as price realizations were impacted by rupee appreciation from quarter one to quarter two.
Zinc cost of production before royalty for the quarter was $919 per ton, down 10% sequentially and 12% from a year-ago. The reduction in cost of production is our continued effort towards structural cost optimization measures, as outlined by Arun earlier. We are actually proud to share that we have now reached the lowest level of cost for a quarter in dollar term since we transitioned to a fully underground mine two and a half, three years ago. This is a result of extraordinary effort on all fronts, including consumption, contracting, procurement, and fixed-cost optimization, resulting in sustained improvement at cost base. This was also made possible by a number of firsts, including a different look at fixed cost, digitally-backed operational efficiency tracking, redesigning some of our contracts and renegotiation, as well as efficiencies related to consumption norms and favorable commodity sourcing.
The resulting EBITDA for the quarter was INR 2,952 crore, higher 39% from a year ago and 85% sequentially on account of higher revenue and lower operating costs. Net profit for the quarter was INR 1,940 crore, a drop of 7% from a year ago, but a stellar increase of 43% sequentially. This was primarily due to higher depreciation and amortization, as well as finance cost and higher tax due to change in our income mix. Our treasury income typically is taxed around 11%-12%, while our business income is taxed about 27%-28%. When the interest rate started to come down, our business income increased in proportion and this change in mix led to volatility in the tax rate between quarter one and quarter two. However, for the full year, this can be guided at an average of 24%-25% of effective tax rate.
I'm also happy to inform that Board has approved an interim dividend of INR 21.3 per equity share, which is approximately 930% face value of INR 2 per share and amounts to a total dividend payout of INR 9,000 crore. The record date for the same is October 28th 2020. Now, coming to our previously guided costs and CapEx for this fiscal year. Our cost base is successfully resetting to a lower level, and we are confident to keep zinc cost of production comfortably below $1,000 for this fiscal year, which is inclusive of significantly higher mine development expenditure to support future volume growth. As for CapEx, we keep our guidance intact with a focused approach of investing in high IRR projects and exercise continuous prudence in an uncertain business environment to strike a delicate balance between investing in growth and conservation of cash.
With this, I open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for taking my question. Congratulations for a good set of numbers. I have a couple of questions. The first one is on your Silver production guidance. At around 650 tons, I believe it looks a little bit conservative considering what you have done in this quarter and the last. Last year, of course, being an exception. If the current run rate holds good, I think your Silver production should be higher than what you are guiding. Any comments on the same?
Silver production will still stick to the guidance because this quarter, if you observe, the Silver grade in the mined metal from SK Mine has been better than last quarter. However, looking at mine on an overall plan basis, we would stick to a balanced number which would reflect in the guided production.
Correct. Just to add to that, there is also a recognition that the COVID has not gone away. While these numbers are indeed cautious and your assessment is correct, we have done C48 at H1 basis. If production stays as to plan, we should be able to beat our guidance. For now, this guidance holds.
Okay. The second question is on cost of production. As we observe, it is significantly down almost $100 per ton QoQ. You have also highlighted during the opening remarks about some of it remaining sustainable and the fact that we have achieved a particular cost level. Just for me to understand how come you are guiding our cost of production also below $1,000 if we're doing $919. I believe it should remain at the similar level and we should end up much below the guidance. Two parts to my question. One is, of course, what are the apples that you consider sustainable? Of course, coal cost can vary, but there would be some sustainable factors. How much would be that? The second is
So-
Like my previous question, this cost of production also obviously will
All right. You are right. At H1 level, our cost of production is $965. We have shown significant improvement in quarter two, almost a very large part of this is going to be sustained because they are structural, they are driven by actions which have been initiated for some time, changing our basic cost fabric. The reason we are guiding higher cost, slightly higher cost in going into H2, is the point I made, I think, three quarters back, is we need to invest ahead of curve in developing faster. What that would end up help us do is probably give us a larger immediate minable reserve. When I mine them, then only the benefits would come. We are trying to build a little bit flexibility in our system.
Just to use a reference, a typical global company would have almost two months worth of production sitting in minable reserve. We are not there yet, and we want to get there because this also allows us to be more predictable, more consistent with our volumes.
Okay, great. Thanks and all the best.
Thank you. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Thank you very much. Two questions from my side. The first is on the dividend and balance sheet. We still see there is INR 4,500 crores-INR 4,700 crores of borrowings on the balance sheet. Going forward, how does the company look at debt? Can you guide us to what is the thought process on how much would the company like to lever up the balance sheet on a gross basis? What metrics would it use? Would it be a debt to EBITDA or debt to equity? The second is on the expansion projects. There is not much of a commentary. The volume guidance implies a mined and refined metal production of 510 kt in the second half of the year.
At this point of time, given all the COVID related shutdowns that have taken place, the roadmap to 1.2 million tons, where do we stand? Where can we see a run rate production come through?
Yeah. Let me take the first question, and Arun could answer the second one. We are open to leverage balance sheet. More to do with the fact that the investments might have different time horizon and tax efficiency. It's a choice between, if a dividend has to be paid, like the one which was announced today, breaking those investment and you lose the coupon, versus a scenario where you could borrow cheaper. Leveraging also a cheaper interest rate environment. We are very conscious of net debt to EBITDA as well as debt equity ratio. While I cannot be more specific here at this moment, we would like to assure you that this will remain very healthy, like our balance sheet has always been kept it.
Yes. On the question of 1.2 million ton metal production rates, we are confident that in quarter four, we'll be hitting that number. If you look at our guidance, we should be producing about 950 kilotons of metal. If we continue at the current rate in the quarter three, quarter four, we should be there or even better than that. Quarter four expected to exit at 1.2 million tons.
Understood. Thank you very much, sir.
Thank you. The next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Thank you very much, sir. One question on the investment side. You recently signed a MOU with the Gujarat government regarding a 300 kt smelter, greenfield one. Can you just give some more color on the requirement of a greenfield smelter? My understanding was we do have enough leeway at the existing locations to increase smelter capacity. Why Gujarat, and what kind of incentives will be available there, in terms of taxes and other incentives? What is the IRR target which we hope to get there?
Yeah. The MOU is still at initial feasibility stage. I will give you a very high-level insight on why this still makes sense. A coastal smelter have, let's say, a more efficient access to external concentrate because we see an opportunity here. Also, when our volumes grow to the level it needs to grow, as you know, as part of my current mix of percentage, today approximately 20%, 22% gets exported. It makes sense, and it fits in our longer term plan. Why Gujarat? One is indeed today part of my product gets exported, so it does not add pressure to my supply chain. Also as an investment destination, Gujarat is very attractive for us.
Access to port.
Access to port. The last point around IRR, again, I am not going to be specific, but we have very high hurdle rates defined for ourselves for any investment to make sense. We are very confident that once the initial feasibility gets completed, this project would provide that kind of IRR.
Any broad numbers, sir? Is it 20% +, 25% +? Any kind of just broad brush number on what kind of IRR we can look at?
After we complete the detailed feasibility and we arrive at the entire budget cost, I think that time quoting a figure would be fair and correct.
Okay, understood. Sir, the second question is regarding our phase II of growth, volume growth from 1.2 to 1.5. What is now the timeline for that? Has that also got impacted because of COVID? Will this also entail more smelter investments within the maybe existing locations or elsewhere?
If you have 1.2 million ton to 1.5 million ton, obvious that there will be additional smelting requirement. It is also associated with about 1,400 tons of silver, so that obvious more of silver refining capacity. These two we have under study currently, how do we debottleneck and where do we take our smelting capacity to? Beyond that only if any additional facility to be provided. That is under study. Second part is from the mine side, how do we make this not for one year production, it has to be sustainable. The life of mine studies are in place. Out of all the mines, two mines we have got completed life of mine study. Balance mines are in place and by December we would be completing the life of mine study, the feasibility report for this expansion.
We can come back with a fairer number on what it would actually entail and the timeline that it would take us to complete this project.
Understood, sir. Thank you very much, sir. All the best.
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, good afternoon. Thank you for the opportunity. Couple of questions. One, on the employee cost, it has dropped sharply both YoY and QoQ. What drove this reduction and how should we look at it going forward?
You are right. Employee cost has dropped to INR 166 crore in Q2, which translates into about INR 650 crore-INR 660 crore of annualized run rate. If you look at the way cost reductions have been achieved, optimizing employee cost has been part of the structure. The simple explanation on why Q1 cost was higher is quite simply Q1 as well as YoY. Q1, we had to pay some VRS which is not there in Q1 as part of our, let's say, employee cost optimization, part of de-layering the organization. The right answer here is actually a guidance. We expect the cost around employee to remain under INR 700 crore annually. Just to remind you, two years back, employee cost was INR 904 crore.
Yeah, that's very clear. Second question, on the COP side, right? I see that you have restated your first quarter COP. Is it all because the mine development expenses has been added now in the first quarter numbers as well? It was $954 when you reported first quarter numbers. Now it is $1,019. Is that all the adjustment or there's any other adjustment there?
No, there is no adjustment. The difference between INR 954 and INR 1,019, it was made very clear that it represents INR 105 crore donation, which was made in Q1 to support COVID, which was in PM CARES Fund. The data between these two is precisely that.
Sure. That helps. Last question, again on the balance sheet side. If I add investment, a INR 12,000 crore of cash and investment, about INR 4,300 crore of debt. Even if we assume INR 9,000 crore of this dividend payment, you'll still be left with a healthy cash balance and there's enough cash generation at Hindustan Zinc level. What is the thought process on capital allocation? Is it continuously higher extraordinary dividends or we can, like the Gujarat smelter, we can see some more organic, inorganic, aggressive expansion?
It's a combination of both. To be very honest, this is a matter which is a prerogative of both. We do want to allocate capital to places where we can create additional spaces and better return for stakeholders. If there is excess cash, at certain moment it gets distributed back to shareholders. This is all I can provide at this moment.
I think, sir, if I can add. The visibility for expansion needs are for till 1.5 million tons metal and as I said for silver to go up to 1,400 tons. This will also be associated with a lot of waste to wealth projects which will be on the minor mineral side. If you look at capital allocation, those will be the preferential areas of allocation going forward.
Correct. Sure. Thanks a lot.
Thank you.
That's all from my end. Yeah.
The next question is from the line of Pallav Agarwal from Antique Broking. Please go ahead.
Yeah. Good evening, sir. I had a question on, you've not mentioned anything on the fertilizer project. Given that we are now looking at a greenfield smelter in Gujarat, so are the plans for the fertilizer project still on or we've shelved that for the time being?
Firstly, the project is on and we are aggressively pursuing the project. We are also now looking at in that Atmanirbhar Bharat campaign to how to use more domestic rock phosphate and appropriate the design accordingly. That is number one. Secondly, the location is finalized. It's just some of the clearances are being walked through and very soon we'll be, once we go to the board and take approval, we'll be declaring it.
Sure. Okay. Sir, looking at this physical premiums, for Zinc it still seems to be lower than last year's levels. Is it because our export proportion still remains high or we will see a i n improvement in these premiums next quarter onwards?
There are three reasons. One is indeed the ratio of domestic and export. To use a data point here, quarter two, the domestic sales as a percentage of total sales have started to normalize. It is not yet at last year level, but it has changed sharply in a positive way. Second is LME itself. The total premium includes an import duty equalization component. While Zinc LME has improved very significantly, it is still a little bit lower than where the LME was last year. That has another small impact. The third one is exchange premium. We clearly see a trend of premiums improving. There are three global Asian exchanges we track, and that becomes a reference for us. They still have not reached at the levels they were last year.
Is this because of the lower demand on the ground? Is that causing a slight subdued physical Zinc?
I think the perception of demand is a factor because we see that premiums are catching up to the price. That's a trend we see in last five, six months. As Zinc prices are strengthening and holding action quite well, we also see that the premium, realization premiums have improved quite significantly. Actually, almost as high as a 30% improvement in quarter-over-quarter. We expect that trend to continue but of course, COVID is still a factor for everyone out there. We very clearly see signs of recovery. The fact that Zinc has almost touched last year level itself says a lot, and this is holding on.
Sure. Just finally on sulfuric acid and by-products, have you started seeing some improvement over there as well?
Steep improvement. As we mentioned in the last quarter, our sulfuric acid realization dropped last quarter to INR 1,350 per ton. They have now improved to over INR 2,100, INR 2,200. That's the trajectory which we forecasted last quarter, and I think we are very much there. It should further improve.
Sure. Okay. If I can just squeeze one last question. Just on commercial paper, I think it's short term, right? I guess we would be retaining that. Could you give us a sense of how the rates are? Is there an arbitrage between what we get on our deposits and what we are paying on our short term commercial paper?
Yeah. I think that's a good question. I think it links back to a question which was previously asked around our leveraging balance sheet. Today, short term borrowing is indeed very attractive when I compare to some of the investments which are locked for tax efficiency. A short term borrowing versus an option of breaking something which is locked for, let's say, up to three years horizon. A short term borrowing compared with a short term return, if I have to keep that liquid, is definitely not attractive. Simple answer is very attractive short term CP rates. Leveraging our balance sheet to get those kind of rates, which also could be the reason that we may be actually open to fund some of our short term funds requirements using these borrowings instead of breaking an investment with an attractive coupon.
Okay. All right, sir. Thank you so much for all this.
Thank you. Before we take the next question, we would like to inform participants that in order that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have follow-up questions, we request you to rejoin the queue. We take the next question from the line of Ritesh Shah from Investec Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, my first question was on the Vizag smelter. Just wanted to understand, will it only process concentrate from Rajasthan mines or is there scope that it could also do blending from Zinc International?
This is the new area to explore on the concentrate flow that happens around the coast of India to various destinations. As Swayam explained, strategically, it also fits with when we expand to 1.5 million tonnes. If there is an additional smelting capacity needed and if we decide to do so, this could still serve as an export-oriented smelter located on the coast. As of now, the business case standalone basis justifies apparently at the preliminary stage on the concentrate flow that happens around the coast of India for the various destinations in the Southeast Asia and beyond.
Okay. That's helpful. Sir, my second question is there any update that you can provide on HZL divestment? I think government did indicate that the arbitration process would start. Has there been any update post that consultation with the government? If you can update something over there, it would be of use.
We would not comment on that question because this does not relate to us.
Okay. Probably I can ask one more question. Sir, how do you see on the timelines on unwinding of pledges at Hindustan Zinc level? How do you see this? Like what is the comfort level that we have over here? How should one look at it, sir?
You are referring to pledges by Vedanta?
Yes, sir.
This is again not right for a quarter question.
Okay. Fair enough. Thank you so much.
Thank you. The next question is from the line of Rahul Jain from Systematix. Please go ahead.
Yeah, hi sir. Thanks for taking my question. Sir, how should we look at our volumes going for FY 2022 and FY 2023? Because I think we have the expansion from 1.2 to 1.5 would likely take two years. Should we assume a flattish volume curve from here on?
It is still quite far in the distance. We have a tentative target of taking up a 1.5 million tons project and completing it if the life of mine study justifies that the investment can be sustained at a good economic IRR over a period of 10 years. That should fall somewhere around FY 2023 or FY 2024. The exact timelines and what numbers will come, I would refrain myself from guessing just now.
What kind of broad number are we looking at for this kind of.
If I have to explain the way the mining is done, that 1.5 million tons is not a steel plant that will be keyed on and it will start producing the next day. The mine development has to start. Many of the preliminary activities are already on. The mine has to be developed, incline has to be done, your footwall drives have to be done. Somewhere the shaft work has to be done. All those are some being studied, some in progress. You will see a gradual step-up in the number from now till FY 2024. If the other parts of the project, which is in the smelting, which could be in the mine ventilation, which could be in the infrastructure of power, if those are also in place, you would see the final numbers kicking in towards that timeline.
Is it 5%-10% kind of an increment or bigger than that?
It will go in steps, and I won't put a quantity to it, but it will continuously grow up between year-on-year basis.
Sir, given that we have a limited mine life now, so what is the rationale of reinvesting so much in smelting projects? Anyway, the TCRCs are really low to justify any kind of real need to get into that business.
No. As I said, we are doing pre-feasibility. If you look at last five years TCRCs, possibly there is still a business case there. Question is, in an integrated view for HZL five, seven, eight years from now, what kind of returns would it generate? Once the feasibility is complete, we will be able to determine clarity.
Right, sir. Thank you so much.
Thank you. The next question is from the line of Vishal Chandak from Emkay Global Financial Services. Please go ahead.
Thank you very much for taking my question, sir. My question was just a follow-up on the Gujarat smelter. Somewhere in the back of mind, are we also looking at transporting the Gamsberg ore at some point in time as we see the TCRCs might be low for a while, maybe three years, four years down the line, as a way of integrating these two facilities, given the fact that there are power outages over in South Africa and in Gujarat being one of the best destinations as for investment, as you mentioned. Do we look at integration of the Gamsberg ore with the smelter to be set up in Gujarat?
This smelter, as I said, standalone basis, it is built on the concentrate that moves around that coast of India. This does not exclude Gamsberg or any particular facility, so to say. As long as the business case justifies, all concentrates will be used as long as the technology justifies the separation of minerals based on those. Because every concentrate has its own peculiarity. Some has more manganese, some has less manganese, some more cadmium. With that said, a call will be taken once we do the detailed feasibility report.
Sir, second question was again with the capital allocation that you mentioned. When you look at funding the short-term debt through the long-term investments, which is understandable, you have certain investments locked in for three years, et cetera. But the rationale for NCD at this stage, do we really have an immediate deployment of that tune or basically it's trying to fund the dividends at this point in time? Because even if we assume on a net basis, even after we take out the INR 9,000 crores of dividend, the net cash on the books is still at about INR 8,800 crores. Assuming everything, all the debt is immediately paid out.
Right. The net cash which you have calculated not necessarily would be cash, because they would be part of a pool under cash and investments. The current NCD fits in because the timing of NCD is not necessarily the dividend or liquidity needed for dividend, but also some of the other commitments, few questions were asked around them. We may have to commit to in next 6 to 12 months. This basically is part of the planning which has been done on what kind of cash we might be needing for next 12 months, and hence NCD is timed the way it is timed.
Sure. Thank you very much, sir.
Thank you. The next question is from the line of Vineet Maloo from Birla Sun Life. Please go ahead.
Hi, good afternoon. Thank you for this. I just want to know, it's good to know about this, that you want to actually pay out more dividends, and you're not actually worried about levering up a little bit to take care of the sort of investment and timeline mismatch. You did speak about there will be guardrails in terms of how much leverage you'll run on debt equity or debt EBITDA side. Could you share some of those metrics that you're looking at, which are the outside limits that you would want to maintain at all points in time, regardless of the cycle?
I'm not able to quote a ratio as we are planning to basically have a sign-off with board in coming future. What I can assure you, that it will remain very healthy, irrespective of what industry you compare that with. This is all I can give you right now.
Okay. I would have assumed that you would have something in mind already, because I'm sure this is probably the first time that you're actually be borrowing this kind of amount. A lot of thought would have gone into this process already. Anyway, we can wait for that development.
Sure.
The other question I had was on the smelter in Gujarat. You mentioned that it could also process independent raw material. I'm just wondering, is it that you foresee somewhere in the future that dynamics for smelters are likely to be better than just pure mining? Rather, not integrated smelter and mining, that you would look at processing some of the independent raw material as well?
It's a good question. Custom smelter are standalone business. It's a very healthy business model. While the current decline in TCRC, if you just look at last few years, there is decent IRRs when done well. Technologies are also changing, leading to very high level of recoveries which adds to that. If I add another context here, if you just look around and the data on what kind of concentrate, which gets flown into Asia for processing, and Asian metal demand five years from now, you would understand the rationale behind why we are exploring to build a custom smelter. That's one side of it. Other side could also be within Vedanta, if there are better integration. Third is indeed our own growth model. We are looking to get to 1.35 then to 1.5. Sooner or later, smelter is coming.
We are just looking it in a more broader perspective, that are there other adjacent opportunities? While we continue to focus on mining growth, are there other adjacent opportunities which can also create value for shareholders? This includes the smelter as well as fertilizers, which was discussed earlier.
I appreciate the point that eventually, as mining volumes grow, you would need smelting capacity. I was sort of thinking that a brownfield expansion and integrated operations would be better to cater to that part of the whole picture, right, when mining volumes grow? Since you specifically mentioned the ability to process independent raw materials, I was just curious whether you believe that smelter economics itself is going to be attractive versus mining.
No. This question you are asking, I think three to five months ahead of its time. We are doing feasibility, pre-feasibility right now, and all these variables are getting assessed. When time is right, we would also announce that.
Okay. Yeah. Fair enough. Yeah. I'm done with my questions. Thank you.
Thank you. We'll be able to take one last question. The last question is from the line of Abhi Agarwal from Deutsche Bank. Please go ahead.
Yeah. First of all, congratulations for your results, sir. Could you just give me a quick rundown of what type of investments, the current investments? Basically, I just wanted to get a sense of what kind of instruments these are and how, if required, these can be sort of liquidated.
Your question was specific to current investments or total investment?
The current investments. Actually both, if specific.
Yeah. Current investments would be FDs, would be liquid money market, which are very short-term. Other than that, our total investment composition would have FMPs, zero coupon bond. Total investment portfolio is rated very high. We maintain that mix of long-term versus short-term.
Got it. Thanks.
Thank you very much. We will take that as the last question. I would now like to hand the conference back to Ms. Shweta Arora for closing comments.
Thank you. Before we close today's call, I'm happy to share that we are progressing well on our journey of comprehensive and holistic disclosures. Towards this end, I want to update you all that we have published our first ever integrated annual report for the financial year 2019-2020, and we look forward to your valuable feedback on the same. Also, our tax transparency report as well as our sustainability report are now available on our website. With this, I close today's call. For any follow-up questions or clarifications, please feel free to reach out to investor relations team. Thank you.