In an interaction with Sandeep Modi CFO, Hindustan Zinc Limited

"We are ideally placed to harness the strong demand and emerging growth opportunities" 

In Q1FY24, the company’s net sales decreased by 23.01 per cent year-on-year (YoY) but the net profit dropped by 36.48 per cent YoY. What were the variables that led to the company’s underperformance?

Across global zinc companies, profits have dropped substantially on account of plummeting zinc prices. Year-on-year the prices have fallen by 19 per cent while the cost has not reduced at the same pace. However, as a leader in the global cost curve and being in the first quartile, we continue to focus on optimising costs and improving operational efficiencies. By virtue of our structured cost reduction programme, we have been able to reduce cost by USD 100, which is approximately 10 per cent reduction, per tonne in the last two quarters and we expect to optimise our cost further, thereby improving the margins.
 

With the recent correction in zinc prices, do you think that the prices will stabilise at these levels or do you see some recovery in prices going ahead? What are the factors that could influence the zinc prices in the near future? 

The global economy continues to face headwinds in the form of high inflation, rising interest rates and a slowdown in the manufacturing and construction sectors of most of the world’s major economies. However, the automotive and galvanised steel sheet segment across economies has shown resilience. Further, based on the economic indicators and outlook projections by International Monetary Fund (IMF), India seems to be a bright spot for the global economy and the economic activity in India continues to remain resilient. For zinc prices, on the back of strong focus on infrastructure, ever-increasing automotive numbers and stringent measures boosting economic activities by Chinese policymakers, we are optimistic on the demand and price outlook. Falling inflation and probable cuts in interest rates may further push the demand and prices.
 

Could you please update us on the progress of the new roaster in Debari and the fertiliser plant? How is the current progress tracking with your target, both in terms of timeline and cost? 

We are progressing well on both these projects and are absolutely in line with our timeline and cost targets. These strategic projects are focussed on expanding our production capacity and integrating value via forward integration. As an update on the current progress: for the fertiliser project, major process package order has been finalised and a key partner has also been locked in. Site mobilisation and clearance work is already in process and we plan to finalise the remaining orders by Q2FY24 with the target project commissioning timelines of Q1FY26. On the roaster project, order-related activities have been completed. Business partner mobilisation has already started and groundbreaking is planned in early Q2FY24.
 

What are the key growth triggers for the company? 

As a future-ready organisation, one of our major focus areas remains having a strong pipeline of expansion projects. We continue to make significant investments in capacity expansion and advanced operational methods, enabling us to grow sustainably and smartly. Further, expansion in our product portfolio by downstream integration, including our alloy plant and fertiliser project, is preparing us to become a product-based company instead of a commodity-based company. As an industry leader and with the help of our market placement, we have been working along with International Zinc Association (IZA) on various initiatives aimed at increasing per capita consumption of zinc in India and are also working on initiatives such as zinc nutrient, zinc in rail metallising, etc. We have also been exploring disruptive mechanisms like premium discovery via e-auction, thereby strengthening the market dynamics. These initiatives alongside our robust investments being the key growth triggers will prepare us to move forward towards our vision of becoming the most admired zinc, lead and silver company. 
 

Can you shed some light on your future earnings’ outlook? 

With an increased optimism of stable performance in the coming quarters backed by strong production numbers and operational efficiencies, our future earnings’ outlook appears robust. We are confident of delivering on our annual guidance and are progressing well towards the same. Our cost optimisation initiatives are also yielding great results, thus enabling us to maintain our cost leadership in the global cost curve. Our investments in digitalisation and innovation are helping boost productivity and safety, thereby enhancing the business outcomes. Accordingly, we believe that Hindustan Zinc is ideally placed to harness the strong demand and emerging growth opportunities led by the Indian growth story and we are positive on delivering enhanced results.