GoI to hold roadshows for Hindustan Zinc divestment by November-December: CEO

The company has reported EBITDA per tonne of Rs 1,800 for the September quarter. Further guidance would depend on LME prices.

Is there room for improvement on margins?

It’s simple; the LME price is at $3,000 per tonne and our cost remains at $1,200/tonne. This is where we get $1,800 EBITDA per tonne. We have given a revised guidance of about say $50 to $100 per tonne increase in costs, but if LME increases by $50 per tonne, the EBITDA margin will remain the same.

Would cost pressures be accentuated in Q3FY23?

So, there are two costs. Like everyone else in the world, we do expect coal prices globally to come down. We see some green shoots in coal exchanges, whether you talk about South African coal or Indonesian coal. But Australian coal remains high, as also the mix of coal that we feed to our plant. The plant can feed upto 30 percent of the Indian coal. But, the company is currently at 14-15%.

Now, traditionally, we have not been able to secure so much coal from Coal India. Of course, in Q2 we have seen a better coal percentage compared to Q1. This quarter, we expect Coal India’s supply to increase considering we are out of the monsoon season. Expect Q4 to be better in terms of availability. That way we will be able to manage some amount of input costs by having more domestic coal. Also, we expect South Africa and Indonesia or another coal cost to be much cheaper too.

What is your cost-per-tonne guidance for the remainder of the financial year?

Right now, the coal cost is between Rs 20,000 per tonne and Rs 22,000 per tonne. The same time last year it was about Rs 9,000 per tonne; I don't expect the delta of Rs 11,000 per tonne to vanish so soon. But it just needs to come down by another Rs 4,000 or 5,000 per tonne at least on the imported coal side. And we will expect about 15% basket of domestic (coal supply) to increase to 25% of the basket size so that overall our cost comes down.

We have revised cost guidance if the coal cost doesn’t come down. But, if it does, we should be able to manage around 1,200-1,210 dollars per tonne kind of a cost. Overall, we are looking at a $100 per tonne increase from $1,125 to $1,175 to $1,225 to $1,275 per tonne.

Give us more details on volumes and the capex outlook for FY23…

So, on the volume side, we have always maintained we will be producing about 1 million tonnes (MT) on the metal side. If we look at the H1 performance, we have already produced 0.5 million tonnes. We expect quarter three, and quarter four to be equal to quarter one or even better than quarter one numbers. So, 1 million tonnes is achievable as we stand today, if you look at the last four quarters, the volumes added up, they are already above 1 million tonnes. So, capacity is not a constraint. We have got enough metal and ore supply. All that we need is to convert this into sales and we are pretty confident we'll be beating the guidance by good numbers.

In which direction do you see LME Prices headed?

So, there are predictions by various people in various directions. There are reports in Goldman Sachs, which talk about $3,700 per tonne in the next four to five months, because all the fundamentals are in place. No new zinc mine has come up, stocks are at lowest, and European and other smelters are still have huge input cost. Some of them are in care and maintenance. That’s 3700. If that becomes a reality well and good, but we can't plan based on that.

In our understanding, the uncertainty of the Russia-Ukraine war will continue, so the input cost for European smelters will be high, and so will the input costs for their car or automobile manufacturing plants. But they will also see a cut in production since demand will not be that big. We believe the $3,000 to $3,100 per tonne kind of number, so we can plan our costs and our operations accordingly to protect our margin, which is as you said about $1,700 or 1,800 per tonne. The rest, whatever comes on top of it, we would consider ourselves lucky and be happy about it.

Your perspective on the dividends that can be expected going into the second half of the financial year…

Dividends, we are sticking to our policy. We have always been offering shareholders more than what we are permitted in our policy. I wouldn’t venture to speculate beyond that.

Does the zinc commodity/market still remain in deficit mode? How is supply stacking up for this commodity as compared to other non-ferrous metals?

As I see it, (there will be) no more new zinc buying. Smelters are under pressure, the inventory is one of the lowest. The supply side is yet to become a cause of worry as of now. Demand and the supply chain cost are the cause of worry. Indian demand is good since we are able to support India — steel plants — with our supplies. Our market share is about 80%. We are also looking at the European market, which offers a better premium. On the supply chain side, blockages due to lack of container availability are now a thing of the past. The cost of shipping should come down. So, those are good opportunities.

Has there been any progress in the government’s intention to divest a stake in HZL? The last update suggested the government would appoint five merchant bankers to sell its residual stake in the company…

The Government of India has already declared its intention to disinvest. The department of disinvestment and investment promotion is actively working on it. They have enlisted the bankers. Now they’re preparing for the roadshow. As a company we are also closely in touch to prepare for the roadshow, as far as investment in the company is concerned.

Having said that, I cannot give you a timeline. But looking at the progress of the last few weeks, I can say the government should be able to start the roadshow soon. I would expect it by the end of this quarter itself. Expect it to happen by November or early December.