Hindustan Zinc projects Rs 50,000 crore pre-capex free cash flow on efficiency gains

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Vedanta group firm Hindustan Zinc expects to generate cumulative free cash flow (FCF) of around Rs 50,000 crore (pre-project capex) over the next five years based on conservative estimates, chief financial officer Sandeep Modi told analysts.

The bullish projection is driven by the mining company’s low-cost structure, rising plant production, and an increasing share of captive and renewable power.

"Even without major expansion, we are increasing production each year by 3–4 percent through small improvements and better operational efficiency. Costs have also come down significantly. With these factors, we are confident of generating around Rs 50,000 crore in free cash flow before project capex over the next five years," Modi told analysts. HZL's FCF pre-capex stood at Rs 13,784 crore in FY25, according to an investor presentation.

The mining and refining company is betting on stable commodity prices and strong demand from India's steel industry, amid targets for steel capacity to reach 300 million tonne by FY30. It expects commodity prices to average around $2,650 per tonne for zinc, $1,950 per tonne for lead, and $34 per troy ounce for silver, based on the latest consensus for FY26.

"We remain positive on HZL given its presence in the lower end of the global cost curve facilitated by high-grade captive mines sufficient to meet requirements for decades, 100 percent captive power plants, sizeable scale, diversified revenue stream with increasing contribution from silver sales," JM Financial analyst Ashutosh Somani wrote in a note last week.

Expansion plans

Meanwhile, the company expects the recently approved 250 KTPA (kilo tonne per annum) project, a part of its phase 1 expansion, to begin generating cash accrual from its fourth year after the project’s commencement (zero date). Last week, HZL’s board approved capex of Rs 12,000 crore to expand the miner's integrated refined metal capacity in Debari by 250,000 tonne per annum along with a corresponding increase in mine and mill capacity, with the project targeted to be completed in 36 months.

While the company's large expansion plans—amid a dividend-oriented approach and depleting reserves—have spooked investors, HZL remains confident of increasing its revenue and EBITDA to approximately Rs 40,000 crore and Rs 21,000 crore, respectively, with the 250 KTPA expansion, Modi told analysts.  In FY25, the company posted full-year revenue of Rs 34,083 crore and EBITDA of Rs 17,465 crore, up 18 percent and 28 percent year on year, respectively.

Motilal Oswal Financial Services said that favourable pricing conditions are likely to further support the company’s margins.