Hindustan Zinc to continue reducing cost of production to shield margins

The Vedanta Group firm posted nearly 6% drop in third quarter profit due to lower prices

Hindustan Zinc is mulling to reduce the cost of production further in the coming quarters to aid its margins, amid falling zinc prices and sales arising from supply-demand imbalances, inflationary pressures and geopolitical issues in the global market.

In an interview with Moneycontrol the company's chief executive officer Arun Misra, cited a 28 percent year-over-year drop in profit after tax (PAT), and said, "It is majorly is due to drop in prices, which will try to cover by using our cost of production.  We have reduced our cost of production from same quarter last year to this quarter, by about $200 per tonne."

Asked about further reduction in the coming quarters, chief financial officer Sandeep Modi said, "Absolutely, if you see our story, the cost is the lowest in last 10 quarters. And in the last four quarters we have sequentially reduced by $200."  The company's annual estimate for zinc COP (cost of production) was unchanged at $1,125-$1,175 per metric tonne.

"We are currently in this quarter with $1,095 (Zinc COP). So we are already below the guidance. So the company has ruthlessly and relentlessly worked upon the cost reduction to mitigate this low LME environment and support the profits," Modi added.

Zinc COP for the quarter was 15 percent down as compared to last year, according to the company's presentation.

So far, the company has benefitted from softened input commodity prices, better linkage coal availability and utilization, improved operational efficiency, key contract transformation strategy, and transforming operations through automation & digitalization, to reduce production costs.

Hindustan Zinc will look to adopt alternate fuel innovation and increase focus towards operational efficiencies to control costs.

Last week, the Vedanta Group firm posted a nearly 6 percent drop in third-quarter profit due to lower prices. Net profit came at Rs 2,028 crore for the quarter ended December compared to Rs 2,156 crore reported a year earlier.

Demerger plans 

The company had indicated last year that the group would use the demerger route to split the group’s businesses into separate entities, to unlock value and also manage its debt burden.

Asked about the timeline of the demerger, Misra said, "By the next board meeting, we will hear some positive news."

He further added, "With the demerger, disinvestment will be easier for government." The comments come as the Indian government plans to sell its remaining stake (29.54 percent) in the Vedanta subsidiary, in smaller tranches over an extended period, to maximise its value.