Hindustan Zinc to submit demerger proposal to board in 4-6 weeks

MUMBAI - Hindustan Zinc Ltd will take forward its proposal for a demerger to the board in around four-six weeks once final recommendations from the consultants are in, chief executive officer Arun Misra said.

Late last month, Hindustan Zinc’s board had directed the company to explore a corporate restructuring to create three different entities for its lead and zinc, silver and recycling business.

“The modalities of forming these companies, including the distribution of cash and debt, will be based on recommendations of our consultants,” Misra told ET in an interaction. He did not share the name of the firm which has been appointed for the task.

Its parent India-listed Vedanta Ltd has already announced a split of its businesses into six verticals as it looks to unlock value for shareholders, and Hindustan Zinc is also hopeful of a boost in valuations.

“Hindustan Zinc is currently getting $16 billion in market cap(italisation) which is not commensurate with the structural strength, the organizational strength, the ESG commitments that the company has displayed, and its product portfolio,” Misra told ET in an interaction.

Apart from its mainstay business of production of zinc and lead, the company is also a significant producer of silver in the country, with a production capacity of 800 tonne each year. The company has guided for producing 725 – 750 tonne of silver in the current financial year.

“Silver brings in about 30-40% of the company’s EBITDA, but the company is never looked at a company producing silver. We also have huge amount of residue, and there are technologies now which can extract metal out of them,” Misra said, explaining the rationale for the demerger.

The company, on Friday, reported a sharp decline in profit for the July-September quarter on the back of muted zinc prices even as the company reduced its expenses aided by lower coal prices and cost optimization.

The Vedanta Group company reported a consolidated profit of Rs 1,729 crore for the quarter, down 36% year-over-year and 12% sequentially. Meanwhile, the consolidated topline declined 19% on-year to Rs 6,619 crore.

The company said that it was able to lower its cost of zinc production by 6.3% year-on-year to Rs 93,981 per tonne during the quarter. This was the third consecutive quarter of cost improvement and the lowest cost in last six quarters, the company said.

There is potential for further cost reduction of Rs 2,000-2,500 per tonne over the remainder of the ongoing financial year, Misra said.