Description
It describes the Industry Trends of zinc industry, PEST Analysis of Industry, Competitor Analysis of Hindustan zinc, SWOT analysis, Company Description, General Information about the company, it's Finance performance, SWOT analysis of Hindustan zinc and Various Strategies employed of Hindustan zinc.
Hindustan Zinc ltd.
Industry Analysis: Industry trends: Zinc is the fourth most used metal in the world, after iron, aluminum and copper. The chart below shows the change in the supply and demand for zinc since 2000. Demand is estimated to increase by two to three percent per year, particularly in industries such as construction, automotive and transport because of zinc’s long useful life. Indian and Global perspectives India’s zinc consumption is likely to grow at 9% CAGR between 2011 and 2013 Globally, zinc demand has grown at a CAGR of 3.6% from 6.7 mn mt in CY90 to ~10.6 mn mt in CY05.Demand from China has grown at a faster pace of ~18% from 0.6 mn mt to 2.8 mn mt during this period. Amongst user industries globally, galvanizing accounts for a dominant share (47-50%), followed by alloys & brass (17-18% each) and chemicals (6-7%). Indian zinc demand (pegged at 0.4 mn mt) is growing at a faster rate of 9-10% p.a, on back of strong demand from galvanizing, die casting, dry cell batteries and chemical segments. Global zinc metal production lagged behind demand, and was ~10.2 mn mt in CY05, with Europe producing ~2.6 mn mt, USA ~2 mn mt and Asia ~5 mn mt. Globally zinc market is in deficit since CY04, and this has resulted in dwindling stocks. China has also turned net importer of refined zinc since CY04, with imports surging to 0.27 mn mt in CY05 from 0.015 mn mt in CY04. Increasing capacity of galvanized steel (from ~2 mn mt in CY02 to current ~8-9 mn mt)in China has led to surge in zinc consumption there .The demand outlook for CY06 is pegged at ~6% for refined zinc, which should outpace expected mining growth of 5%. As a result, zinc shortfall is estimated at ~ 0.46 mn mt in CY06. The expect the zinc sales volume to grow by 8% YoY in FY10E and by 9.9% and 14% in FY11E and FY12E, respectively, on the back of increased capacity post expansion. We expect LME zinc prices to average US$1582.9/tonne in FY10E and increase by 7% to US$1693.7/tonne in FY11E. the lead price assumption stands at US$1614.7/tonne and US$1727.8/tonne for FY10E and FY11E respectively. The global zinc market is running in surplus as of now despite worldwide production cuts and mine closures due to a significant drop in demand in late 2008 and H1CY09. The zinc surplus has increased to 2.73 lakh tonne in H1CY09 due to consumption drop of 11.5% YoY against production drop of 7.1%. Lead production and consumption has remained flat YoY in H1CY09 with a surplus of 0.37 lakh tonne. According to the International Lead Zinc Study Group (ILZSG) estimates, world zinc consumption is expected to drop ~5% YoY to 10.9 MT in 2009. A surplus of 2.6 lakh tonne would exist in the market. Lead demand is expected to remain flat YoY at ~8.6 lakh tonne with only a slight surplus existing in the market. Initial estimates from ILZSG point towards zinc surplus going into the neutral to deficit territory in CY10E. Zinc is mainly used in steel galvanisation. This, in turn, is used in automobile, construction and consumer goods industries. Lead is primarily used in making batteries. This, in turn, is used in the automobile industry. While zinc demand in H1CY09 has seen a sharp fall (~11.5% YoY) due to a drop in steel production of~20% YoY, lead demand has remained stable despite erratic automobile sales globally. With both steel production and automobile sales having recovered from their lows, the worst seems to be over. Demand for
both zinc and lead is expected to improve, going forward, leading to lowering of surplus levels and providing stability to prices.
The end use of zinc by industry in 2008 indicates major consumption of the white metal in construction, automobiles and infrastructure. Construction and infrastructure industries all over the world, and especially in India and China, have received the necessary boost through announcement of huge stimulus packages. Also, automobile sales have bounced back from their lows. This augurs well for an increase in zinc demand, going forward, and points towards a possible turning of the global zinc market from surplus to deficit in CY10E. With a sharp drop in demand from user industries post the advent of the financial crisis in H2CY08, there have been massive production cuts at zinc and lead mines all over the world due to i) sharp correction in LME zinc and lead prices resulting in operations being unviable, ii) lower refined metal production due to poor demand and iii) need for reduced supply to support prices. This has resulted in a supply side correction. LME zinc and lead prices have bounced back from their lows with demand starting to come back from user industries. Total announced production cuts in early 2009 totalled ~1 MT for zinc mines and 0.9 MT for zinc smelters. With prices recovering, some of the earlier announced production cuts have come back on stream during the last few months. However, believe that production cuts that totaled ~9% of world zinc production in early 2009 would also help remove the surplus from the market. One of the fastest growing economies in the world with GDP growth of ~8%, industry has got an advantage in terms of better demand growth. This is evident from the fact that while the global zinc consumption grew at a CAGR of ~1% over 2007-10, consumption in India rose by ~6% during the same period. As per industry reports, India’s zinc consumption is likely to grow at 9% CAGR between 2011 and 2013. However, globally, zinc consumption is likely to see a moderate growth rate of 6%. On the supply side, production of refined zinc in India after growing rapidly at a CAGR of 18% during 2007-10, is expected to grow at a slower pace of 1.3% between 2011 and 2013E. This is likely to help the premiums remain strong and stable. Also, the per capita zinc consumption in India is still low at about 0.5 kg per person per annum as against the global average of 2 kg per person per annum, indicating opportunity for further growth in zinc demand in India. Besides meeting India’s zinc requirement also exports the balance amount at LME rates. 2. PEST Analysis: Political: ? Land acquisition is one of the recent factor faces in India. The problem lead to the delay in expansion plan and further lose of time and capital ? Taxes & royalties ? Infrastructure development for better transportation and low cost production Economic ? Exchange rate ? Economical condition of market ? Condition of automobile sector
Social ? The social factor is the mines are all in the backward regions .so there is threat of their existence. ? Also the to connect the mines with the infrastructure takes lots of cutting of trees in forest place so this is also one of the problem this industry creating ? The used water and the power require for mining is also one concern that affects the social environment near the mining field Technical ? As the new technologies are coming the reduction in cost of production and quality improvement leads to better profitability and good use of resources. 3. Competitor Analysis:
Competition
Name Last Price Market Cap.
(Rs. cr.)
Sales Turnover 11,405.31 18,092.06 1,471.91 627.03 932.14 356.12 281.48 60.47
Net Profit
Total Assets
Hind Zinc Sterlite Ind Hind Copper Tinplate Precision Wires Bilpower Nissan Copper Cubex Tubings
119.80 105.10 251.40 55.25 79.65 40.50 4.25 7.75
50,619.32 35,326.29 23,259.98 578.29 92.10 42.53 26.71 9.23
5,526.04 1,657.48 323.44 16.55 14.15 -18.59 -1.92 0.41
26,881.65 30,067.61 1,238.96 749.16 254.83 187.96 355.78 49.29
http://www.moneycontrol.com/competition/hindustanzinc/comparison/HZ
4. SWOT Analysis: Strengths •The government offers a wide range of concessions to investors in India, engaged in mining activity. The main concessions include, inter alia and taxes •Zinc Mining in specified backward districts is eligible for a complete tax holiday for a period of 5 years from commencement of production and a 30 percent tax holiday for 5 years thereafter. •Environment protection equipment, pollution control equipment, energy saving equipment and certain other equipment eligible for 100 percent depreciation. •One tenth of the expenditure on prospecting or extracting or production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income.
•Export profits from specified minerals and ores are eligible for certain concessions under the Income tax Act. •Minerals in their finished form exempt from excise duty. •Low customs duty on capital equipment used for minerals; on nickel, tin, pig iron, unwrought aluminium. •Capital goods imported for mining under EPCG scheme qualify for concessional customs duty subject to certain export obligation. •Labours easily available • Low labour and conversion costs • Large quantity of high quality reserves •Exports iron-ore to China and Japan on a large scale •Strategic location : Proximity to the developed European markets and fast-developing Asian markets for export of Steel, Aluminium Weakness •Historically, opencast mining has been favored over underground mining. This has led to land degradation, environmental pollution and reduced quality as it tends to get mixed with other matter •Poor infrastructure facilities •Mining technology is outdated •Low innovation capabilities •Labor force is highly un-skilled and inexperienced •High rate of accidents •Lack of R&D programs and training and development •There is a lack of respect for the mining industry and it suffers from the incorrect perception that ore deposits are depleted. •There is limited access to capital, and mines are increasingly more costly to find, acquire, develop and produce. •There are long lead times on production decisions. •The Indian mining industry suffers from an out-dated, unattractive approach to mining education that is partly to blame for insufficient human resources. •Mining operations are not environment friendly. Least importance is given to environment concerns. •High rate of illegal mining
Opportunities
•Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver, platinum group of metals and other rare metals, chromite and manganese ore, and fertilizer minerals. •The main opportunities in the mining sector (excluding coal and industrial minerals) are in the development and production of surplus commodities such as iron ore and bauxite, mica, potash, few low-grade ores, mining of small gold deposits, development of placer gold resources located on the frontal belt of the Himalayas, mining known deposits of economic and marginal categories such as base metals in Bihar and Rajasthan and exploitation of laterite for nickels in Orissa, molybdenum in Tamil Nadu and tin in Haryana. •Considerable potential exists for setting up manufacturing units for value added products. •There exists considerable opportunities for future discoveries of sub-surface deposits with the application of modern techniques. Threats •A heavy tax burden discourages further investment. •Politicians undervalue the industry's contributions to the economy. •Stricter environment rules restricting mining activities Company analysis : 1. Company description Hindustan Zinc is a Vedanta Group company in Zinc, Lead and Silver business. They are India's only and the world's largest integrated producer of Zinc-Lead. They are also one of the leading Silver producers in the world. They are one of the lowest cost producers in the world and are well placed to serve the growing demand of Asian countries. Hindustan Zinc is a subsidiary of the NYSE listed - Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining major Vedanta Resources plc. The core business comprises of mining and smelting of zinc and lead along with captive power generation. They have four mines and four smelting operations: mines are situated at Rampura Agucha (largest zinc producing mine in the world), Sindesar Khurd, Rajpura Dariba and Zawar in the State of Rajasthan; while the smelters are located at Chanderiya, Debari and Dariba in the State of Rajasthan and Vizag in the State of Andhra Pradesh. The products produced by the company include refined zinc metal, refined lead metal, silver, cadmium and sulphuric acid Their current metal production capacity is 1,064,000 tonnes per annum (879,000 tonnes of zinc and 185,000 tonnes of lead). With reserves and resources of 313.2 million tonnes, their exploration programme is integral to their growth and future expansions. They also own 474 MW of coal based thermal captive power plants in Rajasthan to support their metallurgical operations. They also have 123.2 MW of wind energy in Gujarat and Karnataka, which is sold to the respective State grids. Taking their green energy initiative a step further, they had announced, in January 2011, an addition of 150 MW in our existing wind power capacity. Of this, around 135 MW has already been commissioned. The balance capacity is expected to be commissioned in Q4 FY 2012. Post the expansion, their wind power generation capacity will increase to 273 MW. http://www.hzlindia.com/
Industry trends: Hindustan Zinc Ltd. was created from the erstwhile Metal Corporation of India (MCI) on 10th January 1966 as a Public Sector Undertaking in the mining industry. Industrial policy Resolution 1956 kept the extraction of ferrous and non-ferrous mineral resources in the core sector keeping the right of extracting the same exclusive to the government. Nationalization of Metal Corporation of India is to been seen in the context. The authorized and paid up capital of the company at the time of nationalization was Rs. 422.53 crores equally divided into 422531900 equity shares of Rs. 10 each. At the time of nationalization the company was having one mining unit i.e.Zawar Mines, in the State of Rajasthan, one smelting unit i.e. Tundoo Lead Smelter in the State of Bihar and another smelting unit is under construction i.e. Debari Zinc Smelter in the State of Rajasthan – in its hand. The initial production capacity of Zawar Mines unit was 500 TDP and that of the Lead Smelter 500 TPA. After nationalization the government of India’s first task was the completion of the Debari Zinc Smelter under construction and its commissioning. The company has gradually increased its production capacity so as to match the demand supply position of lead and zinc. Today the Company’s market share is about 70% and it is continuously striving for making the country a surplus one in respect of these two metals. In April 2002, Sterlite acquired a 46% interest in HZL from the Government of India and the open market, and it became a part of the Sterlite group. Since then HZL has been growing from strength to strength. In August 2003, Sterlite acquired a majority state in HZL by acquiring another 18.9% interest from the Government of India. HZL produces Zinc, Lead and by-products viz. Cadmium, Sulphuric Acid and Silver. HZL achieved an all-time high production output of 81046.94 MT of Zinc concentrate during 2007-08.Today HZL is India’s leading Zinc producer mine. It is one of India's leading base metal producers, and is unique in the context of its technological versatility coupled with vertical integration in several metals. HZL had entered into a Memorandum of Understanding (MOU) with the Council of Scientific and Industrial Research (CSIR) for setting up a nickel technology proving plant of 10 tonnes per day. The technology is for extracting nickel from overburden of chromite at the Sukhinda Mines in Orissa. It has also signed an MOU with BHP Minerals, Australia, and is working on a joint venture project for exploration of base and precious minerals in Rajasthan. The company has entered into yet another MOU with Vigego, Vietnam and La- Source, France, for exploration at Pac-Lang for gold prospecting in Vietnam. HZL has also entered into an arrangement with Broken Hill of Australia for grassroots exploration of zinc, lead and other minerals in Rajasthan. HZL was negotiating with another Australian company, Pasminco, for exploration in the Ajmer district. The company has completed exploration for evaluation of Gossan resource in parts of agpura. The Company has been declared a "Mini Ratna". Its Zinc Smelters are situated in Chanderiya, Debari and Visakhapatnam. It has lead-zinc mines in Dariba, Rampura Agucha, and Zawar. It has nearly 6400 employees. Hindustan Zinc Limited with its world class mines and smelter has now become world renowned lead zinc major. With the present tempo of work, the company’s dream of making India a surplus country in respect of these two non-ferrous metals, no doubt, will soon become reality. Hindustan Zinc Limited (HZL), which is an ancillary of Vedanta Resources London listed FTSE 100 diversified metals and mining company. The group produces aluminum, copper, zinc, lead and iron ore and also commercial energy. HZL is the operating company of Vedanta in Lead, zinc and Sulphuric acid business. HZL is world’s leader in Zinc, Lead, silver and Sulphuric acid business. It is the 3rd largest producer of Zinc and Lead in the world. Hindustan Zinc is India’s only integrated producer of zinc and lead and is among the world’s leading integrated zinc and lead producers. The company is a subsidiary of Sterlite Industries
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Board of directors: Mr. Agnivesh Agarwal : (Chairman) Mr. Agnivesh Agarwal is the Chairman. He was appointed to the Board on 15 November 2005. Mr. Agarwal is an eminent industrialist with a strong knowledge of business operations. He is also the Director of MALCO, Sterlite Iron and Steel Company Ltd, Sterlite Infrastructure Pvt. Ltd, Agarwal Galvanizing Pvt. Ltd, and Sterlite Infrastructure Holdings Pvt. Ltd. Mr. Agarwal graduated from Sydhenam College in Mumbai, majoring in commerce. Mr. Akhilesh Joshi CEO & Whole-time Director Mr. A. R. Narayanaswamy Director Ms. Anjali Anand Srivastava Director Mr. Navin Agarwal Director Mr. Rajib Sekhar Sahoo Director Mr. R.K. Malhotra Director Ms. Shaukat Ara Tirmizi Director Company’s head quarters are based at new Delhi and Udaipur. Share holding pattern : Total 65% of share is held by the Sterlite Industries (India) Limited.. And the rest is held by the public share holdings. Promoters General Public Foreign Institutions Total no of employees 6742 Financial performance of the company: In MAR2012 Total Sales of company: 12,061.09 Cr Net profit: 4632.20 Cr SWOT Analysis Strengths: ? Ever increasing reserves and resources Through aggressive exploration and drilling activities, the reserves and resources of its world class captive mining assets are continuously increasing. HZL currently holds ~31 million tonne (MT) of 274.32 Cr 129.28Cr 5.61Cr 64.92% 30.60% 1.33%
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contained zinc-lead metal in its mines. This translates into remaining operational life of more than 30 years at an expanded capacity of ~1 MT. Capacity expansion of integrated operations continues HZL has increased its zinc capacity threefold since 2002. The company is currently implementing a 3.1 lakh TPA capacity expansion plan, which would catapult it to the No. 1 spot among integrated zinc-lead producers in the world. The expansion would help the company to register a sales volume CAGR of ~13% in FY09-12E, reaching zinc sales of ~7.5 lakh tonne in FY12E. Immune to down cycles on low cost of production HZL boasts of one of the lowest cost operations in the world. With current cost of production at ~US$700/tonne, it remains largely immune to commodity down cycles. World class mining assets HZL owns world class mining assets and currently operates four mines in the state of Rajasthan. Out of this, Rampura Agucha features among the largest zinc-lead mines in the world and contributes more than 70% of total ore requirement of HZL. The company sources all of its ore requirements from its captive mines and also sells the surplus concentrates in the market. Low cost smelting assets HZL currently operates three smelters at Chanderiya, Debari and Vishakhapatnam with production capacities of 610 kilo tonne per annum (KTPA), 88 KTPA and 56 KTPA, respectively. The Chanderiya smelting operation is the single largest zinc-lead smelter in the world with zinc refining capacity of 525 KTPA and lead refining capacity of 85 KTPA in addition to silver refining capacity of 150 KTPA. The complex also houses a 234 MW coal-based captive power plant. It is situated near its main mining complexes, which helps to lower the overall production cost. Increasing silver sales provide the silver lining HZL is currently the largest primary silver producer in India with production of 105 tonne in FY09. Silver production is expected to rise to 500 TPA by 2012E in phases on the back of major additions coming from Sindesar Khurd mine expansion to 1.5 MTPA having high silver content of ~215 ppm. The company is also in the process of implementing a new silver refinery with a capacity of 350 TPA by 2010 as part of its lead smelting expansion to augment its silver production capacity. High free cash flow generation virtually guaranteed High free cash flow generation is virtually guaranteed at HZL due to its low cost of operations (target cost of production~US$600-650/tonne) and high operating margin. The company was successful in garnering ~30% EBITDA margin at average zinc realisations of below US$1200/tonne during Q3FY09. This has confirmed its ability to generate strong free cash flow from operations even at depressed zinc prices during commodity down cycles.
Weaknesses ? High sensitivity to LME zinc prices the earnings of the company are highly sensitive to movement in LME zinc prices. For a 10% drop in average LME zinc realisation from our assumed realisation of ~US$1694/tonne for FY11E, the EPS of HZL drops by ~11%. We would face a downside risk to our numbers if LME zinc prices drop and average below US$1694/tonne in FY11E. High dependency on the economic conditions In 2008 financial crisis the automobile sector suffers in demand .due to this the zinc and lead industry also suffers and due to this the slow down in industry had noticed.
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Opportunities
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Globally, zinc demand has grown at a CAGR of 3.6%from 6.7 mn mt in CY90 to ~10.6 mn mt in CY05.Demand from China has grown at a faster pace of~18% from 0.6 mn mt to 2.8 mn mt during this period Indian zinc demand (pegged at 0.4 mn mt) is growing at a faster rate of 9-10% p.a, on back of strong demand from galvanizing, die casting, dry cell batteries and chemical segments.
Threats ? Volatile prices
While higher zinc, lead and silver prices would directly aid topline and improve profitability, sharp downfall in prices poses a threat to the earnings of the company. So far in Q1FY12 the average zinc LME has been US$2250/ tonne, while for lead, it has been US$2550/ tonne against their Q4FY11 average of US$2390/ tonne and US$2600/ tonne respectively. At present zinc globally being surplus in terms of availability and demand might see some near- term headwind in price movements. However, with the cost of production being in the lowest quartile of the global cost curve, the company would still earn decent margins despite a fall in LME and correction in silver prices. Nevertheless, continuous weakness in prices would call for a de-rating of the sector as a whole and that applies to HZL also. ? Exchange rate As all the three metals viz zinc, lead and silver are denominated in USD and are widely traded across the world, they all are subject to the risk associated with the USD/ INR exchange rate. Any strong appreciation in INR would reduce the price realizations in India and would also reduce profitability in export consignments. One rupee appreciation in INR reduces EPS by 1.8% Taxes & royalties Mining businesses in India are subject to several taxes and duties. Currently, HZL enjoys EOU benefits, which actually helps the company in saving taxes to some extent. The company also has been a beneficiary of the DEPB scheme to the tune of 5%. However, since the government is considering a withdrawal of that scheme, this benefit, though very small would not be there. On the other hand, at present the royalty rates in zinc, lead and silver have been 8.4%, 12.7% and 7.2% respectively and any hike in these rates would have a negative impact on the margins and thereby, on the profitability of the company. Sustainability – Exploration, costs Though HZL has set an example of successful exploration at a remarkably fast pace, sustaining the same going forward could be a challenge due to recent problems arising with regard to land acquisitions and environmental clearances. Also, rising fuel costs and commodity prices may pose a threat to the company in managing its cost of production levels in future. http://www.icicidirect.com/mailimages/ICICIdirect_HindustanZinc_InitiatingCoverage.pdf http://reports.emkayshare.com/downloads/researchreports/Hindustan%20Zinc%20Initiating%20Cov erage.pdf http://www.capitalmarket.com/BrokerResearch/PDFs/32-138494-161106.pdf
http://economictimes.indiatimes.com/hindustan-zinc-ltd/directorsreport/companyid-11982.cms
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Expansion stratergies - Ramped-up Sindesar Khurd mine to 2.0 mtpa capacity
- Commissioned the 100 ktpa Lead smelter at Dariba, increasing Lead production capacity to 185ktpa - Commissioned the new Silver refinery, increasing Silver refining capacity to over 500 tpa - Commenced underground mine development work at Rampura Agucha mine and green field Kayar mine - Commissioned 102MW expansion in wind power, increasing total wind power generation capacity to around 274MW Further, HZL has 8 RPs (Reconnaissance Permits) covering an area of around 4,100 sq kms on which the company has started work. It has also applied for 14 RPs in 6 states covering an area of around 17,900 sq. kms. It may be noted, where a reconnaissance permit or prospecting license has been granted in respect of any land, the permit holder or the licensee has a preferential right for obtaining a prospecting license or mining lease, as the case may be, in respect of that land over any other person. This has great potential to add significant value to the company in terms of higher capacity, going forward. The management has been working for the permits and is also on the look out for good resources at right valuations. Strategies When a company needs to grow in volumes, increasing its reserves and resources (R&R) is the first step. Hindustan Zinc’s Rampura Agucha mine is the world's largest zinc producing mine and smelting complex at Chanderiya in Rajasthan It is the world’s largest single location zinc smelting complex. With cumulative R&R of 143.7 million tonne in 2002, the HZL stands comfortable with about 333 million tonne of R&R that contains about 35 million tonnes of zinc-lead metal, 25 years of mine life. After this, increasing volume is only a matter of course. Since 2002, Hindustan Zinc has grown Five-fold in volumes, from 169,000 tonnes of zinc in 2002 to 880,000 tonne in 2012 after completing three phases of expansions. HZL plans to engage in de-bottlenecking, a continuous process for the company to increase its output. When Chanderia was commissioned its output was 170,000 tonne at each of its Hydro I & II smelters, which was enhanced to 210,000 tonne each using de-bottlenecking. Likewise, the company also enhanced output at its Dariba mine by 8,000 tonne to reach 88,000 tonne. Another key strategy the company is going to use is developing its increasing its lead and silver output. HZL is looking at higher lead and silver output and cost efficiency as major profit drivers in the year. The company is expecting 350 tonne integrated silver production in FY13. The company informed that HZL plans to increase its silver production from current levels of 240-500 tonne by 2013-14, which would significantly add to the revenues and profits. The company is looking forward and may see a comfortable fiscal too.
doc_943061189.docx
It describes the Industry Trends of zinc industry, PEST Analysis of Industry, Competitor Analysis of Hindustan zinc, SWOT analysis, Company Description, General Information about the company, it's Finance performance, SWOT analysis of Hindustan zinc and Various Strategies employed of Hindustan zinc.
Hindustan Zinc ltd.
Industry Analysis: Industry trends: Zinc is the fourth most used metal in the world, after iron, aluminum and copper. The chart below shows the change in the supply and demand for zinc since 2000. Demand is estimated to increase by two to three percent per year, particularly in industries such as construction, automotive and transport because of zinc’s long useful life. Indian and Global perspectives India’s zinc consumption is likely to grow at 9% CAGR between 2011 and 2013 Globally, zinc demand has grown at a CAGR of 3.6% from 6.7 mn mt in CY90 to ~10.6 mn mt in CY05.Demand from China has grown at a faster pace of ~18% from 0.6 mn mt to 2.8 mn mt during this period. Amongst user industries globally, galvanizing accounts for a dominant share (47-50%), followed by alloys & brass (17-18% each) and chemicals (6-7%). Indian zinc demand (pegged at 0.4 mn mt) is growing at a faster rate of 9-10% p.a, on back of strong demand from galvanizing, die casting, dry cell batteries and chemical segments. Global zinc metal production lagged behind demand, and was ~10.2 mn mt in CY05, with Europe producing ~2.6 mn mt, USA ~2 mn mt and Asia ~5 mn mt. Globally zinc market is in deficit since CY04, and this has resulted in dwindling stocks. China has also turned net importer of refined zinc since CY04, with imports surging to 0.27 mn mt in CY05 from 0.015 mn mt in CY04. Increasing capacity of galvanized steel (from ~2 mn mt in CY02 to current ~8-9 mn mt)in China has led to surge in zinc consumption there .The demand outlook for CY06 is pegged at ~6% for refined zinc, which should outpace expected mining growth of 5%. As a result, zinc shortfall is estimated at ~ 0.46 mn mt in CY06. The expect the zinc sales volume to grow by 8% YoY in FY10E and by 9.9% and 14% in FY11E and FY12E, respectively, on the back of increased capacity post expansion. We expect LME zinc prices to average US$1582.9/tonne in FY10E and increase by 7% to US$1693.7/tonne in FY11E. the lead price assumption stands at US$1614.7/tonne and US$1727.8/tonne for FY10E and FY11E respectively. The global zinc market is running in surplus as of now despite worldwide production cuts and mine closures due to a significant drop in demand in late 2008 and H1CY09. The zinc surplus has increased to 2.73 lakh tonne in H1CY09 due to consumption drop of 11.5% YoY against production drop of 7.1%. Lead production and consumption has remained flat YoY in H1CY09 with a surplus of 0.37 lakh tonne. According to the International Lead Zinc Study Group (ILZSG) estimates, world zinc consumption is expected to drop ~5% YoY to 10.9 MT in 2009. A surplus of 2.6 lakh tonne would exist in the market. Lead demand is expected to remain flat YoY at ~8.6 lakh tonne with only a slight surplus existing in the market. Initial estimates from ILZSG point towards zinc surplus going into the neutral to deficit territory in CY10E. Zinc is mainly used in steel galvanisation. This, in turn, is used in automobile, construction and consumer goods industries. Lead is primarily used in making batteries. This, in turn, is used in the automobile industry. While zinc demand in H1CY09 has seen a sharp fall (~11.5% YoY) due to a drop in steel production of~20% YoY, lead demand has remained stable despite erratic automobile sales globally. With both steel production and automobile sales having recovered from their lows, the worst seems to be over. Demand for
both zinc and lead is expected to improve, going forward, leading to lowering of surplus levels and providing stability to prices.
The end use of zinc by industry in 2008 indicates major consumption of the white metal in construction, automobiles and infrastructure. Construction and infrastructure industries all over the world, and especially in India and China, have received the necessary boost through announcement of huge stimulus packages. Also, automobile sales have bounced back from their lows. This augurs well for an increase in zinc demand, going forward, and points towards a possible turning of the global zinc market from surplus to deficit in CY10E. With a sharp drop in demand from user industries post the advent of the financial crisis in H2CY08, there have been massive production cuts at zinc and lead mines all over the world due to i) sharp correction in LME zinc and lead prices resulting in operations being unviable, ii) lower refined metal production due to poor demand and iii) need for reduced supply to support prices. This has resulted in a supply side correction. LME zinc and lead prices have bounced back from their lows with demand starting to come back from user industries. Total announced production cuts in early 2009 totalled ~1 MT for zinc mines and 0.9 MT for zinc smelters. With prices recovering, some of the earlier announced production cuts have come back on stream during the last few months. However, believe that production cuts that totaled ~9% of world zinc production in early 2009 would also help remove the surplus from the market. One of the fastest growing economies in the world with GDP growth of ~8%, industry has got an advantage in terms of better demand growth. This is evident from the fact that while the global zinc consumption grew at a CAGR of ~1% over 2007-10, consumption in India rose by ~6% during the same period. As per industry reports, India’s zinc consumption is likely to grow at 9% CAGR between 2011 and 2013. However, globally, zinc consumption is likely to see a moderate growth rate of 6%. On the supply side, production of refined zinc in India after growing rapidly at a CAGR of 18% during 2007-10, is expected to grow at a slower pace of 1.3% between 2011 and 2013E. This is likely to help the premiums remain strong and stable. Also, the per capita zinc consumption in India is still low at about 0.5 kg per person per annum as against the global average of 2 kg per person per annum, indicating opportunity for further growth in zinc demand in India. Besides meeting India’s zinc requirement also exports the balance amount at LME rates. 2. PEST Analysis: Political: ? Land acquisition is one of the recent factor faces in India. The problem lead to the delay in expansion plan and further lose of time and capital ? Taxes & royalties ? Infrastructure development for better transportation and low cost production Economic ? Exchange rate ? Economical condition of market ? Condition of automobile sector
Social ? The social factor is the mines are all in the backward regions .so there is threat of their existence. ? Also the to connect the mines with the infrastructure takes lots of cutting of trees in forest place so this is also one of the problem this industry creating ? The used water and the power require for mining is also one concern that affects the social environment near the mining field Technical ? As the new technologies are coming the reduction in cost of production and quality improvement leads to better profitability and good use of resources. 3. Competitor Analysis:
Competition
Name Last Price Market Cap.
(Rs. cr.)
Sales Turnover 11,405.31 18,092.06 1,471.91 627.03 932.14 356.12 281.48 60.47
Net Profit
Total Assets
Hind Zinc Sterlite Ind Hind Copper Tinplate Precision Wires Bilpower Nissan Copper Cubex Tubings
119.80 105.10 251.40 55.25 79.65 40.50 4.25 7.75
50,619.32 35,326.29 23,259.98 578.29 92.10 42.53 26.71 9.23
5,526.04 1,657.48 323.44 16.55 14.15 -18.59 -1.92 0.41
26,881.65 30,067.61 1,238.96 749.16 254.83 187.96 355.78 49.29
http://www.moneycontrol.com/competition/hindustanzinc/comparison/HZ
4. SWOT Analysis: Strengths •The government offers a wide range of concessions to investors in India, engaged in mining activity. The main concessions include, inter alia and taxes •Zinc Mining in specified backward districts is eligible for a complete tax holiday for a period of 5 years from commencement of production and a 30 percent tax holiday for 5 years thereafter. •Environment protection equipment, pollution control equipment, energy saving equipment and certain other equipment eligible for 100 percent depreciation. •One tenth of the expenditure on prospecting or extracting or production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income.
•Export profits from specified minerals and ores are eligible for certain concessions under the Income tax Act. •Minerals in their finished form exempt from excise duty. •Low customs duty on capital equipment used for minerals; on nickel, tin, pig iron, unwrought aluminium. •Capital goods imported for mining under EPCG scheme qualify for concessional customs duty subject to certain export obligation. •Labours easily available • Low labour and conversion costs • Large quantity of high quality reserves •Exports iron-ore to China and Japan on a large scale •Strategic location : Proximity to the developed European markets and fast-developing Asian markets for export of Steel, Aluminium Weakness •Historically, opencast mining has been favored over underground mining. This has led to land degradation, environmental pollution and reduced quality as it tends to get mixed with other matter •Poor infrastructure facilities •Mining technology is outdated •Low innovation capabilities •Labor force is highly un-skilled and inexperienced •High rate of accidents •Lack of R&D programs and training and development •There is a lack of respect for the mining industry and it suffers from the incorrect perception that ore deposits are depleted. •There is limited access to capital, and mines are increasingly more costly to find, acquire, develop and produce. •There are long lead times on production decisions. •The Indian mining industry suffers from an out-dated, unattractive approach to mining education that is partly to blame for insufficient human resources. •Mining operations are not environment friendly. Least importance is given to environment concerns. •High rate of illegal mining
Opportunities
•Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver, platinum group of metals and other rare metals, chromite and manganese ore, and fertilizer minerals. •The main opportunities in the mining sector (excluding coal and industrial minerals) are in the development and production of surplus commodities such as iron ore and bauxite, mica, potash, few low-grade ores, mining of small gold deposits, development of placer gold resources located on the frontal belt of the Himalayas, mining known deposits of economic and marginal categories such as base metals in Bihar and Rajasthan and exploitation of laterite for nickels in Orissa, molybdenum in Tamil Nadu and tin in Haryana. •Considerable potential exists for setting up manufacturing units for value added products. •There exists considerable opportunities for future discoveries of sub-surface deposits with the application of modern techniques. Threats •A heavy tax burden discourages further investment. •Politicians undervalue the industry's contributions to the economy. •Stricter environment rules restricting mining activities Company analysis : 1. Company description Hindustan Zinc is a Vedanta Group company in Zinc, Lead and Silver business. They are India's only and the world's largest integrated producer of Zinc-Lead. They are also one of the leading Silver producers in the world. They are one of the lowest cost producers in the world and are well placed to serve the growing demand of Asian countries. Hindustan Zinc is a subsidiary of the NYSE listed - Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining major Vedanta Resources plc. The core business comprises of mining and smelting of zinc and lead along with captive power generation. They have four mines and four smelting operations: mines are situated at Rampura Agucha (largest zinc producing mine in the world), Sindesar Khurd, Rajpura Dariba and Zawar in the State of Rajasthan; while the smelters are located at Chanderiya, Debari and Dariba in the State of Rajasthan and Vizag in the State of Andhra Pradesh. The products produced by the company include refined zinc metal, refined lead metal, silver, cadmium and sulphuric acid Their current metal production capacity is 1,064,000 tonnes per annum (879,000 tonnes of zinc and 185,000 tonnes of lead). With reserves and resources of 313.2 million tonnes, their exploration programme is integral to their growth and future expansions. They also own 474 MW of coal based thermal captive power plants in Rajasthan to support their metallurgical operations. They also have 123.2 MW of wind energy in Gujarat and Karnataka, which is sold to the respective State grids. Taking their green energy initiative a step further, they had announced, in January 2011, an addition of 150 MW in our existing wind power capacity. Of this, around 135 MW has already been commissioned. The balance capacity is expected to be commissioned in Q4 FY 2012. Post the expansion, their wind power generation capacity will increase to 273 MW. http://www.hzlindia.com/
Industry trends: Hindustan Zinc Ltd. was created from the erstwhile Metal Corporation of India (MCI) on 10th January 1966 as a Public Sector Undertaking in the mining industry. Industrial policy Resolution 1956 kept the extraction of ferrous and non-ferrous mineral resources in the core sector keeping the right of extracting the same exclusive to the government. Nationalization of Metal Corporation of India is to been seen in the context. The authorized and paid up capital of the company at the time of nationalization was Rs. 422.53 crores equally divided into 422531900 equity shares of Rs. 10 each. At the time of nationalization the company was having one mining unit i.e.Zawar Mines, in the State of Rajasthan, one smelting unit i.e. Tundoo Lead Smelter in the State of Bihar and another smelting unit is under construction i.e. Debari Zinc Smelter in the State of Rajasthan – in its hand. The initial production capacity of Zawar Mines unit was 500 TDP and that of the Lead Smelter 500 TPA. After nationalization the government of India’s first task was the completion of the Debari Zinc Smelter under construction and its commissioning. The company has gradually increased its production capacity so as to match the demand supply position of lead and zinc. Today the Company’s market share is about 70% and it is continuously striving for making the country a surplus one in respect of these two metals. In April 2002, Sterlite acquired a 46% interest in HZL from the Government of India and the open market, and it became a part of the Sterlite group. Since then HZL has been growing from strength to strength. In August 2003, Sterlite acquired a majority state in HZL by acquiring another 18.9% interest from the Government of India. HZL produces Zinc, Lead and by-products viz. Cadmium, Sulphuric Acid and Silver. HZL achieved an all-time high production output of 81046.94 MT of Zinc concentrate during 2007-08.Today HZL is India’s leading Zinc producer mine. It is one of India's leading base metal producers, and is unique in the context of its technological versatility coupled with vertical integration in several metals. HZL had entered into a Memorandum of Understanding (MOU) with the Council of Scientific and Industrial Research (CSIR) for setting up a nickel technology proving plant of 10 tonnes per day. The technology is for extracting nickel from overburden of chromite at the Sukhinda Mines in Orissa. It has also signed an MOU with BHP Minerals, Australia, and is working on a joint venture project for exploration of base and precious minerals in Rajasthan. The company has entered into yet another MOU with Vigego, Vietnam and La- Source, France, for exploration at Pac-Lang for gold prospecting in Vietnam. HZL has also entered into an arrangement with Broken Hill of Australia for grassroots exploration of zinc, lead and other minerals in Rajasthan. HZL was negotiating with another Australian company, Pasminco, for exploration in the Ajmer district. The company has completed exploration for evaluation of Gossan resource in parts of agpura. The Company has been declared a "Mini Ratna". Its Zinc Smelters are situated in Chanderiya, Debari and Visakhapatnam. It has lead-zinc mines in Dariba, Rampura Agucha, and Zawar. It has nearly 6400 employees. Hindustan Zinc Limited with its world class mines and smelter has now become world renowned lead zinc major. With the present tempo of work, the company’s dream of making India a surplus country in respect of these two non-ferrous metals, no doubt, will soon become reality. Hindustan Zinc Limited (HZL), which is an ancillary of Vedanta Resources London listed FTSE 100 diversified metals and mining company. The group produces aluminum, copper, zinc, lead and iron ore and also commercial energy. HZL is the operating company of Vedanta in Lead, zinc and Sulphuric acid business. HZL is world’s leader in Zinc, Lead, silver and Sulphuric acid business. It is the 3rd largest producer of Zinc and Lead in the world. Hindustan Zinc is India’s only integrated producer of zinc and lead and is among the world’s leading integrated zinc and lead producers. The company is a subsidiary of Sterlite Industries
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Board of directors: Mr. Agnivesh Agarwal : (Chairman) Mr. Agnivesh Agarwal is the Chairman. He was appointed to the Board on 15 November 2005. Mr. Agarwal is an eminent industrialist with a strong knowledge of business operations. He is also the Director of MALCO, Sterlite Iron and Steel Company Ltd, Sterlite Infrastructure Pvt. Ltd, Agarwal Galvanizing Pvt. Ltd, and Sterlite Infrastructure Holdings Pvt. Ltd. Mr. Agarwal graduated from Sydhenam College in Mumbai, majoring in commerce. Mr. Akhilesh Joshi CEO & Whole-time Director Mr. A. R. Narayanaswamy Director Ms. Anjali Anand Srivastava Director Mr. Navin Agarwal Director Mr. Rajib Sekhar Sahoo Director Mr. R.K. Malhotra Director Ms. Shaukat Ara Tirmizi Director Company’s head quarters are based at new Delhi and Udaipur. Share holding pattern : Total 65% of share is held by the Sterlite Industries (India) Limited.. And the rest is held by the public share holdings. Promoters General Public Foreign Institutions Total no of employees 6742 Financial performance of the company: In MAR2012 Total Sales of company: 12,061.09 Cr Net profit: 4632.20 Cr SWOT Analysis Strengths: ? Ever increasing reserves and resources Through aggressive exploration and drilling activities, the reserves and resources of its world class captive mining assets are continuously increasing. HZL currently holds ~31 million tonne (MT) of 274.32 Cr 129.28Cr 5.61Cr 64.92% 30.60% 1.33%
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contained zinc-lead metal in its mines. This translates into remaining operational life of more than 30 years at an expanded capacity of ~1 MT. Capacity expansion of integrated operations continues HZL has increased its zinc capacity threefold since 2002. The company is currently implementing a 3.1 lakh TPA capacity expansion plan, which would catapult it to the No. 1 spot among integrated zinc-lead producers in the world. The expansion would help the company to register a sales volume CAGR of ~13% in FY09-12E, reaching zinc sales of ~7.5 lakh tonne in FY12E. Immune to down cycles on low cost of production HZL boasts of one of the lowest cost operations in the world. With current cost of production at ~US$700/tonne, it remains largely immune to commodity down cycles. World class mining assets HZL owns world class mining assets and currently operates four mines in the state of Rajasthan. Out of this, Rampura Agucha features among the largest zinc-lead mines in the world and contributes more than 70% of total ore requirement of HZL. The company sources all of its ore requirements from its captive mines and also sells the surplus concentrates in the market. Low cost smelting assets HZL currently operates three smelters at Chanderiya, Debari and Vishakhapatnam with production capacities of 610 kilo tonne per annum (KTPA), 88 KTPA and 56 KTPA, respectively. The Chanderiya smelting operation is the single largest zinc-lead smelter in the world with zinc refining capacity of 525 KTPA and lead refining capacity of 85 KTPA in addition to silver refining capacity of 150 KTPA. The complex also houses a 234 MW coal-based captive power plant. It is situated near its main mining complexes, which helps to lower the overall production cost. Increasing silver sales provide the silver lining HZL is currently the largest primary silver producer in India with production of 105 tonne in FY09. Silver production is expected to rise to 500 TPA by 2012E in phases on the back of major additions coming from Sindesar Khurd mine expansion to 1.5 MTPA having high silver content of ~215 ppm. The company is also in the process of implementing a new silver refinery with a capacity of 350 TPA by 2010 as part of its lead smelting expansion to augment its silver production capacity. High free cash flow generation virtually guaranteed High free cash flow generation is virtually guaranteed at HZL due to its low cost of operations (target cost of production~US$600-650/tonne) and high operating margin. The company was successful in garnering ~30% EBITDA margin at average zinc realisations of below US$1200/tonne during Q3FY09. This has confirmed its ability to generate strong free cash flow from operations even at depressed zinc prices during commodity down cycles.
Weaknesses ? High sensitivity to LME zinc prices the earnings of the company are highly sensitive to movement in LME zinc prices. For a 10% drop in average LME zinc realisation from our assumed realisation of ~US$1694/tonne for FY11E, the EPS of HZL drops by ~11%. We would face a downside risk to our numbers if LME zinc prices drop and average below US$1694/tonne in FY11E. High dependency on the economic conditions In 2008 financial crisis the automobile sector suffers in demand .due to this the zinc and lead industry also suffers and due to this the slow down in industry had noticed.
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Opportunities
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Globally, zinc demand has grown at a CAGR of 3.6%from 6.7 mn mt in CY90 to ~10.6 mn mt in CY05.Demand from China has grown at a faster pace of~18% from 0.6 mn mt to 2.8 mn mt during this period Indian zinc demand (pegged at 0.4 mn mt) is growing at a faster rate of 9-10% p.a, on back of strong demand from galvanizing, die casting, dry cell batteries and chemical segments.
Threats ? Volatile prices
While higher zinc, lead and silver prices would directly aid topline and improve profitability, sharp downfall in prices poses a threat to the earnings of the company. So far in Q1FY12 the average zinc LME has been US$2250/ tonne, while for lead, it has been US$2550/ tonne against their Q4FY11 average of US$2390/ tonne and US$2600/ tonne respectively. At present zinc globally being surplus in terms of availability and demand might see some near- term headwind in price movements. However, with the cost of production being in the lowest quartile of the global cost curve, the company would still earn decent margins despite a fall in LME and correction in silver prices. Nevertheless, continuous weakness in prices would call for a de-rating of the sector as a whole and that applies to HZL also. ? Exchange rate As all the three metals viz zinc, lead and silver are denominated in USD and are widely traded across the world, they all are subject to the risk associated with the USD/ INR exchange rate. Any strong appreciation in INR would reduce the price realizations in India and would also reduce profitability in export consignments. One rupee appreciation in INR reduces EPS by 1.8% Taxes & royalties Mining businesses in India are subject to several taxes and duties. Currently, HZL enjoys EOU benefits, which actually helps the company in saving taxes to some extent. The company also has been a beneficiary of the DEPB scheme to the tune of 5%. However, since the government is considering a withdrawal of that scheme, this benefit, though very small would not be there. On the other hand, at present the royalty rates in zinc, lead and silver have been 8.4%, 12.7% and 7.2% respectively and any hike in these rates would have a negative impact on the margins and thereby, on the profitability of the company. Sustainability – Exploration, costs Though HZL has set an example of successful exploration at a remarkably fast pace, sustaining the same going forward could be a challenge due to recent problems arising with regard to land acquisitions and environmental clearances. Also, rising fuel costs and commodity prices may pose a threat to the company in managing its cost of production levels in future. http://www.icicidirect.com/mailimages/ICICIdirect_HindustanZinc_InitiatingCoverage.pdf http://reports.emkayshare.com/downloads/researchreports/Hindustan%20Zinc%20Initiating%20Cov erage.pdf http://www.capitalmarket.com/BrokerResearch/PDFs/32-138494-161106.pdf
http://economictimes.indiatimes.com/hindustan-zinc-ltd/directorsreport/companyid-11982.cms
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Expansion stratergies - Ramped-up Sindesar Khurd mine to 2.0 mtpa capacity
- Commissioned the 100 ktpa Lead smelter at Dariba, increasing Lead production capacity to 185ktpa - Commissioned the new Silver refinery, increasing Silver refining capacity to over 500 tpa - Commenced underground mine development work at Rampura Agucha mine and green field Kayar mine - Commissioned 102MW expansion in wind power, increasing total wind power generation capacity to around 274MW Further, HZL has 8 RPs (Reconnaissance Permits) covering an area of around 4,100 sq kms on which the company has started work. It has also applied for 14 RPs in 6 states covering an area of around 17,900 sq. kms. It may be noted, where a reconnaissance permit or prospecting license has been granted in respect of any land, the permit holder or the licensee has a preferential right for obtaining a prospecting license or mining lease, as the case may be, in respect of that land over any other person. This has great potential to add significant value to the company in terms of higher capacity, going forward. The management has been working for the permits and is also on the look out for good resources at right valuations. Strategies When a company needs to grow in volumes, increasing its reserves and resources (R&R) is the first step. Hindustan Zinc’s Rampura Agucha mine is the world's largest zinc producing mine and smelting complex at Chanderiya in Rajasthan It is the world’s largest single location zinc smelting complex. With cumulative R&R of 143.7 million tonne in 2002, the HZL stands comfortable with about 333 million tonne of R&R that contains about 35 million tonnes of zinc-lead metal, 25 years of mine life. After this, increasing volume is only a matter of course. Since 2002, Hindustan Zinc has grown Five-fold in volumes, from 169,000 tonnes of zinc in 2002 to 880,000 tonne in 2012 after completing three phases of expansions. HZL plans to engage in de-bottlenecking, a continuous process for the company to increase its output. When Chanderia was commissioned its output was 170,000 tonne at each of its Hydro I & II smelters, which was enhanced to 210,000 tonne each using de-bottlenecking. Likewise, the company also enhanced output at its Dariba mine by 8,000 tonne to reach 88,000 tonne. Another key strategy the company is going to use is developing its increasing its lead and silver output. HZL is looking at higher lead and silver output and cost efficiency as major profit drivers in the year. The company is expecting 350 tonne integrated silver production in FY13. The company informed that HZL plans to increase its silver production from current levels of 240-500 tonne by 2013-14, which would significantly add to the revenues and profits. The company is looking forward and may see a comfortable fiscal too.
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