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Strategic expansion to propel long-term growth

We attended the investor call of Hindustan Zinc, hosted by Mr. Arun Misra (CEO) and Mr. Sandeep Modi (CFO). As a first step towards doubling its capacity, company announced setting up of a 250ktpa integrated Zinc metal complex at Debari – to be fully focused on Zinc. This will take company’s existing smelting capacity from 1,129ktpa to 1,379ktpa. Mined metal capacity is also expected to increase from existing 1,180ktpa to 1,510ktpa post expansion while Silver refining capacity to increase from 800ktpa to 830ktpa. The key takeaways from the call are 1) capex for the project is expected to be ~INR120bn to be spent over FY26 / FY27 / FY28: INR30-35bn / INR50bn / INR35-40bn 2) FY26 overall capex guidance revised upwards to USD550mn 3) Company expects per ton cost of setting up this smelter to be ~USD2.5k/t (amounts to ~INR62bn out of INR120bn planned) – significantly lower than global average of ~USD3.5k/t 4) price assumptions for the project at Zinc / Lead: USD2,650/t / USD1,950/t and 5) project is expected to be completed within 36 months. 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% captive power plants, sizeable scale, diversified revenue stream with increasing contribution from silver sales. Maintain BUY.

* Moving towards 2x growth; new capacity announced: Company announced setting up of a 250kt integrated Zinc metal complex at Debari and associated mining and milling capacities as a part of its Phase I expansion. This is expected to take company’s existing smelting capacity from 1,129ktpa to 1,379ktpa. Mined metal capacity is expected to increase from existing 1,180ktpa to 1,510ktpa post expansion while Silver refining capacity to increase from 800ktpa to 830ktpa (remaining to come with lead expansion). The project is expected to be completed within 36 months.

* Zinc demand robust; low set-up cost to drive return: HZ expects zinc demand to remain buoyant on the back on consistently growing domestic steel production. This allows the company to strategically expand its existing capacities to 2mn tons by 2030. Total capex for the 250ktpa project is expected to be INR120bn - to be funded through internal accruals and debt. Capex to be spread over FY26 / FY27 / FY28: INR30-35bn / INR50bn / INR35-40bn. Company expects per ton cost of setting up this smelter to be ~USD2.5k/t (amounts to ~INR62bn out of INR120bn planned) – significantly lower than global average of ~USD3.5k/t. Remaining capex of ~INR58bn to be spent for mining project.

* FY26 volume / CoP guidance intact; future EBITDA growth outlined: Volume guidance for FY26 maintained at 1,090-1,110kt refined metal / 700-710 tons for silver. The CoP guidance for Zinc maintained at USD1,025 to USD1,050 for FY26. Post the 250ktpa expansion, company expects revenue to reach INR400-430bn with EBITDA to be in the range of INR210-220bn. CoP is expected to decline to USD1,000 levels post expansion.

Key Concall Takeaways:

* Company announced setting up of 250ktpa integrated Zinc metal complex including smelter, leaching & purification plant, cell house and roaster at Debari – to be fully focused on zinc; any projects related to lead to be announced later.

* Capex for the project is expected to be ~INR120bn to be spent over:

- FY26 – ~INR30-35bn (Overall capex for FY26 to be ~USD550mn)

- FY27 – ~INR50bn - FY28

- Remaining capex (~INR35-40bn)

* Company expects per ton cost of setting up this smelter to be ~USD2.5k/t (amounts to ~INR62bn out of INR120bn planned) – significantly lower than global average of ~USD3.5k/t. Remaining capex of ~INR58bn to be spent for mining project.

* CoP guidance post expansion at USD1k/t – lower power cost to be offset by higher mining costs.

* Price assumptions for the project at

- LME Zinc: USD2,650/t

- Lead: USD1,950/t

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