Hindustan Zinc has 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.
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: Rs 30-35 billion / Rs 50 billion / Rs 35-40 billion. The company expects per ton cost of setting up this smelter to be ~$2.5k/t (amounts to ~Rs 62 billion out of Rs 120 billion planned) significantly lower than global average of ~$3.5k/t. Remaining capex of ~Rs 58 billion to be spent for mining project.
Investment Rationale
The key takeaways from the investor call with Hindustan Zinc are: 1) Capex for the project is expected to be ~Rs 120 billion to be spent over FY26 / FY27 / FY28: Rs 30-35 billion / Rs 50 billion / Rs 35-40 billion 2) FY26 overall capex guidance revised upwards to $ 550 million. 3) The company expects per ton cost of setting up this smelter to be ~$ 2.5k/t (amounts to ~INR62bn out of Rs 120 billion planned) ? significantly lower than global average of ~$ 3.5k/t 4) price assumptions for the project at Zinc / Lead: $ 2,650/t/ $ 1,950/t and 5) project is expected to be completed within 36 months. JM Financial remainspositive 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. The brokerage maintains BUY with a revised target price of Rs 550 (Rs 530 earlier).
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