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Hindustan Zinc Ltd.

BSE: 500188 Sector: Metals & Mining
NSE: HINDZINC ISIN Code: INE267A01025
BSE LIVE 15:56 | 18 Aug 293.75 -0.75
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NSE 15:57 | 18 Aug 294.50 -0.30
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OPEN 297.90
PREVIOUS CLOSE 294.50
VOLUME 143909
52-Week high 333.40
52-Week low 210.30
P/E 13.56
Mkt Cap.(Rs cr) 124,118
Buy Price 293.75
Buy Qty 10.00
Sell Price 0.00
Sell Qty 0.00
OPEN 297.90
CLOSE 294.50
VOLUME 143909
52-Week high 333.40
52-Week low 210.30
P/E 13.56
Mkt Cap.(Rs cr) 124,118
Buy Price 293.75
Buy Qty 10.00
Sell Price 0.00
Sell Qty 0.00

Hindustan Zinc Ltd. (HINDZINC) - Director Report

Company director report

Dear Members

The Directors are pleased to inform that your Company achieved new operationalperformance benchmarks during the year. On the occasion of the Golden Jubilee of yourCompany a special one-time dividend was declared at the end of March 2016 the highestever by any company in the country's private sector and second highest in Indian corporatehistory.

Presenting the 50th Annual Report together with the statement of Audited FinancialStatements for the year ended

March 31 2016 the Company’s performance is summarized below:

I. Financial Performance

Financial information is presented in accordance with the Accounting Standards (AS).Our reporting currency is

Indian Rupees ( Rs ).

Financial Information ( Rs in Crore)
Particulars FY 2016 FY 2015
Total Revenues (including Other Income) 16956 17609
Profit before depreciation interest and tax 9340 10238
Less: Interest 17 24
Less: Depreciation and amortization expense 713 644
Profit before tax 8610 9570
Net tax expense/(benefit) 444 1392
Profit for the year 8167 8178
Earnings per equity share Rs 19.33 19.35

Total Revenue including Other Income

The Company reported total revenue including other income of Rs 16956 Crore adecrease of 3.7% compared to FY 2015. The decrease was primarily on account of 16% and 13%lower zinc and lead LME respectively & 16% silver prices largely offset by highervolumes and 7% rupee depreciation.

The other income was Rs 2729 Crore during the year down 3.2% as compared to theprevious year. The decrease in other income was on account of lower mark-to-market gainsin long term debt mutual funds and bond investments.

Production Cost

Net zinc metal cost without royalty during the year was lower by 1.1% in INR and7.6% in USD term at Rs 52646 ($804) compared with the previous year. The decrease wasdue to higher volumes of integrated production better smelter efficiencies lower coal& commodity costs partly offset by lower average grades due to change in mining mixand higher mine development.

Operating Margin

The Company achieved profit before depreciation interest and tax (PBDIT) of Rs 9340Crore in FY 2016 down 8.8% from Rs 10238 Crore a year ago as a result of total revenue(including other income) and higher royalty partially offset by decrease in cost ofproduction.

Net Profit

The Company reported profits of Rs 8167 Crore for the year flat from the previousyear. The impact of lower PBDIT was mostly offset by lower tax during the year. The taxrate during the year reduced significantly largely due to higher proportion of taxefficient operational and investment income with significant investments now becominglong-term. In addition substantial liquidation of investments took place at year end forpayment of Golden Jubilee dividend with corresponding realised profits being set off bycarried forward tax losses. The higher silver volumes in the second half of the year alsolowered the tax rate. Also LME fall & shortfall in anticipated volume in the lastquarter reduced the profit in taxable units thus reducing tax since the Company maximisedproduction from tax exempt units.

Earnings per Share (EPS)

The basic EPS for the year was Rs 19.33 per share as compared to Rs 19.35 per share inFY 2014-15.

Dividend

On March 30 2016 the Board of Directors declared a Special Golden Jubilee dividend of1200% i.e. Rs 24 per share on share of Rs 2 each. This dividend entails an outflow of Rs12205 Crore including dividend distribution tax (DDT). The special dividend was inaddition to the first interim dividend paid ( Rs 3.80 per share) in October 2015. Thetotal dividend outflow including DDT for FY 2016 was Rs 14137 Crore ( Rs 27.80 per shareor 1390%) against Rs 2207 Crore ( Rs 4.40 per share or 220%) a year ago. In view of thespecial dividend paid the Board of Directors have not recommended any final dividend.

Credit Rating and Liquidity

CRISIL has reaffirmed the Company’s long-term rating of AAA/Stable and short-term& CP rating of A1+. The Company’s strong financial profile is driven by itssustained strong liquidity and conservative capital structure as well as its integratedoperations highly competitive cost position and high-grade reserves.

The Company follows a conservative investment policy and invests in debt instruments.As at March 31 2016 cash and cash equivalents were Rs 35235 Crore out of which Rs31413 Crore was invested in mutual funds and Rs 3769 Crore in bonds. This was beforepayment of Special dividend of Rs 12205 Crore including DDT.

Cash Flows ( Rs in Crore)
Particulars FY 2016 FY 2015
Opening Cash* 30785 25535
Add: EBITDA** 6655 7447
Add: Net Interest Income 2699 2798
Less: Income Tax & Dividend -5025 -3912
Less: Capital Account Payments -1597 -1617
(Increase) / Decrease in Working Capital & Others 1718 534
Closing Cash Balance 35235 30785

(*) Includes Cash and Cash Equivalents (refer Note 16 of the Audited FinancialStatements) and Current Investments (refer Note 13 of the Audited Financial Statements)

(**) Earnings before Interest Tax Depreciation and Amortization expenses and Incomeon investments

Gross Working Capital

Gross working capital represented by inventory sundry debtors and loans & advancesdecreased from Rs 2303 Crore to Rs 1812 Crore as at March 31 2016 due to depletion ofore & own mined-metal inventory and reduction in debtors. The working capital cyclewas 67 days in FY 2016 as compared to 57 days in FY 2015.

Gross Block

The gross block during the year increased from Rs 16555 Crore to Rs 18105 Crore. Thiswas largely due to the on-going mining projects.

Capital Employed

The total capital employed as at March 31 2016 was Rs 2114 Crore as compared to Rs12568 Crore at the end of previous fiscal year reduction was caused primarily due toyear end provision for Special Golden Jubilee dividend despite efficiencies in workingcapital.

Contribution to the Exchequer

Your Company has contributed Rs 4738 Crore in terms of royalties taxes and duties tothe exchequer on cash basis.

II. Operational Performance

Production

Mined metal production was 888924 MT marginally higher from a year ago and thehighest ever. While the production from the open cast mine at Rampura Agucha reduced by17% during the year to 528751 MT the gap was bridged by higher production fromunderground mines which increased by 45% to 360175 MT during the year.

Integrated refined zinc and saleable lead production this year were a record 758938MTand 140408 MT an increase of 5% and 33% respectively. Refined metal production duringthe year was higher than mined metal production primarily on account of conversion ofexisting mined metal inventory and enhanced smelter efficiencies. The total refined zincwas 758938 MT up by 3% compared to previous year while total saleable lead productionwas144919 MT an increase of 14% compared to FY 2015.

During the year production of integrated saleable silver increased substantially by58% to an all-time high of 422 MT on account of higher volume from Sindesar Khurd minesupported by enhanced recovery. Total saleable silver production during the year was 425MT up 30% from a year ago.

Our total power generation in FY 2016 increased marginally to 3468 million units whilewind power generation was down 7% at 415 million units.

We delivered highest ever integrated metal production in FY 2016.

Sales

Refined zinc metal sales in the domestic market during the year was 525763 MT whileexport sales accounted for 234637 MT. Global concerns around cheaper imports of steel andrelated value added products from China contained growth in domestic demand during thefirst half of the year resulting in higher exports during that period. However improvedsentiments in the second half encouraged high tonnages in domestic market resulting inoverall lower exports during the year compared to previous year.

Lead metal sales in the domestic market during the year increased marginally at 109740MT with export sales being higher to reach 35677 MT. Silver sales were 426 MT in FY2016 all in the domestic market.

III. Reserve & Resource

Our exploration activity has consistently added to our R&R base over the lastseveral years. Additionally we have an active green field exploration strategy to add newtenements. We have added 25.3 million MT to our reserve and resource this year prior to adepletion of 10.5 million MT during the period. Total R&R on March 31 2016 was 389.9million MT containing 36.13 million MT of zinc-lead metal and 1007 million ounces ofsilver.

Our active exploration has led to over 25+ years of mine life.

IV. Projects

The Company remains on track for achieving 1.2

mtpa mined metal capacity in the next three years.

The transition to underground mining is going on satisfactorily with about 40% of totalmined metal production in FY 2016 coming from underground mining as against 28% a yearago. This is further expected to climb to around 60% in FY 2017 while the cost ofproduction excluding royalty is expected to remain stable.

The ramp up of Rampura Agucha underground mine which was slower than planned at thebeginning of the year has picked up pace and achieved its highest ever declinedevelopment in the month of March. The main shaft sinking project at Rampura Agucha hasreached a depth of 860 metres where off shaft development work has commenced. The pitdeepening work at Rampura Agucha open cast mine to increase the depth of the pit to 420metres or ‘Stage V’ commenced during the year and is progressing well.

During the year two of our mines Sindesar Khurd and Kayad outperformed the plan andramped up ahead of schedule to reach production capacity of 3 mtpa and 1 mtparespectively. At Sindesar Khurd mine work for the new 1.5 mtpa capacity mill is at fullswing and is expected to be commissioned by end of the financial year in-line with themine production ramp up. The main shaft has sunk to its ultimate depth of 1052 meter andoff shaft development is currently underway which also continues to be ahead of schedule.Environment clearance of 3.75 mtpa capacity for Sindesar Khurd mine was received duringthe year.

V. Outlook

In FY 2017 mined metal is expected to be marginally higher from FY 2016. First half ofthe year will be weak with Q1 being significantly weaker due to waste and ore sequence atRampura Agucha open cast mine partly offset by ramp up of underground mines. Volumes willgradually ramp up as the year progresses as per mine plan. Integrated lead and silvermetal production in FY 2017 will be higher from FY 2016 while integrated zinc metalproduction will be at similar levels of FY 2016 due to skewed availability of zinc minedmetal.

Cost of production is expected to remain stable benefitting from various efficiencyimprovement programmes and cost reduction initiatives aided by a benign commodityenvironment despite additional regulatory levies and lower average grades resulting fromchange in mining mix.

VI. Health Safety and Environment (HSE)

The Company’s efforts towards reinforcing a positive safety culture have resultedin reduction of total Lost Time Injuries from 30 last year to 23 even as the Lost TimeInjury Frequency Rate reduced from 0.64 a year ago to 0.50. However despite all ourearnest efforts the Company lost four valued lives two permanent and two contractemployees in work-related incidents.

During the year no occupational illness case was reported and over 283071 man-hoursof training related to sustainability were imparted.

Due to our continued efforts towards conservation of water specific water consumptionreduced by 32.5% to 13.56 m per MT during the year. Specific energy consumption during theyear was 21.88 GJ per MT against 21.44 GJ per MT in previous year.

HSE initiatives have been discussed in detail from page no. 38 to 44 in ‘BusinessReview’ which forms a part of this Annual Report.

VII. Corporate Social Responsibility (CSR)

Company’s CSR policy focuses in the areas of (a) education (b) sustainablelivelihood (c) women empowerment (d) health water & sanitation (e) sports &culture (f) environment (g) community development including community asset creation.

During the year Rs 63.25 Crore was incurred on account of expenditure towards CSRexcluding tax foregone of Rs 16.27 Crore but including depreciation on assets amounting toRs 3.16 Crore. Details of the same are provided in Annexure 5.

For details on existing CSR projects please refer to page 45 to 47 of ‘BusinessReview’ which forms a part of this Annual Report. Detailed CSR policy is availableon our website http://hzlindia.com/social_policy.aspx

VIII. Directors

During the year under review following changes took place in the Board of Directors ofyour Company.

Mr. Sudhir Kumar was appointed as an

Independent Director during the year. Ms. Sujata Prasad retires by rotation and beingeligible offers herself for reappointment at the ensuing Annual General Meeting. YourDirectors recommend her reappointment and none of the retiring Directors hold any sharesin the Company. Further during the year Mr. Sunil Duggal was appointed as CEO &Whole-time Director for a period of three years w.e.f. October 1 2015. Mr. Akhilesh Joshicontinues as Whole-time Director w.e.f. October 1 2015 to September 30 2016.

IX. Management Discussion and Analysis

The Business Review section of this Annual Report gives a detailed account of yourCompany’s operations and the market in which it operates including its initiativesin areas such as human resources sustainability and risk management.

X. Corporate Governance And Business Responsibility Report

As a listed company necessary measures are taken to comply with the listing agreementsof the Stock exchanges. A report on Corporate Governance along with a certificate ofcompliance from the statutory auditors forms part of this report. Further BusinessResponsibility Report describing the initiatives taken by your Company from anEnvironmental Social and Governance perspective also forms a part of this report.Various disclosures as required under section 134 and 135 of the Companies Act 2013 areannexed to this report or covered in the Corporate Governance Report such as related partytransactions information and details on conservation of energy technology absorptionforeign exchange earnings and outgo extract of annual return constitution of variousboard level committees CSR Policy & initiatives taken during the year Boardevaluation etc.

XI. Directors’ Responsibility Statement

As required under Section 134(5) of the Companies

Act 2013 the Directors hereby confirm that:

i. In the preparation of the annual accounts the applicable accounting standards readwith requirements set out under Schedule III to the Act have been followed and there areno material departure from the same.

ii. The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profits of the Company for that period.

iii. The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities.

iv. The Directors have prepared the annual accounts on a ‘Going Concern’basis.

v. The Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively and

vi. The Directors have devised proper system to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

XII. Auditors

The Company had appointed M/s. Deloitte Haskins & Sells LLP Chartered Accountantsas Statutory Auditors of the Company to conduct audit of Financial Statements for the yearended March 31 2016. Their term of appointment expires at the conclusion of theforthcoming Annual General Meeting. The Board has approved the appointment of S. R.Batliboi & Co. LLP (part of Ernst & Young LLP) as Statutory Auditors for audit offinancial statements for FY 2016-17 subject to shareholder approval. Batliboi & Co.LLP have confirmed their eligibility.

The notes to financial statement referred to in the Auditors’ Report areself-explanatory and do not call for any further comments. The Auditors’ Report doesnot contain any qualification reservation or adverse remark except for not fulfillingthe criteria of adequate number of independent Directors as prescribed which is expectedto be complied soon.

Pursuant to the orders issued by the Central Government under section 148 of TheCompanies Act 2013 the Board of Directors of the Company has appointed M/s K G Goyal& Co. Cost Accountants for conducting the audit of the cost accounting recordsmaintained by the Company for all its products. As per provisions of Section 136 of TheCompanies Act 2013 the Annual Report including the audited accounts for the year will besent to all the shareholders.

XIII. Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Act read with Rule 5(1) of The Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are annexed to this report [Annexure 1].

In terms of the provisions of Section 197(12) of The Companies Act 2013 read withRules 5(2) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 a statement showing the names and other particulars of employees drawingremuneration in excess of the limits set out in the said Rules forms part of the Report.

However having regard to the provisions of the first proviso to Section 136(1) of TheCompanies Act 2013 the Annual Report excluding the aforesaid information is being sentto the Members of the Company. The said information is available for inspection atRegistered Office of the Company during working hours. Any member interested in obtainingsuch information may write to the Company Secretary at the registered office and the samewill be furnished on request. Further the details are also available on the Company’swebsite: www.hzlindia.com.

XIV. Acknowledgements

The Board of Directors places on record its sincere appreciation of the contributionmade by the employees and the employees’ unions in the success of the Company. TheDirectors also sincerely thank the Central Government and the State Governments ofRajasthan Andhra Pradesh Gujarat Karnataka Tamil Nadu Maharashtra Jharkhand andUttarakhand; and the bankers auditors vendors customers and the shareholders of theCompany for their continued support.

For and on behalf of the Board of Directors
Sunil Duggal A R Narayanaswamy
CEO & Whole-time Director Director
Place: Mumbai
Date: April 21 2016