Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AAA/Stable/Crisil A1+' ratings on the bank facilities and debt programmes of Hindustan Zinc Ltd (HZL).

 

The ratings continue to reflect the company’s dominant position in the domestic zinc market, efficient and integrated operations, and strong financial risk profile. These strengths are partially offset by susceptibility to cyclicality in the galvanised steel sector, and geographic and product concentration in revenue.

 

The operating performance of the company improved in fiscal 2025, backed by robust commodity prices, amid improvement in global demand, including China, and lower metal inventory. This, coupled with efficient cost of production and easing energy prices due to reduction in domestic power cost, has supported healthy operating profitability and the same will remain a key monitorable. During fiscal 2025, HZL achieved earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 17,388 crore on a consolidated basis, which is 25% higher on-year. Further, HZL achieved highest ever metal production of 1,052 KT, which is 2% increase on-year.

 

The company declared dividends of Rs 12,253 crore during the last fiscal (as against Rs 5,493 crore in full fiscal 2024), which resulted in the company becoming net debt positive (total debt minus total cash and equivalent) as on March 31, 2025, of Rs. 1,712 crore (including buyer’s credit debt of Rs. 569 crores) compared with net cash (total cash and equivalent minus total debt) positive position of around Rs 1,199 crore as on March 31, 2024. However, despite the increase in debt, the capital structure remains strong as the net leverage (ratio of net debt to Ebitda) is very low at 0.1 times, while the cash accruals remain strong, and liquidity remains high. Furthermore, Crisil Ratings expects that dividend outflow to be materially lower from fiscal 2026, while operating cash accrual will remain strong with annual Ebitda of more than Rs 15,000 crore. Crisil Ratings expects the company to become net cash-positive this fiscal along with strong capital structure and liquidity profile on a sustainable basis. Any deviation from this understanding will be a key rating monitorable.

 

Crisil Ratings also notes the intent of the company’s management to evaluate possibilities of demerger of HZL into multiple entities. However, nothing is final yet and no decision has been taken by the company’s board on any transaction. Further, contours of the transaction including the capital structure of the entities along with allocation of assets and liabilities between the proposed entities will be critical to assess the impact of the transaction. Crisil Ratings will, however, continue to monitor developments on this front.

Analytical Approach

Crisil Ratings has changed its analytical approach and has now evaluated the consolidated business and financial risk profiles of HZL, against a standalone approach earlier.

 

Historically, there was no material difference between the standalone and consolidated profiles, hence a standalone view was maintained. However, in the past two fiscals, strategic subsidiaries with meaningful operations have been incorporated, warranting a change in approach.

 

Buyer’s credit/suppliers credit of Rs. 569 crores in FY25 has been classified as debt (Rs. 399 crore in FY24).

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Dominant position in the domestic zinc market: The company has mined metal capacity of around 1.2 MTPA and smelter capacities of 913,000 TPA for zinc, 210,000 TPA for lead and 800 TPA for silver. It is the world’s largest zinc-lead miner and fourth-largest zinc-lead smelter globally. With a market share of around 77% by volume, it is the leading player in the domestic zinc market. High entry barriers such as capital-intensive operations and lack of zinc ore mines lend a competitive edge to the business risk profile. Also, presence in the global market enhances revenue diversity; in fiscal 2025, export accounted for around 23% of the turnover.

 

Integrated operations and high-grade reserve, leading to competitive cost position: The cost of production for HZL ranks in the first quartile globally (zinc metal cost, excluding royalty, was USD 1,052 per tonne in fiscal 2025, down from USD 1,117 per tonne in fiscal 2024 and USD 1,257 in fiscal 2023). Operating efficiency was high, driven by fully integrated operations (with captive power plant capacity of 514 MW) and low-cost, high-grade zinc reserve. As on March 31, 2025, total reserve and resources were 453.2 MT, ensuring long mine life of over 25 years. With access to bulk of the lead-zinc deposits in Rajasthan through long-term agreements with the government of India, the company should be able to sustain as a low-cost producer of zinc over the medium term.

 

Strong financial risk profile, driven by healthy liquidity and conservative capital structure: The financial risk profile is supported by high networth and strong liquid surplus. Cash and equivalent stood at Rs 9,508 crore as on March 31, 2025 (Rs 10,185 crore as on March 31, 2024). However, backed by healthy cash accrual, dividend payout is generally large to increase shareholders’ return as well as to support debt at Vedanta Resources Ltd (VRL; the ultimate parent of HZL). HZL paid dividends of Rs 12,253 crore in fiscal 2025 (Rs 5,493 crore in fiscal 2024 and Rs 31,901 crore in fiscal 2023). Further, it had debt of Rs 11,220 crore as on March 31, 2025 (Rs 8,855 crore as on March 31, 2024, and Rs 12,148 crore as on March 31, 2023), raised to fund capex and meet temporary cash flow mismatch on account of dividend payouts in past fiscals. However, the financial metrics are expected to remain strong over the medium term because of healthy operating profitability and cash accrual. Sustenance of the same will be monitorable.

 

Weaknesses:

Exposure to cyclicality in the galvanised steel sector: Demand for zinc is closely linked to the galvanised steel industry, which consumes around 70% of the zinc produced in India. The steel industry depends on the growth of end-user segments such as automotive, consumer durables, batteries, home appliances, construction and infrastructure. Downturns in any of these segments will reduce demand for galvanised steel. Moreover, zinc faces threat of substitution with aluminium and other alloys to produce galvanised steel. Furthermore, fluctuations in London Metal Exchange (LME) zinc and lead prices can lead to volatility in Ebitda.

 

Exposure to regulatory and concentration risks: Concentration risk persists as the zinc business accounts for more than 75% of revenue and profitability. The company faces regulatory risks as the business (all mines) is concentrated in Rajasthan. Also, royalty cost per tonne of mined metal has increased by more than 125% in the past six years.

Liquidity: Superior

Cash and liquid investments stood at Rs 9,508 crore as on March 31, 2025 (Rs 10,185 crore as on March 31, 2024). The company had debt of Rs 11,220 crore as on March 31, 2025 (Rs 8,855 crore as on March 31, 2024). Although dividend outflow remained high (to increase shareholders’ return and continued assistance towards VRL’s debt obligation), liquidity is expected to remain strong owing to robust cash accrual.

 

Environment, social and governance (ESG) profile

Crisil Ratings believes the ESG profile of HZL supports its strong credit risk profile.

 

The zinc manufacturing sector has a significant impact on the environment owing to high emissions, waste generation and water consumption. This is because of the energy-intensive metal and mining process and its high dependence on natural resources such as zinc ore and coal as key raw materials. The sector also has a significant social impact because of its large workforce across operations and value chain partners and impact of operations on local community and health hazards involved. HZL has been focusing on mitigating its environmental and social risks.

 

Key ESG highlights:

• HZL is focusing on reducing the carbon footprint of its production process. It is targeting 10% (0.5 MN tCO2e) reduction in greenhouse gas (GHG) emissions by 2025 over a base of fiscal 2017.
• The company aims to become 5 times water-positive, as against 2.4 times in 2020. It is also targeting 25% reduction in freshwater usage.
• Its total recordable injury frequency rate (TRIFR) of 1.84 is lower than 2.7 in fiscal 2020, representing strong human capital management. The company targets 50% reduction in TRIFR by 2025.
• Around 33% of the board comprises independent directors (none of them having tenure exceeding 10 years), three nominees of government of India (strong minority shareholder), split in chairman and CEO positions, dedicated investor grievance redressal mechanism and healthy disclosures.

 

There is growing importance of ESG among investors and lenders. HZL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowing in overall debt and access to capital markets, primarily domestic.

Outlook: Stable

HZL will continue to benefit from its favourable capital structure and healthy liquidity, driven by dominant position in the domestic market, high cash flow from the core business, and efficient and integrated operations.

Rating sensitivity factors

Downward factors:

• Sustained negative free cash flow, leading to material net debt (Total debt minus total cash more than 0) position on a continued basis
• Significant increase in cost of production, including royalty payout, lowering profitability and adversely impacting the business risk profile

 

About the Company

HZL was incorporated in 1966 as a public sector company. In fiscal 2003, the government divested 26% of its equity in HZL to Sterlite Industries Ltd, which later made an open offer for an additional 20%. In fiscal 2004, Sterlite Industries Ltd acquired an additional 18.92% stake by exercising an option granted by the government to increase its stake to 64.9%. After the restructuring of the Vedanta group in India, HZL became a 64.9% (now decreased to 63.4%) subsidiary of Vedanta Ltd ('Crisil AA/Crisil A1+/Watch Developing'). Based in Udaipur, Rajasthan, HZL has zinc and lead mines in Rampura Agucha, Sindesar Khurd, Rajpura Dariba, Zawar, Kawad and Bamnia Kalan mines; primary smelter operations in Chanderiya, Dariba and Debari (all in Rajasthan); and finished product facilities in Uttarakhand.

Any other information: Not Applicable