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Indian Express
a day ago
- Business
- Indian Express
Hindustan Zinc: Fundamentals intact, but is the stock worth the risk?
A flurry of developments at Vedanta Group's crown jewel, Hindustan Zinc, has left investors and analysts divided. Over the past 16 months, this traditionally low-volatility stock has seen a rollercoaster ride. On the global front, Trump tariffs and geopolitical tensions have increased silver and zinc prices. On the domestic front, infrastructure development has boosted demand for zinc. On the operations front, the company is firing all smelters, running at 93% capacity, and breaking production records. Hindustan Zinc reported its second-highest revenue and net profit in FY25, following a record year in FY23. Despite this, its stock price has dipped 46% from its all-time high of Rs 807.70 on 22 May 2024. The stock underperformed the Nifty Metal Index, rising 132% in 5 years as against the 347% rally in the Index. 5-Year Stock Price Momentum of Hindustan Zinc and Nifty Metal Index Hindustan Zinc is among the top five silver producers in the world, and the only company that produces silver from primary sources. But its stock reported tepid growth even when silver prices reached a new lifetime high of over Rs 1.15 lakh per kg on July 14. What is preventing the stock from rallying? At the heart of investors' concerns is Hindustan Zinc's ownership structure. UK-based Vedanta Resources (VRL) holds a 56.38% stake in Vedanta Ltd (VDL). VDL holds a 63.42% stake in Hindustan Zinc. VRL has been deleveraging its balance sheet, which accumulated debt over the years from several failed acquisitions. Hindustan Zinc became the crown jewel of VDL as it was debt-free and had strong cash reserves. In May 2024, VDL's subsidiary Vedanta Semiconductors raised Rs 1,804 crore in secured debt from private creditors by pledging Hindustan Zinc shares. Vedanta Semiconductors gave a two-year unsecured inter-corporate loan to VDL, which the latter used to repay debt and pay brand fees to its holding company, VRL. Multiple such transactions shifted VRL's loan to VDL. In FY23, metal stocks had a fantastic year with a cyclical rally and robust profits. As the largest shareholder, VDL has the power to decide the dividend amount of Hindustan Zinc. VDL decided to use the money locked in Hindustan Zinc's reserves by issuing dividends. Hindustan Zinc's Dividends, Reserves, and Borrowings (FY 21-FY25) In FY23, Hindustan Zinc paid Rs 31,901 crore in dividends alone, which reduced its reserves by 64% to Rs 12,097 crore. These reserves are used to fund growth projects and give long-term returns to shareholders. VDL, as a shareholder, had the right to claim the reserves. But this reduced the company's capacity to self-fund expansion. Hindustan Zinc had to borrow money to meet its capital expenditure requirements. FY23 dividend converted the net cash company into a net debt company. While its debt-to-equity ratio remains below 1.0, the loss of reserves has weakened its balance sheet. Significant debt is a concern for metals and mining companies. They sell their output on the commodity prices, which are determined by market forces. They can only control the cost of production (CoP). Keeping debt low helps the company sustain a period of low prices and stay profitable. So far, Hindustan Zinc's debt is sustainable as the high price of zinc and silver and low CoP have increased the company's profits and operating cash flow. However, Hindustan Zinc's share price has declined, at least partly, due to a decrease in equity reserves over the last three years. Hindustan Zinc's Book Value Per Share From August 2020 to April 2025 Hindustan Zinc's promoters have been offloading stake after halving the reserve. Amidst this, Hindustan Zinc CEO Arun Misra's proposal to demerge the zinc and silver business was rejected by the Ministry of Mines. Misra, however, believes that demerging the precious metals segment will be value accretive, as Hindustan Zinc is India's only listed silver producer. This restructuring and reduction of reserves have limited the stock's upside potential. Hindustan Zinc is the second-largest integrated zinc manufacturer in the world. It has one of the lowest CoP at $1,055 per tonne (in FY25). As commodities are bought and sold in dollars, a strengthening of the dollar increases rupee cash flow. All three factors — higher commodity prices, depreciating rupee, and lower CoP — were in Hindustan Zinc's favour, which helped it report an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin of 51% in FY25. Factors Affecting Hindustan Zinc's EBITDA Its revenue surged 18%, EBITDA 28%, and profit after tax 33% in FY25. It reported its second-highest free cash flow before capital expenditure (capex) of Rs 13,784 crore. Hindustan Zinc is growing its production by 3-4% annually through operational improvements, which it believes could generate Rs 50,000 crore free cash flow pre-capex in five years. It now aims to double its production capacity from 1.13 million tons per annum (mmtpa) to 2 mmtpa in the long term as steel demand increases. It announced the first phase of this expansion, under which it will add 250,000 mtpa capacity over the next three years. Hindustan Zinc is basing its expansion on India's ambitious plan to achieve 300 mmtpa of steel production in the next 2-3 years. It expects the phase 1 expansion of Rs 12,000 crore to generate Rs 40,000 crore revenue and Rs 21,000 crore EBITDA. Hindustan Zinc's Earnings Expectations from Phase 1 Expansion Source: Hindustan Zinc Q4FY25 earnings With a Return on Capital Employed (ROCE) of 58%, growth capex should be welcome news. Capacity expansion could lead to higher EBITDA and free cash flow, helping it service debt and rebuild equity reserves, thereby increasing its enterprise value. The capacity expansion is projected to increase Hindustan Zinc's capacity to produce silver. At 1.2 mmtpa, the company produces 750 tons of silver. If the company reaches 2 mmtpa capacity, it could produce 1,200-1,300 tons of silver. The company is also implementing innovative technology at one smelter, which, if successful, could recover an additional 27 mtpa of silver and 6,000 mtpa of lead from the smelter waste without burning. The increasing mix of precious metals could help the company boost profits. These long-term growth drivers are being offset by short-term uncertainty around dividend policies and the parent company's demerger and deleveraging. Analysts have mixed ratings on Hindustan Zinc. JM Financial is bullish on Hindustan Zinc for its low CoP, high-grade, long-life captive mines, and its ability to scale. Even Motilal Oswal is optimistic about the zinc producer's expansion plans, but believes that the market has already priced in the positives. Analyst Ratings on Hindustan Zinc Source: Brokerage Reports Nuvama has a 'Reduce' call on Hindustan Zinc. It stated that expansion will facilitate long-term growth, but commodity prices could affect near-term earnings, making the stock's valuation expensive till then. The miner's valuation is determined by enterprise value to EBITDA (EV/EBITDA). While the capacity expansion and cost efficiencies are growing its EBITDA, high dividend payouts, which result in lower cash, and therefore higher debt, are potentially impacting overall valuations. The company's current EV/EBITDA is 10.7x, higher than its 5-year median of 9.0x, and double that of Vedanta's 5.65x. Adding to the volatility, US-based Viceroy Research took a short position against VRL's debt, alleging that the Vedanta Group is on the 'brink of insolvency.' Vedanta Group has denied the claims, calling them a 'malicious combination of selective misinformation and baseless allegations to discredit the group'. This controversy could keep Hindustan Zinc's share price volatile in the short term. However, Hindustan Zinc's strategic capital discipline, strong fundamentals, leaner cost base, and leadership in the fourth most widely used metal (zinc) make it a resilient stock that could continue paying dividends. Note: We have relied on data from throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
Mint
7 days ago
- Business
- Mint
Shareholders shrug off Viceroy's allegations, repose confidence in Vedanta
Shareholders reposed their confidence in Vedanta Ltd (VEDL) during the company's annual general meeting on Thursday, a day after a short-seller's report called the company a 'dying host' for its London-based 'parasite" parent Vedanta Resources Ltd (VRL). The company's shares settled 0.4% lower on the BSE at ₹ 438.95 apiece, mirroring the 0.41% fall in the benchmark Sensex. When one of the shareholders broke ranks to question the company's brand fee payments to VRL, Anil Agarwal, the founder and chairman of the Vedanta Group, chose not to respond. He simply called the short-seller report 'motivated,' before asking Deshnee Naidoo, the chief executive of VRL, who is not on the rolls of VEDL, to answer the question. Naidoo said that there was no new information in the short-seller report, and that it was based on public information. 'The authors have only compiled part information with gross inaccuracy which was discerned by the shareholders in the meeting,' she said. The management will stay focused on Vedanta's upcoming demerger, diversification and deleveraging debt. American short-seller Viceroy Research, which has also targeted Wirecard and Truecaller earlier, accused Vedanta Group of alleged financial misconduct and misrepresentation, making empty promises to shore up share prices, manipulating asset values, raising off-balance sheet loans, and corporate governance issues, Mint reported on Wednesday. Viceroy has accused VRL of draining cash from VEDL. One way is by charging branding fees even from subsidiaries like Hindustan Zinc, and ESL Steel that do not use the brand name. Except Vedanta Ltd, none of the companies paying brand fees make any meaningful use of the Vedanta brand name, but collectively they paid $361.3 million in brand fees in FY25. Vedanta Ltd has paid Vedanta Resources $1.16 billion in brand fees and strategic services over the past four years. Mumbai-listed Vedanta had closed 3.38% lower on the BSE on Wednesday after crashing nearly 8% intraday, while Hindustan Zinc Ltd, fell 2.56%. Analysts at JP Morgan on Thursday said that the firm remained comfortable with VEDL's leverage and took comfort in the government's oversight at Hindustan Zinc (HZL). The Indian government holds a 29.5% stake in the country's largest zinc producer. The brokerage said that it considers VEDL's shares to be priced cheaper within Asia and the emerging markets metals and mining space with healthy Ebitda generation. The key upside risks to the brokerage's recommendations were continued strong commodity prices, further de-leveraging at Vedanta, and potential asset sales or equity raises, it added. The key downside risks included an over 10% downturn in commodity prices, fresh borrowing upwards of $500 million and a decline in the firm's access to domestic bank funding leading to more expensive loans. Shareholders at the AGM said they were satisfied with the company's statement on the short-seller report and continue to support them. They called these claims misleading with no substance and the company will overcome the situation shortly just like Adani did after another short-seller Hindenburg released a report on them. A shareholder from Kolkata called the timing of the short-seller report unique since it was a day before the AGM. The conversation shifted to Vedanta's exposure to tariffs, capital expenditure plans and its upcoming demerger into five separately listed companies. 'Only 2% of Vedanta's revenues are exposed to US tariffs, although there is volatility in metal prices over the last 3-4 months, based on tariff news, because of robust margins the company sees benefit in the input costs because of the company's raw material strategy and hence the margins have largely intact,' said Naidoo. The company's chief financial officer Ajay Goel shared the mining company's capex for the current fiscal year to be $1.5-1.7 billion across the areas. The company allocates capital based on three basic principals- reward shareholders with dividends, investment for capital expenditure and maintaining the right level of debt leverage. The company is also preparing to demerge into five companies- Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron and Steel, and Vedanta Ltd, which will continue as the parent entity. Vedanta's chairman Agarwal expects the demerger to be completed by September this year and existing shareholders of the company will receive one share in each of the new companies, for each share they hold in Vedanta Ltd. Viceroy Research has a short position of undisclosed magnitude on the bonds of VRL, which it took in April. The short-seller has no exposure to the publicly traded shares of VDEL or HZL, as per Fraser Perring, the co-founder of Viceroy.
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Business Standard
7 days ago
- Business
- Business Standard
Anil Agarwal unveils 3D strategy to double Vedanta's business size
Billionaire industrialist Anil Agarwal has revealed plans to double the size of his mining giant Vedanta through a strategy centred around demerger, diversification and deleveraging, according to a report by the Press Trust of India. Speaking at Vedanta Ltd's 60th annual general meeting (AGM) on July 4, Agarwal told shareholders that each of the businesses being demerged has the potential to grow into a $100-billion company. 'Our 3D strategy—demerger, diversification and deleveraging — will enable us to double in size and unlock maximum value for our stakeholders,' he said. 'Our demerger proposal has received support from over 99.5 per cent of shareholders and creditors. This is a vote of confidence like no other,' he added, pointing out that the company is in the final stages of restructuring. 'Once implemented, for every share held in Vedanta Ltd, each shareholder will receive one share in each of the four demerged companies.' Focus on technology and innovation Vedanta also plans to collaborate with 1,000 startups in the technology sector. 'This will make Vedanta one of the largest innovation hubs, nurturing the next generation of technology champions who will shape the future of Bharat,' Agarwal said at the AGM. Following the demerger, Vedanta will form independent companies focused on aluminium, oil and gas, power, iron and steel, and zinc and silver. 'House of cards': What short-seller Viceroy Research said The AGM took place a day after US-based short-seller Viceroy Research published a report targeting Vedanta's parent firm, Vedanta Resources Ltd (VRL), labelling it a 'parasite' that is 'systematically draining' Vedanta Ltd, as earlier reported by Business Standard. Viceroy, which has taken a short position in VRL's debt, alleged in an 87-page report that the group is a 'house of cards built on a foundation of unsustainable debt, looted assets and accounting fiction'. In its report, the short-seller described VRL as a 'financial zombie', allegedly relying on unsustainable cash flows from Vedanta Ltd to service its own debt. The report alleged that the group's balance sheet is being weakened through excessive borrowing, manipulated accounting and masked cash transfers under the guise of brand fees and inter-company loans. 'This looting erodes the fundamental value of Vedanta Ltd, which constitutes the primary collateral for VRL's own creditors,' the report said. 'Consequently, VRL's actions to meet its short-term obligations directly impair its creditors' long-term ability to recover their principal, a situation that resembles a ponzi scheme.' Vedanta's rebuttal and future vision A Vedanta group spokesperson called the report an attempt to mislead stakeholders. 'The report is a malicious combination of selective misinformation and baseless allegations to discredit the group. It has been issued without making any attempt to contact us, with the sole objective of creating false propaganda,' the spokesperson said. 'Our stakeholders are discerning enough to understand such tactics. To avoid any responsibility, the authors have included disclaimers stating the report is for educational purposes and merely expresses opinions, not facts.' The group compared the allegations to the 2023 accusations levelled by now-defunct Hindenburg Research against the Adani Group. Share price impact and debt exposure Shares of Vedanta Ltd dropped by 3.38 per cent following the release of the report. Hindustan Zinc Ltd (HZL), a subsidiary of Vedanta Ltd, also saw its shares fall by 2.56 per cent. These declines raise concerns, as the entire stake of VRL in Vedanta Ltd is pledged, and 93.5 per cent of Vedanta Ltd's stake in HZL is also pledged with lenders. Expanding footprint and critical minerals push Vedanta Ltd, a unit of UK-based Vedanta Resources, operates in India, South Africa, Namibia, Liberia, the UAE and Saudi Arabia, spanning oil and gas, metals, minerals, power and electronics. Agarwal pointed out that while India's geology is comparable to resource-rich countries like Canada and Australia, only about 25 per cent has been explored so far. The company has secured 10 critical mineral blocks across the country, one of the highest by any private firm. It is also setting up the world's first industrial zinc park and India's largest aluminium park, aimed at supporting MSMEs and generating large-scale employment—marking what Agarwal described as the start of a 'metal revolution' in India.
The Hindu
10-07-2025
- Business
- The Hindu
Who is Viceroy Research? The short-seller targetting Vedanta Group
A U.S. short-seller, Viceroy Research, has flung allegations at Anil Agarwal-owned Vedanta Group, calling Vedanta Resources (VRL) a 'parasite' and a 'financial zombie' and its listed subsidiary Vedanta Ltd (VEDL) a 'dying host'. Viceroy Research, which has a short position on VRL's debt stack, said the Vedanta group structure was 'financially unsustainable, operationally compromised' and was a 'severe, under-appreciated risk to creditors'. The 87-page Viceroy Research report accused VRL of draining VEDL, forcing it to take on more debt and deplete its cash reserves, impaired creditors' ability to recover their principal, a situation that resembled a 'Ponzi scheme', it said. VEDL promoted capital-intensive projects that it could not afford to raise fresh capital, which was paid out to VRL, it alleged. Vedanta Group dismissed Viceroy Research report as 'a malicious combination of selective misinformation and baseless allegations to discredit the group'. Who is Vicereoy Research? According to its website, Viceroy Research LLC is an investigative financial research firm that is registered in Delaware, USA. The firm was founded in 2016 by Fraser John Perring and his Australian colleagues Aiden Lau and Gabriel Bernarde. The company first gained global scrutiny in 2017 with its research on South Africa's Steinhoff International. As a result of the investigation, extensive accounting errors were discovered and the company's shares fell more than 90%, wiping out billions of dollars in shareholder value. The firm also made a name for itself when it placed a bet against companies such as Elon Musk's Tesla. The short-seller has published reports on 29 businesses, according to their website. In 2018, it published a report on Advanced Micro Devices Inc and expanding on the financial impact of the CTS Labs vulnerabilities. In 2022, it targeted Truecaller for intentionally misdirecting valid criticism. In 2023, it filed a report on Tokyo-based Abalance for evading U.S. duties. The latest report on Vedanta Group is expected to have an impact on the Indian Stock Exchange. Shares of mining giant Vedanta dropped 3.38% to end at ₹440.80 on the BSE after the report. Viceroy's past controversies Medical Properties Trust, an Alabama-based real estate investment trust, filed a defamation suit against Viceroy in 2023, which was settled confidentially the next year. The South African FSCA had penalized the short-seller for making inaccurate and misleading claims on 'Capitec.'
Time of India
10-07-2025
- Business
- Time of India
Vedanta vs Viceroy: JP Morgan says don't get distracted, remain long
Rejecting American short-seller Viceroy Research 's report against Vedanta, global brokerage firm JP Morgan on Thursday said it is not getting distracted by the claims and remains long on Vedanta and its bonds. "We remain overweight on VEDLN (Vedanta Ltd) and its bonds ('28s, '29s, '30s, '31s) while being Neutral on VEDLN '33s," JP Morgan analyst Love Sharma said. Stating that it remains comfortable with Vedanta's leverage and the government's oversight of Hindustan Zinc , the brokerage said it considers Vedanta to be cheap within Asia and within the EM metals and mining space with healthy EBITDA generation ($5bn run-rate), improving funding access ($1bn bank loans have been raised by VRL in FY26), and attractive yields (~8-10%). Also Read | Explained: American Viceroy does a Hindenburg on Anil Agarwal's Vedanta. Here's what you need to know "We have generally focussed on Vedanta Ltd's cash flows and earnings excluding Hindustan Zinc (HZL) to unravel the key drivers of the credit. VDL (ex-HZL) reported EBITDA of $3.1bn in FY25 and a net leverage of 2.2x. We struggle to see financial stress at VDL with these metrics. For HZL, net leverage was 0.1x. HZL has capex plans and we see net leverage going up to 0.5x," Sharma said. Live Events On Hindustan Zinc , he said the government had call/put options requiring Vedanta to purchase/sell government's or its stake at a 50% premium/discount to the market price of HZL shares. "These options could be exercised within 90 days of the GoI becoming aware of a default on a particular condition related to the completion of a smelter plant in a specific location. The project was to be completed by 2007, but HZL completed the smelter at a different location after informing the GoI. We would be surprised if any breach had not been identified by the GoI over the past ~20 years," he said. On Thursday, Viceroy Research released an 87-page report claiming that Vedanta Ltd's parent entity Vedanta Resources (VRL) is a 'parasite' running a 'ponzi scheme' that has 'pushed the entire group to the brink of insolvency'. Alleging that the entire group structure is "financially unsustainable, operationally compromised, and poses a severe, under-appreciated risk to creditors', it said it is short the debt stack of VRL. The firm claims VRL, the heavily indebted parent company, is a "parasite" with no significant operations of its own, surviving entirely by draining cash from its "dying host" - Vedanta Limited. After falling over 3% in previous session, Vedanta shares were trading near marginally lower in the afternoon session.
