The Board of Hindustan Zinc Ltd (HZL) on Friday, September 29, authorised the committee of directors to evaluate appropriate corporate restructuring exercise to unlock shareholder value. The idea is to unlock separate legal entities for undertaking the zinc and lead, silver, and recycling business of the company.

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In an exclusive interaction with CNBC-TV18, Arun Misra, the CEO of HZL said that the proposed restructuring will ease disinvestment by the government. Edited excerpts:

How does it benefit to demerge the company into separate entities?

Hindustan Zinc being an integrated producer of zinc gets a PE (price-earnings) multiple of 12, similar to zinc producers globally inspite of a 30 percent profit contribution from its silver business. Considering our leadership position as the fifth largest global producer of silver and the momentum of growth we witnessed in the last decade, we are confident of making India self-reliant in silver. Globally, silver industry leaders get a higher multiple for precious metals. HZL’s silver business vertical, backed by strong R&R and expertise, has the potential of possessing such multiple and unlocking value. Further, minor metal recovery enhancing wealth from waste is a leading vision of the company. With the adoption of advanced technologies and techniques to reduce waste, enhance recovery and with the potential of producing from tailings, tremendous opportunities and potential value creation exists in this vertical. Currently, the recycling companies have a PE multiple ranging from 15-20 globally. Basis above, management is of the view that appropriate value is not being accurately reflected in the overall valuation due to multiple business verticals. Hence, the proposed restructuring evaluation exercise will enable to unleash true potential value for all the stakeholders. As the next step, management will appoint advisors and accordingly, we will be able to comment on the value.

Silver is a by-product of zinc so how will the separate structure work?

We report silver as a separate segment in our financial statements historically. We have been evaluating the potential value creation and unlock for quite some time now. Silver is one of the leading strategic metals, HZL is the only producer of silver in the country and the value potential available is based on the silver industry leaders, the review of structure is being proposed. The committee of directors has been authorised by the Board at this stage and the management along with the appointed advisors will recommend the final structure/scheme to the Board for further approval.

GOI has a stake in HZL, is it on board with this plan of restructuring?

The Board has authorised a committee of directors to evaluate and recommend such options and alternatives to the Board of Directors. The management along with the appointed advisors will recommend the final structure/scheme for further approval to the Board of Directors which includes GoI. Further, we believe that the proposed exercise will ease disinvestment by GoI and will help in realising better potential value considering separate Silver and Recycling entities fetching a higher PE multiple and will provide an option to investors to invest in separate entities like base metal/precious metal /recycling business.

Will you bring in the international zinc asset into one of the demerged entities of HZL?

Our fundamental growth strategy is to enhance the capacities organically as well as inorganically with the overall vision of becoming the number one zinc and lead producer. We continue working towards the same. Any acquisitions will be made on the basis of the board and all stakeholders' approval.

Will you sell off any of these assets?

The strategic objective for undertaking such an exercise is to unlock potential value and recommend evaluated options and alternatives to the Board of Directors to tap on below:

1) Unlocking value for all stakeholders.

2) Creation of businesses that are positioned to better capitalise on their distinct market positions, deliver long-term growth.

3) Distinct investment profiles to attract deeper and broader investor bases.

4) Accelerate towards sustainability goals focused on waste to wealth, emissions reduction and strong ESG practices.

5) Appropriate capital structure and capital allocation policies based on business-specific dynamics Sharpen focus on core competencies and appropriate realignment of the Company’s resources.

What’s the timeline for demerger?

At present, the committee of directors is authorised and the management along with the appointed advisors will come up with the final structure/scheme for board approval which will be followed by shareholder’s approval through a special resolution with a 75 per cent majority in value. The timeline will depend upon the requisite approvals. We are targeting to present to the Board the various options in the next 4-8 weeks.

First Published:Sept 29, 2023 5:22 PM IST