Monday, March 18, 2013

Increase in productivity and efficiency

Hindustan Zinc has gained from consistent increase in productivity and efficiency, besides favourable market conditions.

Of course, the major factor going for the company is the resurgence in Zinc demand globally, which has a lot to do with the resurgence in iron and steel sector, where Zinc finds its major application. The future is expected to be better with the supply surplus that exists coming down to 233,000 tonnes in 2011 and 161,000 tonnes in 2012, according to ILZSG (International Lead & Zinc Study Group). Surplus in lead will grow on the other hand, to 9.64 million tones. However, HZL would feel more secure due to its dominating position in India, where the demand potential for both metals is far greater than supply. Demand for lead is expected to grow by 10-15% in 2010-11 due to the resurgence in the automotive sector, and that isn’t going to wane any time soon. Even in the case of zinc, as India builds its infrastructure and ramps up on steel consumption in particular, zinc will automatically get a boost. India’s per capita zinc consumption is at just 0.4kg compared with the global average of 1.8 kg.

Another interesting aspect of zinc-lead production is silver, which is a by product that can prove to be a big cash spinner for the company in the coming years. Akhilesh in fact contends that they could convert it into a separate profit centre. By 2013, they expect to take up silver production to 500 tonnes. According to the US Geologial Survey, economic silver below the earth’s surface is not expected to last for more than 9-10 years. But players like HZL are expected to continue to benefit, since they can produce it as a byproduct. Therefore, silver is being picked up as a metal with an excellent investment potential as well as for diverse industrial uses.

All in all, there is very little going against HZL at the moment, which had a huge ash balance of Rs.124.13 billion by the end of September. Global shocks of the kind that it faced during the recession cannot be ruled out altogether, since they would affect it even more as it gets increasingly globalised. Otherwise, the current position that HZL is in vis-à-vis its environment should ensure that it stays on the high growth path for some time to come, particularly on the back of growing end product demand. That should help it ride over raw material and production issues of the kind that it has faced so far in 2010.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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