Hindustan Zinc Ltd. has announced a significant Rs 12,000-crore capital expenditure plan aimed at substantially expanding its zinc production capacity. This ambitious move signals the firm's intent to capitalise on India's ongoing demand for zinc, driven by growth in the steel and infrastructure sectors.
However, with Rs 177 crore cash on hand, the company appears poised for substantial external borrowing.
The expansion strategy focuses on enhancing both its refined metal and mined metal capacities over the next 36 months.
This strategic addition aims to increase the existing refined metal capacity of 1,129 kilo tonnes per annum by 250 KTPA, bringing the post-expansion total capacity to 1,379 KTPA.
The company also plans a substantial mined metal capacity expansion. From an existing capacity of 1,180 KTPA, a proposed addition of 330 KTPA will push the post-expansion total mined metal capacity to 1,510 KTPA.
The rationale for this substantial investment is rooted in strong demand projections. The International Zinc Association projects Indian zinc demand to double in the next 5-10 years.
Investor Concerns: Debt, Dividends, Cash Flow
The ambitious capital expenditure plan is set to be financed through a combination of internal accruals and debt. This increased reliance on debt is a concern for investors, as higher debt levels typically translate to increased interest expenses, which could eat into future profits and overall financial health.
Furthermore, a large capital expenditure often signals a shift in a company's capital allocation strategy. This massive investment could lead to reduced dividend payouts in the near to medium term.
For Hindustan Zinc, a company historically valued for its consistent and generous dividends, this potential reduction can be a major point of contention and a key reason for heightened market scrutiny.
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