In 5 years, a PSU well on its way to be global king of zinc

Not only has Hindustan Zinc scaled up capacities, production levels and profits multifold since its disinvestment, it has been in mission mode throughout — a new 1.7 lakh-tonne smelter plant commissioned just last week took only 20 months to set up whereas the world average is 28-30 months.

More importantly, the new plant makes the company the world’s third largest zinc producer, it is already the most cost efficient miner globally and will soon be the world’s lowest-cost zinc producer as well.

And it’s not stopping at that: by 2010, it aims to scale up capacity to 1 million tonnes per year, which would make it the global numero uno in zinc. Incorporated on January 10, 1966, as a public sector company after the takeover of the erstwhile Metal Corporation of India Limited (MCI), Hindustan Zinc, with zinc mines in Dariba, Rampura, Agucha and Zawar and smelter operations in Chanderiya and Chittorgarh, is one of the top performing disinvested PSUs in the country.

Of course, the key numbers and share price reflect that. Back in 2001, the dividend paid on a HZL share was a mere 50 paise. Five years after the sale, the dividend has gone up to Rs 5 per share. The share price has gone from a high of Rs 27 in 2001, to Rs 1,119 last year (now down to Rs 763).

Like Mehta says, the potential always existed. “The question for us was how you structure the organisation, motivate people and take them along the transition path, empower them and inculcate a performance-oriented culture. Once you decentralise and infuse trust among your workers, everything becomes easy,” he says. Keeping lines of communication open with its large number of workers right from Day One helped. HZL is unique in that sense. It got a lot of support from its unionised workers. Like in the other PSUs, the unions here too were insecure about the future.

But as U M Shankar Rao, HZL Workers’ Federation general secretary recalls, “We knew we should give in. Look what the strike did to BALCO. The company and its workers achieved nothing, then and now. We had met all political leaders that we could and were also planning to file a PIL when the Supreme Court order on BALCO was delivered and we decided against it.”

The government had already begun some work on rightsizing HZL’s unwieldy workforce of 15,300 employees in 2001. About 8,000 workers took VRS even before the company was disinvested. The company took forward the process, offering one more round of VRS to bring the employee size down to a more efficient 6,200.

Rao claimed that though the workers haven’t suffered any financial losses and get “a good bonus,” there’s a “sense of security while working with the government.” He admits, however, “that we have got over Rs 1 lakh as bonus which we would have never got as a government employee,” he adds.

What worked for the company was that the new management and the union worked in tandem rather than at odds with each other. “The union was very receptive of the change once they saw action on the ground level that was aimed at improving the company’s scale and efficiencies and our unbiased and result-oriented approach,” he says.

As a shopfloor supervisor in the plant points out, “To us, disinvestment became good news as we saw the pace of decision-making change, the red tape was cut out. Decisions that took six months earlier, were now taken on the phone.” Rao agrees, “If the management took care of our benefits and helped the company grow, we had nothing to complain about.

“We have retained some traditions of the past. At all company functions, the top executives and seniormost union leaders share the dais. And unions invite us for their annual meetings,” Mehta adds.

Apart from handling the unions, the management also slowly but steadily worked towards dealing with the major bottlenecks. Power being a major problem faced, the company set up a captive 154 MW Power Plant at Chanderiya, operational since 2005. It has also moved towards green energy — a 64 MW plant is already functional and another will be up and running by March 2008. The company has already spent over $300 million on its expansion plans. But the cash flows didn’t get squeezed as sales and profits kept growing dramatically. “We took a loan in 2003 but prepaid it in 2006,” Mehta points out. There were a slew of other initiatives to put the company on the global map.

In June 2004, a Six Sigma Initiative was launched in pursuit of becoming a “lowest-cost producer.” A year earlier, Total Productive Maintenance (TPM) was introduced for high levels of productivity.

Over the last five years, all its units are certified for ISO 9001, ISO 14001 and Occupational Health and Safety Assessment Series (OHSAS) 18001, while the Debari and Vizag Smelter have obtained Social Accountability 8000, indicating its great thrust on developing communities around its plants and mines.

While its zinc and lead sales continue to zoom, HZL is more unique as a mining company. From a position where it never mined for its lead production, it now mines over 1 lakh dry metric tonnes annually. And even though it has reserves that should keep it in good stead for 20 years, exploration is a key area.

“Exploration has always been considered the Geological Survey of India’s domain. Not even mining companies have a full-fledged team of 40 qualified geologists headed by an Australian expert. It’s very vital for a business growing at our pace,” argues Mehta.

“I am sure the government’s purpose has been more than served. No one would have imagined an expansion of the smelter every two years. It’s not just the company or workers who have gained — the country has become self-sufficient in zinc. Technical improvements have helped the environment, the economy has benefited, all this goes back into the what we call the development value chain and can’t be seen on a balance sheet,” asserts Mehta.

Consider. HZL paid Rs 2200 crore in income tax last year and Rs 720 crore in royalty to Rajasthan, more than half of the state’s royalty income and over ten per cent of its total revenue. Of course, the Centre has also earned healthy dividends on its residual stake of 29.5 per cent in the company.

Speaking of which, the company has initiated a dialogue with the government on buying it stake out as per the call option embedded in the sale pact. And unlike Balco, which has been denied the call option it exercised, for the last three years, HZL may have it easier — not in the least because it was already listed at the time of the sale. In any case, what may be lost by way of dividend income may be more than made up by rising tax and royalty inflows. After all, HZL may soon drive the world’s zinc market on its own.