Billionaire Anil Agarwal’s Hindustan Zinc has proposed hiving off its highly profitable silver portfolio into a separate company, mirroring the shareholding pattern of the parent firm. The government owns 29.5 per cent of Hindustan Zinc (HZL) and will have to give its consent for this restructuring proposal to take effect.

Silver, a by-product of zinc, offers a return that is nearly 40-50 times higher than zinc. As the sole producer of silver in India, HZL is poised to reap benefits from the government’s focus on solar energy projects and use of electric vehicles, both tipped to boost demand for silver.
In a letter to Secretary (Mines), Sunil Duggal, MD, Hindustan Zinc, outlined the proposed plan citing valuations of overseas precious metal companies that enjoy much higher multiples (almost double) than base metal producers. The company said it is on target to achieve 1,500 MT production in three years, and a move to hive off its silver business will “unlock substantial value” for its stakeholders. Silver contributed Rs 1,850 crore to HZL’s operating profit in FY18 while accounting for 9 per cent of its revenues.
Hindustan Zinc, since its privatisation 15 years ago, has ramped up production of silver from 41 tonne to 600 tonne. In the pecking order for integrated silver producer, Hindustan Zinc ranks as the 10th largest producer in the world. When contacted by ET, Mines Secretary Anil Mukim said the ministry is yet to receive a proposal.
“A split of commodities business from expensive silver will certainly lead to value unlock as world-over, commodity businesses normally are lower value than the precious metal businesses,” said Girish Vanvari, founder, Transaction Square, a tax, regulatory and business advisory firm.
Ever since the privatisation of Hindustan Zinc, there has been talk of the government selling its residual stake in the Zinc producer. However, the delay has only helped the second-largest shareholder gain in terms of dividend and capital appreciation.
“If any divestment is planned after the restructuring, then the proceeds could be higher,” said Vanvari.
Analysts tracking the company expect such a restructuring to be complex. Since silver is a by-product when Zinc is processed, questions arise as to how can it be hived off into a separate company. “Hiving off the silver business will be a complex proposition as the two metals (silver and lead) are by-products of Zinc ore, “said Ashutosh Tiwari, an analyst tracking the company at Equirus.
“It is easier to hive off the silver refinery which processes the ore, as a separate business,” Tiwari added.
But the case for hiving off its silver business makes sense because silver and precious metal companies command a significantly higher valuation multiple, said a source in the company. Mexico’s Fresnillo, the largest silver miner in the world, has an EV/Ebitda multiple of 15 times as against HZL’s multiple of 8 times, the source added.
For HZL’s silver business, at an EV/Ebitda multiple of 15 times, the additional value unlocking opportunity at 1,500 tonnes can be upwards of Rs 55,000 crore to Rs 75,000 crore.
In addition there is potential increase of silver prices which are currently at multi-year lows. Accelerating silver demand due to an exponential increase in solar energy installations is likely to trigger a price rally.
“Investors buying the precious metals space are often different from those wanting to invest in base metals and are willing to pay a premium for companies in the precious metal space,” he reasoned.
India is the largest consumer and importer of silver in the world with volumes of well over 7,000 tonne. While industrial use dominates world silver demand with a 51% share, in India it remains at just 16%.
HZL produces high quality silver with a purity of 99.9%. In a significant move, HZL has recently decided to invest about Rs. 570 crore to commission its first zinc fumer plant that will extract silver from slag. The company’s silver-rich Sindesar Khurd mine in Rajasthan, one of the country’s largest underground mines, is also being expanded with ore production slated to go up 25% to 6 mt.