Hindustan Zinc Ltd Directors Report.

Dear Members,

The Directors are pleased to inform that Hindustan Zinc delivered strong performance from all our underground mines and many benchmarks in operational and financial performance were set during the year.

I. FINANCIAL PERFORMANCE

We share with you our 52nd Annual Report, together with the Audited Financial Statements for the year ended March 31, 2018.

FINANCIAL INFORMATION

Rs in Crore

Particulars FY 2018 FY 2017
Revenue from operations (net of Excise Duty) 22,084 17,273
Other Income 1,751 2,474
Profit before depreciation, interest and tax 14,263 12,213
Less: Interest 283 202
Less: Depreciation and amortization expense 1,483 1,811
Profit before tax 12,497 10,200
Less: Net tax expense 3,221 1,884
Net Profit 9,276 8,316
Earnings per share, Rs 21.95 19.68

Revenue The Company reported ‘Revenue from operations (net of excise duty) of Rs 22,084 Crore, an increase of 28% y-o-y driven primarily by higher metal volumes and prices partly offset by impact of rupee appreciation.

The ‘Other income was Rs 1,751 Crore during the year compared to Rs 2,474 Crore in the previous year on account of lower rate of return resulting from a broader decline in interest rates as well as lower investment corpus on account of special dividend payment.

PRODUCTION COST

Net zinc metal cost, without royalty, during the year was higher by 14% in INR (18% in USD) at Rs 63,583 ($976) primarily due to 38% increase in imported coal prices and metcoke prices and about 15% increase in diesel prices as well as lower ore grades, partly offset by higher metal production.

OPERATING MARGIN

The above revenue and production cost resulted in Profit before depreciation, interest and tax (PBDIT) of Rs 14,263 Crore in FY 2018, up 17%.

nET PROFiT The Company reported record net Profit of Rs 9,276 Crore, 12% higher than previous year on account for higher PBDIT and lower depreciation, partly offset by higher tax. With effect from April 1, 2017, the Company has changed its depreciation method and revised certain estimates relating to depreciation resulting in a lower charge for the full year by Rs 321 Crore.

Net Profit was also impacted by a one-time exceptional gain of Rs 291 Crore related to the Supreme Courts favourable judgement on District Mineral Foundation (DMF) levies leading to write back of excess DMF liability for the period January 12, 2015 to September 16, 2015. This was reduced by a one-time exceptional loss of Rs 51 Crore related to gratuity provision for earlier years as per the ceiling enhancement announced towards end of the year.

EARNINGS PER SHARE (EPS)

The EPS for the year was Rs 21.95 per share as compared to Rs 19.68 per share in FY 2017.

Dividend

On March 16, 2018, the Board of Directors declared second interim dividend of 300% i.e. Rs 6 per share on equity share of Rs 2. Together with the interim dividend of Rs 2 (100%) paid in October 2017, the aggregate interim dividend paid during FY 2018 was Rs 8 per share (400%) amounting to Rs 4,068 Crore including DDT. In view of the second interim dividend, no final dividend is recommended.

CREDIT RATING AND LIQUIDITY

CRISIL has reaf_rmed the Companys long-term rating of AAA/Stable and short-term rating of A1+. The Companys strong financial risk pro_le is driven by its sustained strong liquidity and conservative capital structure as well as its integrated operations, highly competitive cost position and high-grade reserves.

The Company follows a conservative investment policy and invests in high quality debt instruments. As on March 31, 2018, the Companys cash and cash equivalents was Rs 20,395 Crore invested in high quality debt instruments and the portfolio is rated "Tier –1" implying Highest Safety by CRISIL. During the year, the Company paid off Rs 8,000 Crore of short term commercial paper raised in March 2017 to meet the special interim dividend funding requirement.

CASH FLOWS

Rs in Crore

Particulars FY 2018 FY 2017
Opening Cash* 23,972 35,272
Add: EBITDA** 12,376 9,734
Add: Net Interest Income 1,291 2,166
Less: Income Tax & Dividend 13,497 21,310
Less: Capital Account Payments 2,733 2,008
(Increase) / Decrease in Working Capital & Others -1,014 118
Closing Cash* 20,395 23,972

(*) Includes Cash and Equivalents (refer Note 11 of the Audited Financial Statements) and Current Investments (refer Note 9 of the Audited Financial Statements) (**) Earnings before Interest, Tax, Depreciation and Amortization expenses and Income on investments.

GROSS WORKING CAPITAL

Gross working capital represented by inventory, trade receivables and other current assets decreased from Rs 2,486 Crore to Rs 1,956 Crore as at March 31, 2018 primarily due to reduction of ore, mined metal and stores inventory. The working capital cycle was 32 days in FY 2018 as compared to 52 days in FY 2017.

GROSS BLOCK

The gross block during the year increased from Rs 20,975 Crore to Rs 23,879 Crore. This was largely due to the ongoing mining projects and other sustaining capex.

CAPITAL EMPLOYED

The total capital employed as at March 31, 2018 was Rs 15,537 Crore, as compared to Rs 14,740 Crore at the end of previous fiscal year. The increase is mainly due to addition in fixed assets as reduced by reduction in gross working capital and repayment of temporary borrowings.

CONTRIBUTION TO THE GOVERNMENT TREASURY

The Company has contributed Rs 9,301 Crore during FY 2018, in terms of royalties, taxes and dividends to the Government treasury on cash basis, aggregating to approximately 42% of the total revenue.

II. OPERATIONAL PERFORMANCE

Production

Mined metal production for FY 2018 was 947 kt, 4% higher from a year ago and the highest ever. This was driven by higher ore production from underground mines, partly offset by lower open-cast production and lower ore grades. Performance from underground mines remained robust, attaining best ever ore and mined metal production during the year.

In FY 2018, the Company delivered record integrated refined zinc-lead metal production at 960kt, up 18% from a year ago, driven by higher smelter efficiency and uniform availability of mined metal throughout the year. Integrated zinc production was 791kt as compared to 672kt a year ago, an increase of 18%, while integrated saleable lead production was 168kt as compared to 139kt from a year ago, an increase of 21%.

During the year, integrated saleable silver production was a record 558 MT as compared to 453 MT a year ago, an increase of 23%, in line with higher lead production.

The Company generated record 4,155 million units of power in FY 2018 as compared to 3,345 million units in FY 2017. Total wind power generation was 414 million units as compared to 448 million units in FY 2017.

SALES

The refined zinc metal sales in the domestic market during the year was 515 kt, while export sales accounted for 278kt. The aggregate sales were higher by 13.9% than previous year. Lead metal sales in the domestic market were 139 kt, while export sales were 30 kt leading to higher aggregate sales of 22.1% from a year ago. The increase was in line with higher metal production during the year. Silver sales were 556 MT in FY 2018, all in the domestic market and 23.9% higher than previous year.

III. RESERVE AND RESOURCE (R&R)

During the year, the Company added 19.5 million MT to its R&R, prior to a depletion of 12.6 million MT during the period. Total R&R on March 31, 2018 were 411.3 million MT containing 35.7 million MT of zinc-lead metal and approximately 28,500 MT of silver.

IV. PROJECTS

The announced mining projects are progressing in line with the target of reaching 1.2 million MT per annum of mined metal capacity in FY 2020.

UPDATE ON ONGOING EXPANSION PROJECTS

The announced mining projects are progressing in line with the expectation of reaching 1.2 million tonnes per annum of mined metal capacity in FY 2020. Capital mine development was 38.5 km during the year, an increase of 65% y-o-y.

Rampura Agucha underground reached an ore production run-rate of 3.0 mtpa towards the end of the year. The main shaft hoisting and south ventilation shaft systems were commissioned during the year, while off-shaft development is on track. Production from the main shaft is expected to start as planned from Q3 FY 2019.

Sindesar Khurd mine achieved its target capacity of 5 million tonnes towards the end of the year and is gearing up for higher production. The main shaft was equipped during the year and winder installation work has begun. Production from the shaft is expected to start as scheduled in Q3 FY 2019. Civil and structure erection for the new mill is ongoing and expected to be commissioned in Q2 FY 2019.

Towards the end of the year, orders were placed for paste _ll plants for both the Rampura Agucha and Sindesar Khurd mines.

Zawar mines achieved record ore production of 2.2 million tonnes during the year and production capacity has been ramped up to 3.0 mtpa. The existing mill capacity was debottlenecked to 2.7 mtpa. Civil construction work for the new mill is progressing well, with commissioning expected by Q4 FY 2019.

Ministry of Environment, Forest and Climate Change (MoEF) has given environmental clearance for the expansion of ore production at the Kayad mine from 1.0 to 1.2 mtpa. The Kayad project is now operating at its rated capacity of 1.2 mtpa.

The Fumer project at Chanderiya is progressing as scheduled and expected to commission in mid FY 2019

NEXT PHASE OF EXPANSION ANNOUNCED

Based on a long-term evaluation of assets and in consultation with global experts, the Company is evaluating plans to increase its mined metal capacity from 1.2 to 1.5 million MT per annum. The Board has approved the Phase I of this expansion which will increase mined metal from 1.20 to 1.35 million MT per annum through brown_eld expansion of existing at an estimated capital expenditure of Rs 4,500 Crore.

Phase I includes incremental ore production capacity of 0.5 million MT per annum each at Rampura Agucha, Sindesar Khurd and Rajpura Dariba mines bringing the total capacity to 5.0, 6.5 and 2.0 million MT per annum respectively. The capacity of Zawar mines will be increased by 1.2 to 5.7 million MT per annum. These projects will take total ore production capacity to 20.4 million MT per annum and mined metal capacity from 1.20 to 1.35 million MT per annum. Phase I will be completed in three years and will be done concurrently with the ongoing expansion which is now in its final stages.

V. OUTLOOK

Mined metal and refined zinc-lead production in

FY 2019 is expected to be slightly higher than that of last year, filling the gap caused by completion of open-cast production. Silver production is expected to be in the range of 650 to 700 MT.

COP before royalty is projected to be in the range of USD 950 to 975 per MT in FY 2019. Tax rate is expected to trend up while quarterly depreciation expense is expected to be in the range of Rs 350 to Rs 400 Crore. The project capex on mining and smelter expansions is expected to be approximately USD 400 million in FY 2019.

VI. HEALTH, SAFETY AND ENVIRONMENT

The Companys efforts towards building a safety culture and achieving its goal of zero harm has led to reduction in Lost Time Injury Frequency Rate by 10% for the year and by 69% over the last 5 years to the lowest ever at 0.27.

Despite our best efforts, there were regrettably two fatalities during the year at Chanderiya Fumer and Rampura Agucha underground mine project sites. Both the accidents were investigated and corrective actions have been taken to make workplace safe. Safety and sustainability initiatives have been discussed in detail in ‘Business Review, which forms a part of this Annual Report.

VII. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Companys CSR focuses on Education; Sustainable Livelihoods; Womens Empowerment; Health, Water and Sanitation; Sports and Culture; Environment; and Community Development including Community Assets Creation.

During the year, the Company spent Rs 92.18 Crore on CSR programs as compared to Rs 49.40 Crore in previous year. For further details, refer Annexure 5 and ‘Business Review section of this Annual Report.

VIII. DIRECTORS

During the year under review, there has been no change in the Directors of the Company.

IX. MANAGEMENT DISCUSSION AND ANALYSIS

The Business Review section of this Annual Report gives a detailed account of the Companys operations and the market in which it operates, including its initiatives in areas such as human resources, sustainability and risk management.

X. CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT

As a listed company, necessary measures are taken to comply with the listing agreements of the Stock exchanges. A report on Corporate Governance, along with a certi_cate of compliance from the statutory auditors, forms part of this report. Further, Business Responsibility Report describing the initiatives taken by your Company from an Environmental, Social and Governance perspective, also forms a part of this report. Various disclosures as required under section 134 and 135 of the Companies Act 2013 are annexed to this report or covered in the Corporate Governance Report, such as Related Party Transactions; Information and details on conservation of energy, technology absorption, foreign exchange earnings and outgo; extract of annual return; constitution of various Board level Committees; Annual Report on CSR.

XI. DIRECTORS RESPONSIBILITY STATEMENT

As required under Section 134(5) of the Companies Act, 2013, the Directors hereby con_rm that:

i. In the preparation of the annual accounts, the applicable accounting standards read with requirements set out under Schedule 3 to the Act, have been followed and there are no material departures in the same.

ii. The Directors have selected such accounting policies, applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profits of the Company for that period.

iii. The Directors have taken proper and suf_cient care for the maintenance of adequate accounting records in accordance with the provisions of this Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

iv. The Directors have prepared the annual accounts on a ‘Going Concern basis.

v. The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and vi. The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively

XII. AUDITORS

The Company had appointed M/s. SR Batliboi & Co. LLP, Chartered Accountants, as Statutory Auditors of the Company to conduct audit of Financial Statements for the year ended March 31, 2018. The Notes to Financial Statement referred to in the Auditors Report are self-explanatory and do not call for any further comments. The Auditors Report does not contain any quali_cation or reservation. The only adverse remark given by Statutory Auditors and Secretarial Auditors (M/s. V. M. and Associates) is for not fulfilling the criteria of adequate number of Independent Directors which is expected to be complied soon.

Pursuant to the orders issued by the Central

Government under section 148 of The Companies Act, 2013, the Board has appointed M/s K G Goyal & Co. Cost Accountants for conducting the audit of the cost accounting records maintained by the Company for all its products and M/s V M & Associates, Company Secretaries as the Secretarial Auditors for conducting the Secretarial audit of the Company.

As per provisions of Section 136 of the Companies Act, 2013, the Annual Report including the Audited Accounts for the year will be sent to all the Shareholders.

XIII. PARTICULARS OF EMPLOYEES

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached to this report. In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits set out in the said Rules forms part of the Report. However, having regard to the provisions of the _rst proviso to Section 136(1) of the Companies Act, 2013, the Annual Report excluding the aforesaid information is being sent to the Members of the Company. The said information is available for inspection at Registered Office of the Company during working hours. Any member interested in obtaining such information may write to the Company Secretary at the registered office and the same will be furnished on request. Further the details are also available on the Companys website: www.hzlindia.com.

XIV. ACKNOWLEDGMENTS

The Board of Directors places on record its sincere appreciation of the contribution made by the employees and the employees unions in the success of the Company. The Directors also sincerely thank the Central Government and the State Governments of Rajasthan, Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu, Maharashtra, Jharkhand and Uttarakhand; and the bankers, auditors, vendors, customers and the shareholders of the Company for their continued support.

For and on behalf of the Board of Directors

Sunil Duggal A. R. Narayanaswamy
CEO and Whole-time Director Director
Place: Mumbai
Date: April 30, 2018