Hindustan Zinc demerger plan: CEO flags FY27 start

Stock reaction and the key management signal

Hindustan Zinc shares jumped as much as 7% after Chief Executive Officer Arun Misra said the groundwork for the company’s demerger may begin in FY27. The update added a fresh trigger for a stock that has increasingly been trading as a proxy for silver prices. Misra also said the silver business will contribute 50% of EBITDA going forward, underlining how the earnings mix has shifted from the company’s traditional zinc-led profile. The demerger comment did not come with a detailed structure or timelines beyond the FY27 reference, but the market reaction signalled investors are watching for corporate actions alongside commodity-led earnings momentum.

A broader metal rally set the tone

The move in Hindustan Zinc also came against a strong session for Indian metal stocks. Aluminium prices surged on supply concerns after Bahrain’s Alba halted shipments following the Strait of Hormuz closure. Additional support came from China’s plan to curb industrial capacity and a weaker dollar, which together lifted the Nifty Metal index and improved sentiment across large metal names. The broader risk-on tone in the sector helped extend gains in select counters even as commodity-linked stocks remained volatile.

Silver’s growing role in Hindustan Zinc’s earnings

Hindustan Zinc has been highlighting silver as a core earnings lever, rather than a byproduct. The company reported that 44% of profits now come from precious metals, primarily silver. In a separate brokerage and results discussion, silver was cited as contributing about 44% to 50% of EBIT in the quarter, supported by a sharp rise in spot prices. Misra’s comment that silver could contribute 50% of EBITDA going forward reinforced that this mix shift may persist if prices and volumes remain supportive.

Q3 FY26: record revenue, profit and margins

The company reported its best-ever quarterly performance in Q3 FY26. Revenue from operations rose 27% year-on-year to a record ₹10,980 crore, crossing ₹10,000 crore for the first time. EBITDA grew 34% to ₹6,087 crore, while profit after tax rose 46% year-on-year to ₹3,916 crore.

Hindustan Zinc also reported its lowest cost of production in five years, with the quarterly zinc cost of production at $140 per tonne, 10% lower year-on-year and 5% better quarter-on-quarter. Management attributed the cost improvement to lower power costs, greater domestic coal availability, improved by-product recoveries, and operating leverage.

Segment detail: silver revenues jump sharply

Silver remained a standout line item in the quarter. Silver revenue surged 83% year-on-year to ₹2,676 crore, supported by higher production and a global price rally. Revenue from zinc, lead, and other metals rose 16% to ₹7,932 crore. Silver prices also moved sharply in the domestic market, with MCX prices crossing ₹3 lakh per kilogram as per the report context.

Output, costs and guidance to watch

Operationally, the company delivered its highest ever Q3 mined metal output of 276,000 tonnes, up 4% year-on-year. Refined metal production in the quarter rose to 270,000 tonnes. Management maintained silver volume guidance for FY26 at 680 tonnes (±10 tonnes). While Q3 cost of production was $140 per tonne, full-year cost guidance remains $150 to $1,000 per tonne, reflecting higher mine development activity and grade volatility.

Capex pipeline and balance sheet markers

For FY26, capex is guided at $100 million, split between $100 million for maintenance and $100 million for growth. Capex is expected to rise further in FY27 and FY28 to support expansion, with major projects slated for completion by fiscal 2029. On renewable energy adoption, renewable usage is targeted to rise to about 30% by fiscal 2026-end and 70% by financial year 2028.

On the balance sheet, the company ended the quarter with net cash of ₹329 crore. As of December 31, 2025, it had gross investments and cash and cash equivalents of ₹9,342 crore, invested in high-quality debt instruments, while total borrowings were ₹9,013 crore.

Broker views diverge on valuation comfort

Brokerage commentary has been broadly positive on near-term earnings momentum, but not unanimous on valuation. HSBC upgraded the stock to Buy from Hold and raised its target price to ₹750, valuing the company at 11x FY27E EV/EBITDA, up from 9.5x earlier, and noting the five-year trading range of 5x to 11x. IIFL Capital initiated coverage with an Add rating and a target price of ₹712 after the Q3 print.

Citi remained more cautious with a Sell rating even after raising its target price to ₹585, citing concerns on zinc prices facing pressure from rising inventories and easing supply constraints, and the possibility of silver prices correcting after the first quarter of the next fiscal as geopolitical risks moderate. Jefferies also featured in market commentary with a Buy rating and a target price of ₹660.

Why silver, not zinc, is driving the narrative

Hindustan Zinc remains a dominant domestic zinc player, with about 77% share of India’s primary zinc market, and it operates in the lowest quartile of the global zinc cost curve with a mine life of about 25 years. But the market narrative has increasingly shifted to silver. The company’s annual silver output was cited at 22.5 million ounces, positioning it among leading global producers.

The operational push to raise silver output also featured in management commentary. Misra said the company is accelerating efforts to expand silver output further and that next year 34 to 35 tonnes will come from the Fumer plant alone. He also said a new ₹200 crore project to extract silver from zinc concentrate will be commissioned by April-May, describing it as the first of its kind in India.

Key numbers at a glance

What the demerger comment changes for investors

Misra’s FY27 reference effectively puts the demerger back on the near-term watchlist, but the market still lacks details on the assets to be separated, the intended structure, and the regulatory steps. In the interim, the earnings trajectory remains tightly linked to commodity prices, especially silver, alongside execution on cost and volume guidance.

The stock’s recent swings around silver price moves also show how quickly sentiment can change. The same news flow included sharp share declines during periods when silver prices fell, and rebounds when prices stabilised, reflecting the stock’s higher sensitivity to the white metal.

Conclusion

Hindustan Zinc’s latest rally was driven by a combination of CEO commentary on a potential FY27 demerger start and the company’s growing dependence on silver, which management expects to contribute about half of EBITDA going forward. Q3 FY26 delivered record revenue, EBITDA and profit, supported by low costs and stronger silver realisations. The next set of cues for the stock are likely to be further clarity on demerger groundwork in FY27, delivery on FY26 silver guidance of 680 tonnes (±10 tonnes), and progress on the April-May commissioning timeline for the ₹200 crore silver extraction project.