Hindustan Zinc Drops 5% on Rs.12,000 Cr Capex Plan for Rajasthan Smelter

June 17, 2025 | Metals & Mining Sector | Expansion Strategy and Market Reaction

Hindustan Zinc Ltd (HZL) shares declined sharply on June 17 after the Vedanta Group company announced plans to double its zinc, lead, and silver capacity through a massive capital expenditure program. The stock fell over 5% intraday to hit ₹486.5 on the NSE, emerging among the top midcap losers of the session. This marks the fifth consecutive day of decline for HZL, with the stock shedding nearly 8% in the past week amid growing concerns over the near-term financial impact of the aggressive expansion strategy.

₹12,000 Crore Investment in Rajasthan Facility to Boost Smelting Capacity

The fall in HZL’s stock came after the company revealed a ₹12,000 crore investment plan to set up a new 250 ktpa (kilo tonnes per annum) integrated zinc smelter at Debari, Rajasthan. This forms part of its broader strategy to double the capacity of its zinc, lead, and silver operations over the next three years. The project, which also includes expansion of associated mines and milling capacity, is expected to be completed over a 36-month horizon.

CEO Arun Misra said the ambitious expansion is in response to rising domestic and global demand for base metals and aligns with India’s long-term infrastructure and manufacturing goals. The new smelter will strengthen Hindustan Zinc’s supply chain capabilities and contribute to national self-reliance in zinc production.

Highlights

• New smelter project to be located in Debari, Rajasthan with 250 ktpa capacity.

• Total capex commitment stands at ₹12,000 crore, to be completed over 36 months.

• Includes mines and mills expansion to support doubling of overall capacity.

• Expansion is aimed at meeting rising zinc, lead, and silver demand globally.

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Investor Caution Over High Capex and Execution Risks Triggers Stock Decline

While management positioned the project as a forward-looking move aligned with India’s industrial growth, investors reacted with caution over the substantial capital commitment. The market sentiment appeared weighed down by concerns related to funding the project, potential delays in execution, and the impact on short-term profitability and return metrics. Analysts highlighted that while the expansion could be earnings-accretive in the long run, the high upfront investment and uncertain commodity pricing cycles raise near-term risks.

Shares of Hindustan Zinc fell 5.13% to ₹486.5 intraday, extending the stock’s losing streak to five sessions. In this period, the company’s market capitalization has eroded significantly as market participants reassess the impact of elevated capex on its free cash flows and dividend payout potential.

Highlights

• Stock dropped 5.13% to ₹486.5; down nearly 8% in past 5 trading sessions.

• Capex-heavy announcement raises concerns over short-term earnings impact.

• Investors cautious about funding sources, project execution, and ROCE dilution.

• One of the top midcap losers on June 17 amid broader market consolidation.

Dividend Declaration Fails to Soothe Market as Capex Overshadows Payout

Earlier on June 11, Hindustan Zinc announced a significant first interim dividend of ₹10 per share (500% on face value), amounting to ₹4,225 crore for FY2025-26. While the payout was viewed as a positive, especially for income-focused investors, it failed to offset bearish sentiment sparked by the capex news. The juxtaposition of a large cash dividend and a massive new investment plan further raised questions about the company’s capital allocation strategy.

Highlights

• Declared ₹10/share interim dividend for FY26, totaling ₹4,225 crore.

• Dividend payout perceived as generous but insufficient to balance expansion-related risks.

• Concerns mount over whether aggressive dividend policy is sustainable during capex cycle.

• Investors divided over the balance between growth ambitions and capital discipline.

Management Defends Strategy, Says Expansion Essential for Long-Term Value Creation

Defending the board’s decision, CEO Arun Misra emphasized that the ₹12,000 crore expansion is “strategically aligned” with macroeconomic trends and long-term sectoral prospects. He noted that increasing industrial consumption of zinc for galvanization, battery applications, and infrastructure development makes the expansion vital. Misra added that doubling the company’s production capacity would reinforce its leadership position globally and aid India’s goal of becoming a manufacturing powerhouse.

Despite this bullish outlook, analysts caution that Hindustan Zinc will need to demonstrate disciplined project execution, careful capital management, and maintain shareholder returns during the build-out phase to retain investor trust.

Highlights

• CEO says expansion will meet surging demand in infrastructure, batteries, and construction.

• Company seeks to maintain global competitiveness and contribute to Atmanirbhar Bharat goals.

• Analysts urge focus on project delivery, cost control, and protecting dividend yield.

• Markets await clarity on funding structure—internal accruals vs. debt financing.