Vedanta group miner Hind Zinc hopes to be 1.5 times its current size by splitting into three

Vedanta Group firm Hindustan Zinc, a more than 50-year old mining company in India, wants to split itself into three distinct entities. It's India's largest zinc miner (and the world's second largest). It also digs for lead and silver.

Chief executive Officer Arun Misra expects the move to increase the combined market value of the three companies to go up to anywhere between $25 billion to $30 billion. That's over one and a half times the size of the current, undivided outfit that has its headquarters in Udaipur.

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The Anil Agarwal-owned company has appointed an advisory firm to submit its report on the proposal by the second week of November. The report will be presented to the Board of Directors for discussion thereafter.

The move will not only unlock value for shareholders, it will also improve efficiency and increase production capacity, Misra told CNBC-TV18. The CEO wants to increase output by 20% to 1.2 million tonnes by 2025, compared to a million tonnes now.

Meanwhile, the company's promoter Anil Agarwal is trying to come out of a debt trap while losing a third chief financial officer in as many years. Almost the entire stake of Vedanta (64.9%) in Hindustan Zinc is pledged with lenders. The government of India owns 29.5% of the company.

This year, so far, Hindustan Zinc has paid a dividend of ₹2,958 crore. Last year, Hindustan Zinc paid over ₹31,000 crore, more than a quarter of its market value, as dividend to help its cash-strapped promoter.  The stock is down 4.5% in the last six months and the market capitalisation currently stands at ₹1.2 lakh crore.

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Just like Hindustan Zinc, its parent Vedanta also recently approved a plan to split itself into six listed companies. Agarwal's hope is that the move will attract investors who are interested in specific sectors and/or assets and the value of the parts will be higher than the combined entity. This could also make it easier for Agarwal to sell some parts to repay debt, if the need arises.

On Friday, October 20, the company announced a 35% year-on-year drop in its consolidated net profit for the September quarter of the current financial year, reporting a figure of ₹1,729 crore.

This would have been worse if not for a decrease in tax expenses. In the corresponding period in the previous year, the company had reported a net profit of ₹2,680 crore.

Hindustan Zinc's revenue from operations during the July-September period fell 18.5% to ₹6,619 crore, compared to the same time last year.

A fall in zinc prices, along with a reduction in the volume of zinc and silver mined, led to the decline in revenue. However, the rise in lead and silver prices, as well as favourable exchange rates, checked the fall.

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