Macro Moves

What does it take to boycott Chinese Products?

Created on 03 Jun 2020

Wraps up in 5 Min

Read by 4.2k people

Updated on 08 Sep 2020

Let’s get started with the trending talk of #BoycottChina.It sounds terrific to say goodbye to Chinese goods, thereby being self-reliant and self-dependent. But, are we riding on quite a high horse? China is not just trying to penetrate at India’s border on the northeast but, moreover, it has penetrated our lives so much that we don’t even realize.

Just to give you a hint, the value of goods that India imports from China are more than 515 billion yuan (with the current value of yuan being equal to Rs. 10.55, you can imagine how huge the amount is).And, this was just about the products. Now think about the technology, apps that you have in your phone, and the companies that have received considerable amounts in Chinese investments.

So, now when we say boycott China, it’s not just about diplomatically ignoring China but saying no to each and everything that originates in China. And, for that, of course, we would have to develop a competitive infrastructure that can replace Chinese products and services to a certain extent.

Where Do We Stand?

To take a stand against something, we first need to assess ourselves. Have you heard of Panda diplomacy? China gifts a cute pair of baby Pandas to the countries as a gesture of friendship (with which it wishes to maintain diplomatically friendly relations). Well, India still doesn’t have it. Besides that, border issues are arising now and then.

And, at international forums as well, China favors Pakistan over India (we have seen it several times in the last few years). But, did all this affect the trade relations between India and China?To answer this question, we’ll have to understand the preference of the Indian market and then go back a few years.

India is undoubtedly an attractive market for the world, and that is, companies from various parts of the world wish to sell in India. But, a prominent feature of the Indian market is price sensitivity. If we find something cheap, we fall for it (in most cases). And, this is where China gets the advantage. It overproduces stuff at negligible overhead costs and dumps that in India.

Now, we understand that Chinese stuff in the market at lesser rates as compared to indigenously produced stuff. And, this is how China captures the Indian market. Compare a Chinese smartphone (Xiaomi, Vivo, or OnePlus) with an Indian counterpart (Lava or Micromax). Indians surely prefer Chinese phones. Surprisingly, some of these phones are also produced under the Make in India initiative!

The problem is that Indian companies are not able to bloom because land and resources are provided to foreign companies under Make in India initiative due to which they produce and sell in India but do not let Indian companies raise their heads. However, if they could pull off agreements such as technology and information sharing, then Indian companies have a chance. And, then we would be better off to become self-dependent.

Hindustan Zinc Limited (HZL) 

The world’s second-largest and India’s largest zinc producer, Hindustan Zinc Limited (HZL), is a subsidiary of Vedanta Resources PLC. HZL (erstwhile Metal Corporation of India) was incorporated in 1966 as a PSU whose 46% stake was acquired by the Vedanta group in March 2002. Post this, and the group received another 18.92% stake in 2003, taking the holdings to 64.92%.

Also, it is the 9th largest silver producer in the world and is one of the lowest-cost producers in the world. HZL is engaged in mining and smelting of zinc, lead, and silver and captive power generation.The value creation process at HZL involves exploration, mining, beneficiation, smelting, refining, marketing, and end-user sector. The objective of the company is to maintain a portfolio of mines with long life (25 years) and a low cost of production.

Despite the complexity of underground mining and increasing prices, HZL has managed to control costs via its 24x7 mining through autonomous machines leveraging a partnership with global experts, adoption of advanced technologies for higher metal recoveries, and initiatives around wealth creation from waste.Costs are further reduced by treating ore concentrate and work-in-progress at the same location.

HZL is committed to further improve its efficiencies and safety via its digital mine program, which enables real-time monitoring of all operations, including mining, milling, smelting, and other functions. It has established five mines, of which three are rated as 5-star mines by the Indian Bureau of Mines, three smelters, seven sulphuric acid plants, and six captive power plants.

The company has produced 7,28,498 MT of zinc and 2,07,190 MT of lead in the FY 2019. It caters to approx. 80% of zinc demand in India and derives 75% (approx.) of its revenue from zinc only. HZL also owns 474 MW of coal thermal captive power plants in Rajasthan, 273.54 MW of wind energy, 38.9 MW of solar panel, and 34.4 MW of waste heat generation.

In the last 17 years, HZL has increased its production capacity more than 5-fold to 1.1 million tonnes, which led to an increase in profits to ₹ 7,956 Crores with an annualized growth of 32.33%.The firm is expecting to increase its metal production capacity to 1.2 million tonnes by the end of this fiscal.

The company has registered a decent sales growth of 14.2% CAGR in the last three years, where operating profit grew at 9.88% in the same period. It has observed a reduction of 22.15% in earnings in FY 2019 owing to the capital expenditure of 3,400 Crore on fixed assets (plant, property & Equipment). Considering the metal requirement in infrastructure and societal development, the demand is going to increase, contributing to profits owing to the operating leverage that HZL enjoys.

What is good?

  • Market leadership: World’s second-largest and India’s only zinc producer is catering to approx. 80% of the total zinc demand in India. Also, it is the 9th largest silver producer in the world.

  • Cost Leadership: With its various initiatives and adoption of advanced technologies such as autonomous machines for 24x7 operations and real-time monitoring helps in improving productivity and reducing other costs by treating ore concentrate and work-in-progress at the same location.

  • Operating leverage: This industry requires substantial initial cost, and profitability is driven by sales volume. HZL has a considerable reserve base of 114.7 MT of ore and 288.3 MT of mineral resources in FY2020 providing excellent earnings visibility in the future. 

What is Bad?

  • Exposure to commodity price fluctuations in the market which are influenced by global economic conditions. HZL follows the prevailing market price for its products, which have a direct impact on its revenue and profitability.

  • Dependence on nature for the availability of resources such as land, water, etc. can affect its operational efficiency, which can be further modified by any natural hazard or calamity and equipment failure.

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Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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