Visit http://indiaer.blogspot.com/ for complete details Q2FY11 PAT 8% above expectation
Hindustan Zinc (HZL) reported Q2FY11 net revenues of INR 22 bn, 5% above
our estimates largely due to higher-than-estimated zinc premium and lead
concentrate sales of ~7,400 MT (our estimate: nil). PAT, at INR 9.5 bn, was
higher than our estimate of INR 8.8 bn. Currently, cash on books is INR 122 bn.
EBITDA margin at 51%, down 800bps Y-o-Y
Zinc and lead volumes, at 176 kt and 15 kt respectively, were in line with our
estimates. The company reported EBITDA of INR 11.3 bn (up 5% Y-o-Y and 10%
Q-o-Q). 25% and 15% Y-o-Y increase in zinc volumes and prices partly offset
~20% Y-o-Y increase in costs (due to higher coke and coal costs, commodity
prices and stripping cost at mines). The company’s reported zinc cash cost was
USD 977/t (including royalty) for the quarter. Thus, margins declined from 59%
in Q2FY10 to 51% in Q2FY11.
Lead expansion to complete in Q3FY11
As already indicated in Vedanta’s Q2FY11 production conference call, the 100
ktpa lead capacity expansion is expected to complete in Q3FY11. The new 1.5
mtpa mill at Sindesar Khurd mine is also expected to commence production in
that quarter.
Outlook and valuation: Steady performance; maintain ‘BUY’
In recent quarters, HZL’s cash costs have increased due to coal cost push and
higher stripping ratio. We expect moderation of ~USD 40 to 50/t, going forward,
due to higher volumes and better efficiencies. We remain positive on the stock
due to the impending volume growth (20% Y-o-Y), competitive cash costs and
strong balance sheet. We maintain ‘BUY/Sector Outperformer’ on HZL.
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