Hindustan Zinc - Mined Metal Production Guidance Retained; Result Update Q3FY15 :: Edelweiss

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Hindustan Zinc’s (HZL) Q3FY15 EBITDA at ~INR21bn (up ~15% YoY, ~5% QoQ) surpassed our INR20bn estimate due to lower raw material and maintenance costs. Even as zinc premiums disappointed (down 17% QoQ), higher volumes (mined metal production up 10% YoY, 14% QoQ) and lower cost aided ~160bps YoY and ~130bps QoQ margin improvement. Other income jumped ~17% QoQ due to INR2bn MTM gains, leading to PAT of INR23.8bn (up 38% YoY, 9% QoQ), ~15% above estimate. HZL is confident of achieving its FY15 volume guidance of a modest YoY growth despite ~9% dip in 9mFY15 production (implying 30% YoY, 8% QoQ production growth in Q4FY15). Outlook for zinc remains positive given the expectation of continued deficit due to steady demand growth and permanent closure of a few mines globally in the coming years.

EBITDA beat on lower costs

EBITDA was ~6% above our estimate on low costs, even as zinc premiums disappointed (down 17% QoQ) led by high Chinese exports. Total cost was ~4% below our estimate owing to low raw material and maintenance costs, though partially offset by high employee cost (due to ~INR200mn one-offs on account of wage settlement) and high energy expenses (due to reduced linkage coal availability).

FY15 mined metal production guidance retained

HZL’s mined metal production at 242kt rose 10% YoY, though for 9mFY15 it fell 9%.  The company is confident of achieving its guidance of a marginal YoY growth in FY15, implying 38% YoY and 9% QoQ production surge in Q4FY15. We too revise up our FY15 volume estimates from 860kt to 880kt, leading to ~3% upward revision in our EBITDA estimate. FY15 PAT estimate is revised up ~10% due to higher other income.

LINK
https://www.edelweiss.in/research/Hindustan-Zinc--Mined-Metal-Production-Guidance-Retained;-Result-Update-Q3FY15/28089.html