X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hindustan Zinc: Margins under pressure - Views on News from Equitymaster
MidCapSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Hindustan Zinc: Margins under pressure
Jan 21, 2011

Hindustan Zinc has announced its December quarter results. The company has reported a 17% growth in topline and 12% YoY growth in net profits for the quarter ended December 2010. Here is our analysis of the results.

Performance summary
  • Topline grows by 17% YoY during the quarter, led by 20% growth in production of Zinc
  • Operating profits grow at a relatively low rate of 9% as higher expenses take toll
  • At 12% YoY, the growth in net profits is better than operating performance on account of higher other income and lower tax outgo.
  • Profit for the nine month period grows by 12% YoY on the back of a 22% growth in topine
  • The board has proposed a 1:1 bonus issue and also a 1:5 split in number of shares


Standalone financials
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9nFY11 Change
Net sales           22,480           26,302 17.0%         55,892         68,020 21.7%
Expenditure             8,619           11,229 30.3%         23,454         31,477 34.2%
Operating profit (EBDITA)           13,861           15,073 8.7%         32,439         36,543 12.7%
EBDITA margin (%) 61.7% 57.3%   58.0% 53.7%  
Other income             1,319             2,071 57.0%           4,658           5,496 18.0%
Interest (net) 77 1 -98.6%              162                 62 -62.1%
Depreciation                 817             1,195 46.3%           2,336           3,477 48.8%
Profit before tax           14,286           15,947 11.6%         34,598         38,501 11.3%
Extraordinary income/(expense)   -     -                      -               (212)  
Tax             2,799             3,051 9.0%           6,574           6,997 6.4%
Profit after tax/(loss)           11,487           12,896 12.3%         28,024         31,292 11.7%
Net profit margin (%) 51.1% 49.0%   50.1% 46.0%  
No. of shares (m)             422.5             422.5             422.5           422.5  
Diluted earnings per share (Rs)*                   103.4  
Price to earnings ratio (x)*                     13.0  
(* on trailing twelve months earnings)

What has driven performance in 3QFY11?
  • The 17% YoY growth in topline was driven mostly by volume growth of 20% of Zinc, the company’s principal product. The newly commissioned Dariba smelter also made some contribution towards the increased output. Lead, its other key output also saw a good growth in volumes. While LME prices for the company’s products remained strong, optimism was tempered a bit by the appreciation of the rupee against the US dollar. The price of zinc and lead during the quarter was US$ 2,315 per tonne and US$ 2,390 a tonne respectively, up 5% and 4% each.

    Cost break-up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials (184)       (7) -96.0% 223             (229)  
    % sales -0.8% 0.0%   0.4% -0.3%  
    Staff cost             1,379             1,130 -18.1%           3,222           3,767 16.9%
    % sales 6.1% 4.3%   5.8% 5.5%  
    Consumption of stores & spares             1,613             2,187 35.6%           4,149           6,423 54.8%
    % sales 7.2% 8.3%   7.4% 9.4%  
    Power & fuel             1,769             2,520 42.5%           5,433           7,378 35.8%
    % sales 7.9% 9.6%   9.7% 10.8%  
    Other expenditure   765   914 19.5%           2,061           2,357 14.3%
    % sales 3.4% 3.5%   3.7% 3.5%  
    Mining royalty             1,917             2,195 14.5%           4,222           5,524  
    % sales 8.5% 8.3%   7.6% 8.1%  
    Other mining and manufacturing exp             1,359             2,290 68.6%           4,144           6,258  
    % sales 6.0% 8.7%   7.4% 9.2%  

  • Company’s operating margins during the quarter have come in lower by 4.4% YoY. With energy charges and mining & manufacturing expenses going up by 43% and 69% respectively, this has caused the maximum damage to operating margins. As compared to 2QFY11 however, margins have come in higher by a strong 7%. As a strong price environment for zinc and lead is likely to persist in the upcoming quarters, margins should further edge up we believe.

  • Net profit growth for the quarter has come in better than the growth in operating profits and has stood at 12% YoY. The reason for the same has been the strong growth in other income and somewhat lower tax rates. Had it not been for the 46% growth in depreciation, the growth in net profits would have been even higher we believe.

What to expect?
The new 1.50 mtpa mill at Sindesar Khurd Mine will start trial production in the current quarter and in the next fiscal, there is a strong possibility of higher output. The company also remains on track to achieve a capacity of 500 tonnes of silver by FY13. At the current price of Rs 1,335, the stock is trading at a multiple of 1.9 times our estimated FY12 book value for the company. We retain our positive view)on the company.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HINDUSTAN ZINC SHARE PRICE


Feb 23, 2018 (Close)

TRACK HINDUSTAN ZINC

  • Track your investment in HINDUSTAN ZINC with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON HINDUSTAN ZINC

HINDUSTAN ZINC - ORISSA MINERALS DEV. COMPARISON

COMPARE HINDUSTAN ZINC WITH

MARKET STATS