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: Lower LME prices hurt profits - 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: Lower LME prices hurt profits
Jan 23, 2012

Hindustan Zinc has announced its December quarter results. The company has reported a 6% YoY growth in topline and 1.2% YoY decline in net profits for the quarter ended December 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 6% YoY during the quarter, led by 68% increase in sales of silver and 37% increase in sales of lead.
  • Operating profits declined by 7% YoY during the quarter. Operating margins also declined by 7%.
  • Net profits declined by 1.2% YoY on account of lower lead and zinc prices. Net profit margins declined by 3.3%.
  • Other income grows by a staggering 84.4% YoY.
  • Net sales and net profit for 9mFY12 increased by 21.6% YoY and 31.4% YoY.

Financial picture
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 26,302 27,868 6.0% 68,020 82,707 21.6%
Expenditure 11,229 13,845 23.3% 31,477 38,113 21.1%
Operating profit (EBDITA) 15,073 14,023 -7.0% 36,543 44,594 22.0%
Operating profit margin (%) 57.3% 50.3%   53.7% 53.9%  
Other income 2,071 3,819 84.4% 5,496 11,240 104.5%
Interest (net) 1 87 7818.2% 62 272 342.8%
Depreciation 1,195 1,591 33.1% 3,477 4,391 26.3%
Profit before tax 15,947 16,164 1.4% 38,501 51,170 32.9%
Exceptional Item - 64   212 347 64.0%
Tax 3,051 3,363 10.2% 6,997 9,691 38.5%
Profit after tax/(loss) 12,896 12,736 -1.2% 31,292 41,132 31.4%
Net profit margin (%) 49.0% 45.7%   46.0% 49.7%  
No. of shares (m)         8450.6  
Diluted earnings per share (Rs)         6.96  
P/E ratio (x)*         18.24  
*On a trailing 12 months basis

What has driven performance in 3QFY12?
  • The 6% increase in sales was mainly due to 68% increase in sales of silver and 37% increase in sales of lead. However sales of zinc declined by 6% YoY. Refined Lead production in 3QFY12 was highest ever at 28,804 tonnes, up 102% as compared with the corresponding prior quarter. This was primarily due to volume contribution from the newly commissioned 100 kt Dariba Lead smelter, currently under ramp-up. Refined Silver production in 3QFY12 was highest ever at 57,595 kg, up 37% as compared with the corresponding prior quarter. This was mainly attributable to higher input from the mines and volume contribution from the new 350 tpa (tonne per annum) silver refinery commissioned during the quarter. Refined Zinc production in 3QFY12 was up 7% at 190,946 tonnes, as compared with the corresponding prior quarter, primarily on account of improved operational efficiencies.

    Cost break-up...
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw Materials -7 1287 NA -229 650 NA
    % of sales 0.0% 4.6%   -0.34% 0.8%  
    Stores and spares 2187 2702 23.5% 6423 7715 20.1%
    % of sales 8.3% 9.7%   9.4% 9.3%  
    Power & fuel 2520 3177 26.0% 7378 9054 22.7%
    % of sales 9.6% 11.4%   10.8% 10.9%  
    Mining royalty 2195 2005 -8.7% 5524 6087 10.2%
    % of sales 8.3% 7.2%   8.1% 7.4%  
    Other mining & manufacturing expenses 2290 2691 17.5% 6258 6878 9.9%
    % of sales 8.7% 9.7%   9.2% 8.3%  
    Employee cost 1130 1337 18.3% 3767 3902 3.6%
    % of sales 4.3% 4.8%   5.5% 4.7%  
    Other Expenditure 914 646 -29.3% 2357 2260 -4.1%
    % of sales 3.5% 2.3%   3.5% 2.7%  

  • Operating profits declined by 7% YoY. This was due to increase in power and fuel cost and employee cost. The Zinc metal cost, without royalty, during the quarter was 13% higher, compared with the corresponding prior quarter. The positive impact of operational efficiencies was more than offset by increase in commodity prices & other inflationary factors. However operating profit for 9mFY12 increased by 22% YoY.

  • Net profits saw a decline of 1.2% YoY. The drop in profit was due to a dip in realisations and higher operational cost. The positive impact of increased volumes and Rupee depreciation was partially offset by the decline in LME (London Metal Exchange) prices. During 3QFY12, average zinc LME prices dropped 18% to USD $1,897 per tonne from USD $2,315 per tonne, while that of lead was down 17% at USD $1,983 per tonne from USD $2,390 per tonne. The average silver price increased substantially to USD $31.87 an ounce from USD $26.43 an ounce. Net profit for 9mFY12 increased by 31.4% YoY.

What to expect?
Ramp-up of the Sindesar Khurd (SK) mine is on track to achieve its targeted 2.0 mtpa (million tonne per annum) capacity. The new 350 tpa Silver refinery has been successfully commissioned during the quarter. The mine development work at proposed 1.0 mt Kayar mine has commenced. The company has commissioned 135 MW (mega watt) of the 150 MW expansion in wind power generation capacity announced in January 2011. The balance capacity is expected to be commissioned in early 4QFY12. Post the expansion, the Company’s wind power generation capacity will increase to 273 MW.

At the current price, the stock is trading at a multiple of 1.8 times our estimated FY14 book value of the company. We maintain 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 - GUJ.NRE COKE COMPARISON

COMPARE HINDUSTAN ZINC WITH

MARKET STATS