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Hindustan Zinc Ltd: Stellar performance - Views on News from Equitymaster

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Hindustan Zinc Ltd: Stellar performance
Apr 21, 2011

Hindustan Zinc Ltd announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company has reported 28.0% YoY and 43.0% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows 28.0% YoY in 4QFY11, led by 29% growth in the production of zinc.
  • Operating profits grow at a healthy pace of 27.1% YoY. However, operating margins were relatively flat due to steady increase in overall expenditure as a percentage of sales.
  • Net profits increase 43.0% YoY in 4QFY11 on the back of increase in other income and decline in interest expenses.
  • The company has recommended a dividend of Rs 1 per equity share for the current year.

Financial snapshot
(Rs m) 4QFY10  4QFY11  Change  FY10  FY11  Change 
Sales 24,985 31,970 28.0% 80,170 99,121 23.6%
Other operating income   467  403 -13.7% 1,174 1,272 8.3%
Expenditure 9,970 12,688 27.3% 33,424 44,165 32.1%
Operating profit (EBDITA) 15,482 19,685 27.1% 47,920 56,228 17.3%
Operating profit margin (%) 60.8% 60.8%   58.9% 56.0%  
Other income 1,345 3,025 125.0% 6,003 8,521 41.9%
Interest  277  133 -52.1%  439  194 -55.8%
Depreciation 1,006 1,271 26.3% 3,343 4,747 42.0%
Profit before tax 15,543 21,306 37.1% 50,141 59,807 19.3%
Exceptional items           212  
Tax 3,153 3,594 14.0% 9,727 10,591 8.9%
Profit after tax/(loss) 12,390 17,713 43.0% 40,414 49,005 21.3%
Net profit margin (%) 48.7% 54.7%   49.7% 48.8%  
No. of shares (m)         4,225  
Basic & diluted earnings per share (Rs)         11.6  
P/E ratio (x) *         13.1  
* On a trailing 12-months basis

What has driven performance in 4QFY11?
  • Top line increased 28.0% YoY due to increase in zinc production during the quarter. The total zinc production increased 29% YoY to 194,000 tons during the quarter. However, production of lead and silver declined 10% YoY and 2% YoY respectively. Over all the company mined 231,000 tons of metal during the quarter which is about 19% higher than what the company managed in the same quarter previous year. As expected the company also successfully commissioned its 1.5 mtpa capacity at Sindesar Khurd mine during the quarter.

  • The operating profits of the company increased 27.1% YoY during the quarter. However, margins were relatively flat due to increase in consumption of stores & spares and power & fuel cost as a percentage of sales. Stores & spares increased to 7.5% (as a percentage of sales) in 4QFY11 from 6.9% in 4QFY10. Even power & fuel cost increased to 8.9% (as a percentage of sales) in 4QFY11 from 7.2% in 4QFY10.

  • Net profits increased 43.0% YoY during the quarter due to decline in interest expenses and increase in other income. The interest expenses declined 52.1% YoY while the other income increased 125.0% YoY during the quarter.

What to expect?
The company expects its 100 ktpa lead smelter at Dariba to be fully operational by 1QFY12. The new 1.5 mtpa capacity at Sindesar Khur mine is also ramping up as per plans and is expected to achieve the rated capacity in FY12. Additional capacities slated to come on stream is likely to increase the production in the next fiscal. At the current price the stock is trading at a multiple of 2.6 times our estimated FY12 book value of the company. We maintain our positive view on the company.

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