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Hindustan Zinc: Metal prices boost performance - Views on News from Equitymaster

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Hindustan Zinc: Metal prices boost performance

Apr 22, 2010

Hindustan Zinc has announced its FY10 results. The company has reported a 41% YoY and 48% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow 41% YoY in FY10, led by a strong growth in both prices and volumes.
  • During FY10, the company’s operating margins expanded by 10.2% YoY owing to almost all
  • operating cost heads seeing a decline (as a percentage of sales).
  • Net profits grow by 48% YoY during FY10. This is mainly on account of HZL’s good performance on the operating level.
  • During 4QFY10, the company’s topline and bottom line grew by 98% YoY and 125% YoY respectively.
  • Recommends a final dividend of Rs 6 per share (a dividend yield of 0.5%)

Financial performance: A snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Sales 12,627 24,985 98% 56,803 80,170 41.1%
Expenditure 7,076 9,967 41% 29,461 33,469 13.6%
Operating profit (EBDITA) 5,551 15,018 171% 27,342 46,701 70.8%
Operating profit margin (%) 44.0% 60.1%   48.1% 58.3%  
Other income 2,205 1,809 -18% 9,312 7,222 -22.4%
Interest 49 277 470% 219 439 100.8%
Depreciation 750 1,006 34% 2,853 3,343 17.2%
Profit before tax 6,956 15,543 123% 33,582 50,141 49.3%
Tax 1,442 3,153 119% 6,306 9,727 54.2%
Profit after tax/(loss) 5,515 12,390 125% 27,276 40,414 48.2%
Net profit margin (%) 43.7% 49.6%   48.0% 50.4%  
No. of shares       422.5 422.5  
Diluted earnings per share (Rs)       64.6 95.7  
P/E ratio (x)         12.9  

What has driven performance in FY10?
  • HZL's topline grew by 41% YoY in FY10, led by a strong growth in average prices of zinc and lead as well as an increase in volumes. During the year, production of refined zinc-lead metal stood at 650,038 tonnes, a rise of 5.3% over the previous year. Silver production on the other hand saw a growth of 34% YoY. Average prices of zinc stood at US$ 1,936, an increase of 24% over last year’s average prices. Similarly, average prices of lead stood at US$ 1,990, an increase of 20% over FY09 average prices. Thus the increase in both volumes as well as prices during the year came together to help the company post a 41% YoY growth in topline.

  • HZL recorded a 10.2% YoY expansion in operating margins during FY10. This was largely due to decrease in all its major cost head excluding mining royalty costs. Raw material, power & fuel, mining & manufacturing, employee costs and other general expenses all fell as a percentage of sales.

  • The company's bottomline grew by 48% YoY during FY10. This was mainly on account of its great performance at the operating level in term of margin expansion. However, other income saw a fall during the year. If it were not for that, the company would have seen an even higher growth in its profits.

What to expect?
The 210 ktpa Hydro zinc smelter at Dariba and the 1 mtpa zinc concentrator at Rampura Agucha were successfully commissioned during the end of FY10. Consequently, the company's total zinc and lead smelting capacity has increased to 964 ktpa. As per the management, the 100 ktpa lead smelter project at Dariba is progressing well for scheduled completion in 2QFY11. The Sindesar Khurd mine project is also on schedule for commissioning from 1QFY11. Post completion of these projects, HZL will be the world’s largest integrated zinc-lead producer with a total smelting capacity of 1.064 mtpa.

At the current price of Rs 1,234, the stock is trading at a multiple of 2.1 times our estimated FY12 book value for the company. We retain our positive view on the company from a 2 year perspective.

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Mar 19, 2019 11:17 AM


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