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Hindustan Zinc: Commodity price kicker - Views on News from Equitymaster
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Hindustan Zinc: Commodity price kicker
Jul 22, 2011

Hindustan Zinc has announced its June quarter results. The company has reported a 45% growth in topline and 68% YoY growth in net profits for the quarter ended June 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 45% YoY during the quarter
  • Operating profits grow at a higher rate of 56% as most cost heads grow at a lower rate than sales
  • At 68% YoY, the growth in net profits is better than operating performance on account of higher other income and improved operating leverage

Financial picture
Rs m 1QFY11 1QFY12 Change
Net sales 19,702 28,471 44.5%
Expenditure 9,484 12,548 32.3%
Operating profit 10,218 15,923 55.8%
Operating margins (%) 51.9% 55.9%  
Other Income 1,584 3,554 124.3%
Interest (net) 66 65 -0.9%
Depreciation 1,123 1,345 19.8%
Profit before Tax 10,614 18,066 70.2%
Extraordinary item   (44)  
Tax 1,705 3,073 80.3%
Profit after Tax/(Loss) 8,909 14,949 67.8%
Net profit margin (%) 45.2% 52.5%  
No. of Shares (m) 4225.3 4225.3  
Diluted Earnings per share (Rs)*   13.0  
Price to earnings ratio (x)*   10.6  
* On a trailing 12 months basis

What has driven performance in 1QFY12?
  • The 45% growth in topline was driven by both volumes as well as realisations. However, the latter contributed more to the overall improvement. The company posted a 17% increase in refined zinc output, however the same for refined lead came in at 6% YoY. Production for silver also came in higher and stood at 8% YoY. However, the major contribution to topline growth came from higher realisations. Although commodity prices have softened in recent times, they are significantly higher on a YoY basis and this helped give revenues a big boost. Silver, for instance, has more than doubled as compared to same period last year. Zinc also witnessed a decent rise.
  • Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials -422 1,317  
    % sales -2.1% 4.6%  
    Stores and spares 1,965 2,366 20.4%
    % sales 10.0% 8.3%  
    Power and fuel 2,251 2,953 31.2%
    % sales 11.4% 10.4%  
    Mining royalty 1,551 1,936 24.8%
    % sales 7.9% 6.8%  
    Other mining & manufacturing expenses 1,909 1,900 -0.4%
    % sales 9.7% 6.7%  
    Employees cost 1,482 1,274 -14.0%
    % sales 7.5% 4.5%  
    Other expenditure 750 802 7.0%
    % sales 3.8% 2.8%  

  • With expenditure growing at a much slower rate of 32% YoY, the already high operating margins of the company received a further boost and increased 4% YoY. Consequently, operating profits grew by 56% YoY. Barring raw materials, all the other major cost heads came down as a percentage of sales. In fact, employees cost actually reduced, registering a fall of 14% YoY.

  • PBT for the quarter came in higher by 70% YoY, an improvement over 56% YoY growth in operating profits, mainly on account of higher other income and better operating leverage. At 68% YoY, the net profit growth for the quarter has more or less come in line with the impressive PBT growth.
What to expect?
At the current price, the stock is trading at a multiple of 2.4 times our estimated FY12 book value of the company. We maintain our positive view on the company.

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