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Hind. Zinc: Zinc prices continue to shine - Views on News from Equitymaster
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Hind. Zinc: Zinc prices continue to shine
Jul 28, 2010

Hindustan Zinc declared its 1QFY11 results. The company has reported 29% YoY growth in sales while its net profits have grown 24% year on year. Here is our analysis of the results.

Performance summary
  • Net sales grow 29% YoY in 1QFY11, led by a growth in both prices and volumes.
  • The company’s operating margins expand by 0.4% YoY owing to a fall in raw material costs (as a percentage of sales).
  • Net profits grow at a slower pace of 24% YoY during 1QFY11 on account of lower other income.


Financial performance: A snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 15,122 19,508 29%
Expenditure 7,443 9,516 28%
Operating profit (EBDITA) 7,679 9,992 30%
Operating profit margin (%) 50.8% 51.2%  
Other income 1,946 1,810 -7%
Depreciation 748 1,123 50%
Interest 32 66 105%
Profit before tax 8,845 10,614 20%
Tax 1,657 1,705 3%
Profit after tax/(loss) 7,188 8,909 24%
Net profit margin (%) 47.5% 45.7%  
No. of shares 422.5 422.5  
Diluted earnings per share (Rs)   99.7  
P/E ratio (x)*   10.1  
*trailing twelve months earnings

What has driven performance in FY10?
  • Hindustan Zinc’s topline grew by 29% YoY in 1QFY11, led by a growth in average prices of zinc and lead as well as an increase in volumes. During the quarter, production of refined zinc-lead metal stood at 180,000 tonnes, a rise of 15% over the previous year’s quarter. Silver production on the other hand saw a growth of 5% YoY. Average prices of zinc stood at US$ 2,018, while average prices of lead stood at US$ 1,944. An increase in both volumes as well as prices during the year came together to help the company post a 29% YoY growth in topline.

  • HZL recorded a 0.4% YoY expansion in operating margins during 1QFY11. This was largely due to decrease raw material costs. Power & fuel and other general expenses also fell as a percentage of sales.

  • The company’s bottomline grew by 24% YoY during 1QFY11. This was mainly on account the expansion in margins at the operating level. However, other income saw a fall during the quarter. If it were not for that, the company would have seen a higher growth in its profits.

What to expect?
As per the management, the 100 ktpa lead smelter project at Rajpura Dariba is progressing well and is scheduled for completion in 2QFY11. The Sindesar Khurd mine project is also on schedule with production expected to commence from 2QFY11 onwards. 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 1,007, the stock is trading at a multiple of 1.7 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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