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Hindustan Zinc: Sliver saves the day - Views on News from Equitymaster
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Hindustan Zinc: Sliver saves the day
Oct 20, 2011

Hindustan Zinc has announced its September quarter results. The company has reported a 19.8% growth in topline and 41.7% YoY growth in net profits for the quarter ended September 2011. Here is our analysis of the results

Performance summary
  • Topline grows by 19.8% YoY during the quarter, led by 121% increase in sales of silver.
  • Operating profits grow at 30.18% YoY during the quarter.
  • Net profits grow by 41.7% on account of higher other income. Net profit margins increase by 8%.
  • Other income grows by a staggering 110.2%.
  • The company also declared its highest ever interim dividend of 75% (Rs 1.5 per equity share).


Financial picture
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Sales 22,016 26,368 19.8% 41,718 54,839 31.5%
Expenditure 10,764 11,720 8.9% 20,248 24,268 19.9%
Operating profit (EBDITA) 11,253 14,648 30.2% 21,470 30,571 42.4%
Operating profit margin (%) 51.1% 55.6%   51.5% 55.7%  
Other income 1,840 3,868 110.2% 3,425 7,421 116.7%
Interest (net) (5) 120 NA 60 185 206.6%
Depreciation 1,158 1,455 25.6% 2,281 2,801 22.8%
Profit before tax 11,940 16,941 41.9% 22,553 35,007 55.2%
Exceptional Item 212 239 12.8% 212 283 33.6%
Tax 2,241 3,255 45.3% 3,946 6,328 60.4%
Profit after tax/(loss) 9,487 13,447 41.7% 18,396 28,396 54.4%
Net profit margin (%) 43.1% 51.0%   44.1% 51.8%  
No. of shares (m)         8450.6  
Diluted earnings per share (Rs)         6.98  
P/E ratio (x)         17.33  
*On a trailing 12 months basis


What has driven performance in 2QFY12?
  • The 19.8% increase in sales was mainly driven by 121% increase in sales of silver. Refined Silver production in Q2FY12 was 49,000 kg, up 12%.as compared with the corresponding prior periods. The increase in production was mainly attributable to higher silver content in the mined ore and improved plant efficiencies. Refined Zinc-lead metal production, the company’s main product was up 5%. This was primarily due to volume contribution from the new 100 kilo tone (kt) Dariba lead smelter which was commissioned and capitalized during the quarter.



  • Cost break-up...
    (Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Raw Materials 201 -387 NA -222 930 -519.3%
    % of sales 0.9% -1.5%   -0.53% 1.7%  
    Stores and spares 2272 2648 16.6% 4236 5013 18.3%
    % of sales 10.3% 10.0%   10.2% 9.1%  
    Power & fuel 2607 2924 12.2% 4858 5877 21.0%
    % of sales 11.8% 11.1%   11.6% 10.7%  
    Mining royalty 1777 2147 20.8% 3328 4082 22.7%
    % of sales 8.1% 8.1%   8.0% 7.4%  
    Other mining & manufacturing expenses 2059 2287 11.0% 3968 4187 5.5%
    % of sales 9.4% 8.7%   9.5% 7.6%  
    Employee cost 1155 1290 11.7% 2637 2565 -2.8%
    % of sales 5.2% 4.9%   6.3% 4.7%  
    Other Expenditure 693 812 17.2% 1443 1614 11.9%
    % of sales 3.1% 3.1%   3.5% 2.9%  


  • With expenditure growing at a much slower rate of 8.89% YoY, the already high operating margins of the company received a further boost and increased 4.5% YoY. Barring raw materials, all the other major cost heads went up as a percentage of sales. In fact, raw materials costs came in the negative.

  • Net profits saw an increase of 41.7% on the back of higher other income which increased by 110.2%. The sharp decline in raw material cost also boosted net profits. However, increase in interest expense pegged back higher net profits. Net profit margins also saw an increase of 8% YoY and stood at 51%.


What to expect?
Ramp-up of the Sindesar Khurd (SK) mine is on track to achieve its targeted 2.0 mtpa capacity by the end of the year. The 100 ktpa Dariba Lead smelter was commissioned during the quarter, taking the total refining capacity for Lead to 185ktpa. The new Silver refinery is scheduled to be commissioned in Q3 FY2012. With the ramp-up of SK mine and commissioning of the Silver refinery, the company remains on track to achieve a capacity of 500 tonnes of silver by FY13.

At the current price, the stock is trading at a multiple of 2.1 times our estimated FY12 book value of the company. We maintain our positive view on the company.

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