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Hindustan Zinc: Good Performance but Valuations at Premium - Views on News from Equitymaster
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  • Oct 25, 2016 - Hindustan Zinc: Good Performance but Valuations at Premium

Hindustan Zinc: Good Performance but Valuations at Premium
Oct 25, 2016

Hindustan Zinc has announced the second quarter results of financial year 2016-2017 (2QFY17). The company has reported an 11% decline in the topline while the bottomline has declined by 15.4%.

Performance summary:
  • Income from operations declined by 11% YoY during 2QFY17. This is on the back of a decline in sales by 9.7% YoY and a sharp decline of 54% YoY in other operating revenue. The decline in revenues can be attributed to decline in volumes given the thrust on underground mining. During this quarter, Zinc volume declined by 30% YoY, Lead volumes declined by 22% YoY. Similarly, silver volume declined by about 3% YoY. As mentioned in 1QFY17 result update, LME Zinc prices have strengthened during the quarter and are up by 22% YoY. Not to mention, Lead and Silver prices have also increased by 9% YoY and 32% YoY respectively.
  • Operating profit declined by 5.3% YoY, however the operating profit margin stood at 54% during this quarter. This is on the back of sharp decline in Power & Fuel Cost due to write back and lower provisions in 'Power & Fuel.
  • Depreciation increased by 136% YoY on the back of change in the method of depreciation on Plant & Machinery from April 1, 2016, resulted in higher depreciation by Rs. 1.75 billion during this quarter (Rs 3.46 billion in H1).
  • Net profit declined by 15.4% YoY during the quarter and 30% YoY for the 1HFY17. This is due to due to higher depreciation and lower investment income on account of smaller corpus.

    Financial Snapshot
    (Rs mn) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Total Income 43,579 38,775 -11% 83,250 66,816 -20%
    Total Expenses 21,642 18,008 -17% 44,639 34,746 -22%
    Operating profit (EBITDA) 21,937 20,767 -5% 38,611 32,070 -17%
    Operating profit margin (%) 50% 54% 46.4% 48.0%
    Other income 8,354 7,702 -8% 14,265 14,044 -2%
    Interest 12 712 5784% 28 1,424 4950%
    Depreciation 1,831 4,317 136% 3,641 8,203 125%
    Profit before tax & exceptional Item 28,448 23,440 -18% 49,206 36,488 -26%
    exceptional Item 220 -290
    Tax 5,744 4,421 7,031 7,101 1%
    Net Profit 22,484 19,019 -15% 42,175 29,387 -30%
    Net profit margin (%) 51.6% 49.0% 50.7% 44.0%
    No. of shares (m) 4225.3
    Basic diluted earnings per share (Rs) ^ 16.3
    P/E ratio (x) * 15.6

    * On trailing 12 month basis

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