Hindustan Zinc misses silver production target

The company had earlier said by 2012, it would produce 500 tonnes of silver

Though silver is just a by-product of its zinc business, owing to the boom in silver prices a few years ago and the expansion in its zinc and lead businesses, Hindustan Zinc Limited (HZL) had earlier said by 2012, it would produce 500 tonnes of silver. However, in the year ended March 2013, the company managed to produce only 408 tonnes.

Analysts predict it would take at least three more years for the company to meet the 500-tonne target. In a report dated April 17, Giriraj Daga and Sumit Singhania of Nirmal Bang said HZL was expected to produce 450 tonnes of silver in 2013-14 and 480 tonnes in 201415. An email sent to HZL remained unanswered.

Through 2010-11, silver prices nearly doubled due to a boom in commodity prices. HZL, India’s largest zinc producer, saw its profits soar. As silver is a by-product of the zinc business, HZL expedited production. Earlier, the company had targeted production of 500 tonnes of silver by 2013. But in 2011, it said it would meet that target by 2012. In 2010-11, the company’s silver production stood at 180 tonnes.

In 2010-11, the share of silver in HZL’s operating profit was seven per cent. However, the share has been steadily increasing, owing to the rise in silver production. Now, HZL’s silver production is more than double the production in 2010-11. In 2011-12, the company’s revenues stood at Rs 11,405 crore, doubled the revenue in 2008-09. Silver contributed a significant Rs 1,014 crore to its profit before tax, against Rs 4,470 crore from the zinc and lead segments.

Since silver production by the company doesn’t involve any expenditure, the proceeds from silver sales directly contribute to its profits. At the end of FY13, HZL had a massive Rs 21,479 crore as cash and liquid investments on its books.

However, the fall in commodity prices since the beginning of this year is taking a toll on HZL. In a report dated April 16, Dewang Sanghavi and Shashank Kanodia of ICICI Securities said the recent volatility in base metals such as zinc and lead and precious metals such as silver would have an impact on HZL. In their revised estimates, they feel HZL’s revenue would fall 6.8 per cent to Rs 12,903 crore, against their previous estimate of Rs 13,852 crore. They estimate the profit after tax would be 11 per cent lower than their previous forecast of Rs 6266 crore.

For the year ended March, HZL’s revenues stood at Rs 12,700 crore, against Rs 11,405 crore in 2011-12. Profit after tax for the quarter ended March stood at Rs 2,166 crore, a 53 per cent rise compared to the year-ago period.