Hindustan Zinc dips 6% post March quarter results

Brokerage firm Motilal Oswal Financial Services believes Hindustan Zinc to reach peak mine output after management guides flat production growth in FY23.

Shares of Hindustan Zinc dipped 6 per cent to Rs 324.65 on the BSE in Monday’s intra-day trade, after the company reported 18 per cent year-on-year (YoY) rise in consolidated net profit to Rs 2,928 crore for the quarter ended March 2022 (Q4FY22). The slump in stock also comes on the back of profit-booking amid higher volumes and increase in metal prices.

The Vedanta group company which is a leading global integrated producer of zinc, lead and silver saw growth in consolidated sales by 27 per cent YoY to Rs 8,797 crore from Rs 6,947 crore in the year-ago period. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin expanded 100 basis points (bps) to 55.5 per cent from 53.5 per cent in Q4FY21.

"Hindustan Zinc’s Q4 profit was marginally below our estimates due to lower than estimated other income and higher taxes, which includes taxes for the prior period. Other income was lower as benefit of falling interest rates in the previous quarters is behind us", brokerage firm Motilal Oswal Financial Services (MOFSL) said.

The management has guided flat production growth in fiscal 2022-23 (FY23) that signals reaching peak mine output, unless large-scale expansion is achieved for sustainable mine production.

MOFSL also believes that the 2.35x price rise of thermal coal in a year will push up cost of production ahead. “After the management has guided an elevated cost structure, we believe this is largely on account of their expectation of high coal and other input costs. Hindustan Zinc is primarily dependent on imported coal as coal linkages met only 3 per cent of its total requirement in FY22,” the brokerage firm added.

Hindustan Zinc operates in the first quartile of cash cost curve among all smelters globally, implying that it is among the lowest cost producers of zinc. Despite this position, it is facing severe cost pressures, especially from rising coal costs, for which it has no alternative.

“We have cut our zinc and lead mined metal production for FY23 by 10 per cent each and silver production by 12 per cent. We have also cut our FY23 zinc, lead, silver sales volume by 8 per cent,10 per cent and 8 per cent, respectively, factoring in the lower management guidance,” MOFSL added with a ‘neutral’ rating on the stock.