Hindustan Zinc: Fair winds this season

Improving volumes in zinc sales and realizations for zinc and lead propped up topline for Hindustan Zinc which saw a y-o-y revenue growth of 1.6% to Rs 1818 crore this quarter. However, this was below Angel Broking’s estimates. Refined zinc and lead realisations in the quarter increased 16.6% and 9.3% y-o-y respectively. However, the company was hit by a steep decline (93.5%) in sulphuric acid realizations which put pressure on revenues for the quarter.

Improving margins

Operating margins expanded by a healthy 430bp to 59.1% y-o-y from 54.8% last quarter as expenses fell this quarter. Mining and manufacturing costs were down 16.6% and other administration and sales expenses by 34.1% y-o-y.

Net profit was down to Rs 935 crore against Rs 960 crore in Q2FY09 primarily because of lower other income and higher tax rates this quarter.

The LME zinc and lead prices have rebounded by more than 30% from their recent lows, as per an Angel Broking report that expects the price rally to sustain on account of improving global economic outlook. The brokerage has upgraded FY2011E zinc and lead price estimates by 22.5% and 39.3% to $1,900/tonne and $1,950/tonne respectively.

Angel has upgraded FY10 and FY11 EPS estimates by 3% and 11.7%, respectively with an Accumulate call on the stock with a Target Price of Rs950 valuing the stock at 5.5x FY2011E EV/EBITDA.

The stock was up 7.5% closing at Rs 936.10 on Oct 23 2009.