Hindustan Zinc's margins to see support from firm prices, lower costs

In H1FY26, HZ's revenue was flat Y-o-Y at Rs 16,300 crore, but both operating and net profit increased 3 per cent Y-o-Y to Rs 8,300 crore and Rs 4,900 crore, respectively

Hindustan Zinc (HZ)’s revenue at ₹8,550 crore was up 4 per cent year-on-year (Y-o-Y) and 10 per cent quarter-on-quarter (Q-o-Q) with better commodity prices, offset by lower volumes. The operating profit was in line with consensus at ₹4,450 crore, up 7 per cent Y-o-Y (and 15 per cent higher Q-o-Q). The operating profit margin stood at 52 per cent  in Q2FY26, compared to 49.7 per cent  in Q1FY26 and 50 per cent  in Q2FY25. 

Apart from better prices, HZ lowered cost of production (CoP). Zinc CoP stood at $994 per tonne, which declined 7 per cent Y-o-Y and 2 per cent Q-o-Q, due to softened input prices and higher by-product realisations. The adjusted net profit stood at ₹2,650 crore, up 14 per cent Y-o-Y and 19 per cent Q-o-Q. 

In H1FY26, HZ’s revenue was flat Y-o-Y at ₹16,300 crore, but both operating and net profit increased 3 per cent Y-o-Y to ₹8,300 crore and ₹4,900 crore, respectively. HZ's gross investments, cash and cash equivalents declined 12.7 per cent sequentially to ₹8,160 crore and total outstanding borrowings declined 21 per cent  Q-o-Q to ₹10,700 crore. 

The mined metal for Q2FY26 was 258 kilo tonnes (kt), up 1 per cent Y-o-Y (down 3 per cent  Q-o-Q). Refined metal production for Q2 stood at 247kt. Refined zinc production was at 202kt, up 2 per cent Y-o-Y (flat Q-o-Q), while refined lead production stood at 45kt, down 29 per cent Y-o-Y (down 7 per cent Q-o-Q). Silver production declined 22 per cent Y-o-Y and 4 per cent Q-o-Q to 144t, due to lower lead production. 

HZ revised the refined metal guidance to 1,075 ktpa (earlier 1,100 ktpa) and silver output to 680t for FY26. HZ expects further cost improvement to $950-975 per tonne by Q4FY26, supported by higher renewable-energy usage and better ore grades. Renewable energy or RE contributed 19 per cent of total power in Q2FY26 and targets 25 per cent by FY26 end. This will reduce power costs by about $1.5 per tonne for every 2 per cent increase in renewable share.

 

By FY27, as the fumer plant and hot acid leaching units stabilise, silver output is likely to rise to 750-800 tpa, reaching its long-term goal of 1,500tpa. The combined investment plan of ₹16,000 crore includes ₹12,000 crore for a 250ktpa integrated capacity expansion and ₹3,800 crore for a zinc tailings project. About 20-25 per cent of this capex will be incurred in FY26, 55-60 per cent in FY27, and the remainder in FY28.

 

For FY26, management guides for a capex of $350-400 million, covering all ongoing projects. The expansion plans are in line with the long-term target of doubling capacity. HZ also continues to focus on tight cost-control measures.

 

HZ continues to operate its smelters in zinc-plus-lead mode, optimising the use of high-silver-grade concentrate to maximise silver recovery. By FY27, as the fumer plant and hot acid leaching units stabilise, silver output is likely to rise to 750-800tpa, eventually reaching long-term goal of 1,500tpa.

 

As of Q2FY26, HZ has hedged 87kt of zinc at $2,872/t and 131t of silver at $37/ounce for H2FY26, as per its policy of hedging 10-20 per cent of volumes during price spikes while holding 80 per cent unhedged.

 

Global zinc and lead prices remain resilient, due to tight inventories, and demand from infrastructure and batteries, while silver has rallied to record levels. During Q2FY26, HZ commissioned a 160ktpa roaster at Debari and completed debottlenecking. Debottlenecking at Chanderiya lead zinc smelter is on schedule to be completed by Q3FY26 and a new 510kt DAP fertiliser plant at Chanderiya will be commissioned by Q1FY27. The hot acid leaching plant for lead (27mtpa) and silver (6ktpa) recovery from waste at Dariba will be completed by Q4FY26.

 

The combination of capacity expansion, firm zinc and silver prices, and lower costs would aid profitability, while good operational cash flows would support capex and dividend payout. The infrastructure drive would push domestic zinc demand at around 8 per cent Y-o-Y.