Lower production cost likely to support Hindustan Zinc's margins

The volume of mined metal for Q2FY25 stood at 256 kilo tonnes or kt (up 2 per cent Y-o-Y, down 2 per cent Q-o-Q), due to higher ore production at Zawar mine offset by lower volume at SK Mine

During the September quarter (Q2FY25), Hindustan Zinc’s (HZL’s) revenue was reported at Rs 8,300 crore (up 22 per cent year-on-year or Y-o-Y, and 2 per cent quarter-on-quarter or Q-o-Q), marginally above consensus.

Operating profit stood at Rs 4,100 crore (up 31 per cent Y-o-Y and 5 per cent Q-o-Q), also a small beat. The operating profit margin was 50 per cent, up from 48.5 per cent in Q1FY25.

Zinc cost of production (CoP) for Q2FY25 stood at $1,071 (Rs 89,686) per metric tonne (MT) (down 5 per cent Y-o-Y and 3 per cent Q-o-Q).

Higher volume, better linkage to coal availability and softer coal prices reduced costs.

The adjusted net profit stood at Rs 2,400 crore (up 35 per cent Y-o-Y and flat Q-o-Q).

In August 2024, HZL declared an interim dividend of Rs 19 per share. During H1FY25, revenues grew 16 per cent Y-o-Y, operating profit rose 24 per cent and adjusted net profit rose 29 per cent.

There was an exceptional item of Rs 83 crore related to land tax provision of Rs 27 crore and environment and health cell provision of Rs 56 crore.

The volume of mined metal for Q2FY25 stood at 256 kilo tonnes or kt (up 2 per cent Y-o-Y, down 2 per cent Q-o-Q). This was due to higher ore production at Zawar mine, offset by lower volume at SK Mine.

Refined zinc volume stood at 198 kt (up 7 per cent Y-o-Y, down 6 per cent Q-o-Q). Refined lead volume stood at 63 kt (up 12 per cent Y-o-Y, up 23 per cent Q-o-Q). The silver volume stood at 184 t (up 2 per cent Y-o-Y, up 10 per cent Q-o-Q).

The management maintained a zinc CoP guidance of $1,050-1,100/tonne for FY25. 

The company commenced sourcing renewable energy (RE) power from the 180 Mw Serentica Renewables solar project in May. The increased share of RE power in total power requirement rose to 14 per cent in Q2FY25 (from 8.5 per cent in Q1FY25).

The rise in renewable share helped reduce the energy cost by $9/tonne. The management is targeting RE share of 25 per cent by FY25 end, further cutting CoP. 

HZL has extended its partnership with Serentica to increase RE capacity to 530 Mw and targets eventual overall renewable power supply to 70 per cent of operational requirements.

For FY25, the management retained its mined production guidance of 1,100-1,125 kt and refined metal production of 1,075-1,100 kt. The management expects net debt to reach Rs 2,000 crore by FY25 end.

The pyro plant was operated on lead mode to exploit good silver prices. It will switch to zinc + lead mode by December.

Expectation is that zinc prices will remain stable at $3,000/tonne until December but the US elections and changes in Fed rates can be catalysts for change.

The new roaster at Debari is on track and will be commissioned by Q4FY25. It will help HZL achieve the refined metal capacity of 1.2 million tonnes (MT) by next year.

The 510kt DAP/NPK fertiliser plant at Chanderiya (Rajasthan) is progressing well and will be commissioned by Q3FY26. It is expected to generate operating profit of Rs 450-500 crore. Work at the Bamnia Kalan mines (Rajasthan) site is in progress with mine to operationalise by Q4FY26.

HZL is in discussions with global mining contractors to develop the mine to 2 million tonnes per annum (MTPA) and it targets to fix a contractor by November.

HZL is collaborating with Jawaharlal Nehru Centre for Advanced Scientific Research to develop new-age zinc-based battery technologies.

Analyst opinions are mixed, with sell, neutral and buy recommendations and price targets in the range Rs 425-575 a share.