More gains for Hindustan Zinc depend on volume, LME price trajectory

Mined metal production for Q3 was 270 kilotonnes (kt) (247 kt in Q2), up 9 per cent quarter-on-quarter

Hindustan Zinc (HZL) registered net sales of ₹10,980 crore in Q3FY26 and this was up 28 per cent sequentially with higher volumes coinciding with higher London Metal Exchange (LME) and silver prices.

 

It reported consolidated operating profit of ₹6,050 crore, up 36 per cent quarter-on-quarter (Q-o-Q), with margins driven by lower cost of production.

 

The operating profit margin stood at 55.1 per cent in Q3FY26 (52 per cent in Q2FY26 and 52.2 per cent in Q3FY25).

 

The mined metal production for Q3 was 270 kilotonnes (kt) (247 kt in Q2), up 9 per cent Q-o-Q.

 

Adjusted net profit came in at ₹3,890 crore, up 47 per cent Q-o-Q.

 

The zinc cost of production (excluding royalty) dropped to $940/tonne from $994/tonne in Q2FY26 due to lower power costs.

 

The numbers beat consensus. HZL guided for cost of production of $950-1,000/tonne for zinc, while maintaining volume guidance for FY26 for refined and mined metal and silver.

 

The management plans to hedge 10-20 per cent of annual production.

 

The growth capex guidance has been revised up to $300 million while maintenance capex guidance has been maintained at $400 million for FY26.

 

HZL is building renewable capacity fast. Renewable energy (RE) contributes 20 per cent of current power requirements.

 

And, HZL is targeting pushing RE usage to 35-40 per cent in FY27 and 70 per cent by FY28 leading to sustained cost savings of around ₹250-300 crore per annum.

 

The company plans to hedge 10-20 per cent of its annual volumes, going ahead.

 

This would help protect margins given that prices can be volatile.

 

In Q3, HZL hedged 47kt of zinc and 55 tonnes of silver and it plans to hedge a similar amount to maintain stable margins.

 

HZL is also focussed on raising lead and silver recovery by debottlenecking lead production facilities, which will increase silver yield.

 

The FY26 volume guidance for mined metals is 1,125 kt (plus or minus 10 kt), for refined metals it is 1,075 (+/-10) ktpa and for silver it is 680 (+/-10) tonne pa.

 

HZL sees Q4FY26 as very strong in terms of volume since all shutdowns are cleared and debottlenecking completed.

 

Silver production should be above 200 tonnes in Q4FY26.

 

In 9MFY26, revenue grew 9 per cent Y-o-Y to ₹27,300 crore, whereas operating profit and net profit rose 14 per cent and 18 per cent to ₹14,400 crore and ₹8,800 crore, respectively.

 

Zinc cost of production (excluding royalty) stood at $980/tonne (down 9 per cent Y-o-Y) in 9MFY26 with costs dropping sharply to $940 in Q3 from $994 in Q2.

 

Refined metal production stood at 270kt (up 4 per cent Y-o-Y and up 9 per cent Q-o-Q) in Q3FY26, with the commissioning of Chanderiya & Dariba debottlenecking projects, along with ramp-up of 160kt per annum roaster at Debari.

 

Refined zinc production was 221kt (up 8 per cent Y-o-Y and up 10 per cent Q-o-Q), while refined lead production stood at 49kt (down 11 per cent Y-o-Y and up 9 per cent Q-O-Q) due to lower pyro plant availability.

 

Saleable silver production declined 1 per cent Y-o-Y and increased 10 per cent Q-o-Q to 158kt, since this correlates to lead production.

 

In 9MFY26, refined zinc output was 624kt (up 2 per cent Y-o-Y), while refined lead was at 142kt (down 16 per cent Y-o-Y).

 

Saleable silver output declined 12 per cent Y-o-Y to 451 tonnes during 9MFY26.

 

HZL is well-placed with high grade captive mines which guarantee supply for decades. It has 100 per cent captive power capacity (and increasing RE will drive costs down further).

 

The revenue has diversified with an upside coming from the bull run in silver.

 

As of now, LME zinc and silver prices are running at record levels, which imply earnings upgrades. The balance sheet is pretty strong with net cash of ₹330 crore.

 

Most analyst calls on the stock are positive. But there are “sell” and “reduce” calls based on historically-high valuations and commodity cycles being at record peaks.

 

LME price rises are key to a near-term upside though the long-term plans to double production volume are a clear positive.