Equity Analysis

• The Company total mined metal production increased 3% to 247kt in Q3FY19, driven by strong increase in underground ore production and improvement in ore grades. Mined metal production from underground mines continued its upward trajectory, up 38% y-o-y, with continued ramp up of Rampura Agucha, Rajpura Dariba and Zawar mines.

• For Q3FY19, integrated zinc metal production was 242kt in Q3, higher by 14% sequentially with both zinc and lead production posting strong gains driven by higher mined metal availability, while metal production was down 1% y-o-y. Integrated zinc production was 188kt, up 16% sequentially on account of higher mine output and improved mined metal availability while it was down 6% y-o-y due to higher lead ratio in ore. Integrated lead production increased by 10% sequentially and 18% y-o-y to record 54kt due to higher mined output as well as higher production from Chanderiys pyro-metallurgical smelter. Integrated silver production was a record 178 MT, up 3% sequentially and 34% y-o-y on account of higher lead production and better silver grades.

• For Q3FY19, zinc metal cost of production per MT before royalty (COP) was at $997 per MT (Rs. 71,855), improving by 4% (1% in INR) sequentially and improving by 3% y-o-y (higher by 9% in INR). The sequential improvement was primarily on account of higher volume, operational efficiency nd lower diesel costs partly offset by higher mine development expense. The y-o-y improvement was mainly on account of higher acid credits.

• During Q3FY19, LME Zinc prices declined 19% to $2631 per MT, Lead prices fell 21% to $1964 per MT, and Silver prices dropped 13% to $14.5/oz.

The total income from operation declined by 6% to Rs 5,540 crore for third quarter ended December 2018. The decline in revenue was primarily due to lower metal prices partly offset by rupee depreciation.

The Zinc & Lead segment revenue, contributing 87% of total revenue, dropped 10% to Rs 4,811 crore, while Silver segment revenue, contributing 12% of total revenue, jumped 31% to Rs 678 crore. The Wind Energy revenue, contributing 0.3% of total revenue, fell 14% to Rs 18 crore.

Operating margin (OPM) of the company declined to 360 bps to 51%, thus, operating profit (OP) shed 13% to Rs 2,838 crore.

At segment level, PBIT of Refined Zinc & Lead segment dropped 27% to Rs 1,792 crore, while Silver PBIT gained 31% to Rs 588 crore. Wind Energy segment PBIT declined 75% to Rs 2 crore.

The other income inclined by 96% to Rs 550 crore. Interest cost rose to Rs 51 crore from Rs 17 crore in corresponding previous quarter. Depreciation cost rose 31% to Rs 489 crore, thus, PBT declined by 9% to Rs 2,848 crore. The taxation outgo decreased 24% to Rs 637 crore. Effective tax rate fell to 22.4% from 26.7% corresponding previous quarter, thus, the net profit declined by 4% to Rs 2,211 crore.

For Nine Months ended December 2018, the total income from operation of the company dropped 1% to Rs 15,627 crore. OPM decreased by 430 bps to 50%, thus operating profit declined 9% to Rs 7,881 crore. Other income erased 2% to Rs 1,243 crore. With drop in interest cost by 74% to Rs 62 crore but rise in depreciation by 30% to Rs 1,330 crore, the PBT before EO fell 11% to Rs 7,732 crore. With NIL EO income during the period as against Rs 291 crore EO expenditure corresponding previous period, the PBT after EO dropped by 14% to Rs 7,732 crore. The taxation outgo decreased 18% to Rs 1,788 crore. With drop in effective tax rate by 200 bps to 23.1%, net profit fell by 12% to Rs 5,944 crore.

For the financial year ended March 2018 (FY 2018), the total income from operation of the company was up 28% to Rs 22,084 crore. OPM declined by 80 bps to 55.6%, thus operating profit inclined 26% to Rs 12,272 crore. Other income fell 29% to Rs 1,751 crore. With surge in interest cost by 40% to Rs 283 crore but drop in depreciation by 18% to Rs 1483 crore, the PBT before EO gained 20% to Rs 12,257 crore. With EO income of Rs 240 crore during the period as against NIL EO expenditure corresponding previous period, the PBT after EO grew by 23% to Rs 12,497 crore. The taxation outgo increased 71% to Rs 3,221 crore. With rise in effective tax rate by 780 bps to 26.3%, net profit grew by 12% to Rs 9,276 crore.

• The Company announced mining projects are progressing in line with expectation f reching 1.2 million tonnes per annum of mined metal capacity in FY2020.

• Capital mine development increased by 12% y-o-y to 10.8 km during the quarter and by 10% to 31 km YTD.

• Sindesar Khurd mine achieved highest ever total mine development t 5.87 km during the quarter. The new 1.5 mtpa mill accomplished smooth commissioning and produced its first concentrate during the quarter. The production shaft work is reaching completion and commissioning is expected in the current quarter.

• Rampura Agucha underground mine achieved record mine development of 6.94 km during the quarter. The commissioning of mid shaft loading system in October 2018 allowed waste hoisting to be done. Through the shaft ahead of schedule, leading t improvement in ore production from RA underground. The full shaft commissioning is expected to complete in Q2Fy2020 synchronising with completion of crusher and conveyor system.

• At Zawar, completion of the new 2 mtpa mill is on track and expected to commission in the current quarter (Q4 FY2019). .

• The Fumer project at Chanderiya is expected to commission in the current quarter (Q4 FY2019).

• Planning for the next phase of expansion from 1.2 to 1.35 mtpa mined metal capacity announced in April 2018 is underway.

Other Projects

• 22 MW solar plant was commissioned at Rampura Agucha during the quarter (Q3FY2019), taking the total solar capacity to 38 MW.

• 25 MLD Sewage Treatment Project was commissioned at Udaipur taking the total capacity to 45 MLD which will help improve water availability at Dariba and treat over half of Udaypur city's sewage.

Liquidity and investment

As on December 31, 2018, the Company's cash and cash equivalents was Rs. 17,462 crore before repayment of short-term borrowing taken for payment of interim dividend in November 2018. The net cash and cash equivalents was Rs 12,528 crore. The investment portfolio is invested in high quality debt instruments and the portfolio is rated Tier -I (implying Highest Safety) by CRISIL.

The Company expects mined metal and refined zinc-lead production slightly higher in FY19 as guided earlier from corresponding previous year due to ongoing ramp up in underground mines. Refined zinc-lead production will be in sync with mined metal production and slightly short of last year production. The Company expects silver production to be in the range of 650-700 MT for FY 2019. Zinc COP before royalty is projected to be in the range of $950-$975 per MT in H2FY2019, as guided earlier. The project capex for the year will be around $350 million.

The scrip closed trading at Rs 268.15 on 21 January 2019 on the BSE.

Hindustan Zinc: Results

Hindustan Zinc: Segment Results

Hindustan Zinc: Segment Revenue

Hindustan Zinc: Integrated Metal Production

Hindustan Zinc: Cost of Production and LME prices

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