A worker uses a fork-lift truck to move zinc ingots around a storage facility. (Photographer: Andrey Rudakov/Bloomberg)

Q1 Results: Hindustan Zinc Misses Estimates, Margins Contract

Hindustan Zinc Ltd.’s June-quarter profit fell short of analysts' estimates as the cost of producing zinc rose, and a mark-to-market loss reduced investment income.

Net profit rose 1 percent from last year to Rs 1,918 crore, according to the miner’s filing with the stock exchanges. That’s lower than Rs 2,131-crore consensus estimate of analysts tracked by Bloomberg.

The cost of production for zinc rose 11 percent to Rs 69,907 per tonne ($1,043) on account of a drop in volumes, a 20 percent increase in metcoke, coal and diesel prices and also due to the impact of long-term wage settlement.

The company concluded a five-year long-term settlement with its recognized union impacting cost of production by $33 per tonne. 
Hindustan Zinc’s Exchange Filing 

The profit performance was also impacted by lower investment income on account of mark-market loss on debt investments due to spike in interest rates.

Revenue increased 16 percent to Rs 5,310 over the year-ago period, missing the Bloomberg consensus estimate of Rs 5,471 crore. The topline was aided by higher prices for the zinc quoted at London Metal Exchange, weakening of the rupee and higher volumes of lead and silver, the company added.

On the operational front, billionaire Anil Agarwal-led company’s earnings before interest, tax, depreciation and amortisation rose 14 percent to Rs 2,713 crore, while the margin contracted 100 basis points to 51.1 percent.

Production Disruption

Total mined metal production declined 9 percent on a yearly basis, and 17 percent sequentially due to the closure of open-cast operations, the company said in a release accompanying the earnings’ filing.

We are steadily increasing production from underground mines to fill the gap caused by closure of open-cast operation. As the journey towards 1.2 million MT output accelerates, we have started planning for our next phase of expansion.
Avinesh Agarwal, Chairman, Hindustan Zinc 

Segmental Break-Up

  • Zinc sales rose 11 percent over the year-ago period to Rs 3,814 crore.
  • Lead sales increased 37 percent to Rs 729 crore.
  • Silver sales jumped 36 percent to Rs 547 crore.

Shares of the company rose 2.5 percent to Rs 267.70, before the earnings announcement.

Also read: CIMB Initiates Hindustan Zinc Coverage With Reduce On Weak Outlook

Outlook

Here are the highlights from what Hindustan Zinc told analysts in its post-earnings conference call:

  • U.S. dollar appreciation and trade war fears continue to weigh on base metal prices, especially zinc.
  • Expect zinc LME prices to bounce back to levels seen three months ago.
  • New zinc supply insufficient to restore the required inventory levels.
  • Long-term wage settlement was higher than expected.
  • Long-term wage settlement to increase cost of production by $33/tonne in the quarter going forward.
  • Higher volume due to ramp up may offset some cost pressures.