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Performance on track; dividend play

Hindustan Zinc reported 1Q EBITDA of INR51.4bn, higher than JMfe of INR47.6bn. Key takeaways from the result - a) volume guidance for FY23 remains unchanged at 1,000-1,025 ktons / 700-725tons for refined metal and silver respectively b) CoP (without royalty) guidance for FY23 maintained at USD1,125-1,175 as against 1Q CoP (without royalty) of USD1,264 c) 21% of FY23 volumes have been hedged at ~USD4.1k (~10% consumed in 1QFY23) d) The company received board approval for setting up of 5 ltpa fertilizer plant as well as a 160 ktpa roaster plant. Total capital outlay for these projects expected at INR20- 22bn e) necessary orders for Hindustan Zinc Alloys plant have been placed with commissioning expected by 4QFY23 while Rajpura Dariba Mill revamping for 1.1 mn ton underway - commissioning expected by 3QFY23 f) Cold commissioning of the equipment has been initiated at the fumer plant with visa process for few OEM and NFC in advanced stages. Project capex guidance for FY23 remains unchanged at USD125-150mn. Net cash as of 1Q stood at INR214bn – INR50/sh and the company declared an interim dividend of INR21/sh during the quarter. We remain positive on HZL given its presence in the lower end of the global cost curve facilitated by high grade captive mines sufficient to meet requirements for decades, 100% captive power plants, sizeable scale, diversified revenue stream with increasing contribution from silver sales and strong balance sheet / high dividend pay-out. We downward revise our FY23/24 earnings / fair value as we lower LME assumption given the recent correction in zinc prices. (refer exhi.3). Maintain BUY (refer exhi. 4).

Higher realisations aid revenue: 

The Company registered sequential increase of 6.7% in sales, primarily due to higher zinc volumes/zinc LME prices as well as favourable exchange rates. This was partially offset by lower silver prices. Zinc COP before royalty stood at US$1,264 (INR97.4k), up 11.3% QoQ, impacted by higher coal prices, input commodity inflation and lower domestic coal (linkage) availability. This was partially offset by higher volume, better Sulphuric Acid realizations & improved recoveries. Consequently, EBITDA for the quarter at INR51.4bn was up 3.5% QoQ. Mined metal production for 1Q stood at 252 kt, up 14% YoY on account of higher ore production at mines

Capex guidance remains unchanged:

The Company maintains its project capex guidance of USD125-150mn for FY23 and has approved setting up of 5 ltpa fertilizer plant. Further, the board has also approved the setting up of a new roaster plant with a capacity of 160 ktpa. All orders for Hindustan Zinc Alloys have been placed with commissioning expected in 4QFY23. Rajpura Dariba Mill revamping for 1.1 mn ton is underway - commissioning expected by 3QFY23. In case of the Fumer plant, the NFC team has arrived at site and cold commissioning of the equipment has started. The company maintains its guidance of 1,000-1,025 ktpa mined / finished metal production. FY23 silver production is expected to be 700-725 tons. The company’s net cash position stood at INR214bn as at end 1Q.

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