Buy Hindustan Zinc Ltd For Target Rs. 530 By JM Financial Services
CoP reduction drives beat; capacity expansion on track
Hindustan Zinc reported 4Q consol. EBITDA of INR48bn, higher than JMfe of INR45bn driven by lower costs partially offset by lower realizations. Zinc CoP declined significantly to USD994/t vs USD1,041/t in 3Q led by better metal grades and subdued coal prices. Key takeaways from the call are a) volume guidance for FY26 at 1,090 – 1,110 kt refined metal / 700-710 tons for silver b) Zinc CoP guidance for FY26 at USD1,025 – 1,050 with CoP for FY25 at USD1,052 c) growth capex guidance for FY26 at USD225-250mn d) capacity expansion to 2 mn tons to happen in phases with first phase being 1.2mn to 1.5mn tons – to be announced over the next few months e) capacity expansion remains on track with 160ktpa Debari roaster to be commissioned in 1QFY26 f) 510ktpa fertiliser plant remains on track and is expected to be completed by 4QFY26. The company’s net debt position as on 31st Mar’25 stood at INR12bn vs INR41bn as of 31st Dec’24 driven by lower borrowings and better cash position. 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. Maintain BUY.
* Lower CoP partially offset by lower realisations: The Company registered net sales of INR91bn, up ~5% QoQ, driven by higher volumes partially offset by lower realizations. Company recorded 16 qtrs lowest Zinc CoP of USD994 – 2/3rd of it was driven by better metal grades and recovery and 1/3rd was driven by subdued coal prices. Company achieved annual CoP at USD1,052 for FY25; lowest in the last 4 years. Consequently, EBITDA for the quarter came at INR48bn (up 7% QoQ) given better grades and improved coal availability. Mined metal production for 4Q stood at 274kt, up ~7% QoQ and flat YoY. EBITDA for Hindustan Zinc Alloy Private Limited was at ~INR1bn (at 10kt production) – expected to go up to INR2.5bn at full capacity of 28kt in FY26.
* Capacity expansion on track; focus on renewable energy: The expansion to 2mn tons of capacity is expected to be done in phases with 1st phase being 1.2mn to 1.5mn tons – to be announced over the next few months. Company expects the project completion to take 24 months post announcement. Company has also guided for the 160ktpa roaster at Debari to be commissioned by 1QFY26. The 510ktpa fertiliser plant remains on track and is expected to be completed by 4QFY26. With share of renewable power going from 13% to 30%, company expects a cost reduction of USD10/t.
* FY26 guidance: Volume guidance for FY26 stood at 1,115-1,135kt refined metal / 700- 710 tons for silver. The CoP guidance for Zinc at USD1,025 to USD1,050 for FY26. During FY25, company incurred a capex of INR43bn with growth capex at INR15bn and sustenance capex at INR28bn. Company has guided for sustenance capex to be ~INR30bn while growth capex is expected to be in the range of USD225-250mn. The company’s net debt position as on 31st Mar’25 stood at INR12bn vs INR41bn as of 31 st Dec’24 given lower borrowing and better cash position.
Key Conference Call takeaways:
* FY26 guidance:
* Mined metal: 1,125 (+/-10) ktpa
* Refined Metals: 1,100 (+/-10) ktpa
* Silver: 700-710 metric tonnes
* Zinc CoP: USD1,025- 1,050
* Growth Capex: USD225-250 mn
* Company recorded 16 qtrs lowest CoP of USD994 – 2/3rd of it was driven by better metal grades and recovery and 1/3rd was driven by subdued coal prices.
* 160ktpa Debari roaster project on track and expected to be commissioned in 1QFY26.
* The expansion to 2mn tons of capacity will be in phases with 1st phase being 1.2mn – 1.5mn tons – to be announced over the next few months. Company expects the project completion to take 24 months post announcement.
* Total capex for FY25 stood at INR43bn out of which INR28bn was sustenance capex and INR15bn was growth capex – sustenance capex for FY26 is expected to be ~INR30bn.
* With increasing mix of renewable power, company expects cost reduction of USD10-15/t going ahead.
* EBITDA for Hindustan Zinc alloy was at ~INR1bn – expected to go up to INR2.5bn at full capacity.
* 100% of Zinc and 70% of alloy has been sold through company’s e-auction platform – helps in getting higher premiums.
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SEBI Registration Number is INM000010361
