Buy Hindustan Zinc Ltd For Target Rs.550 By JM Financial Services
Hindustan Zinc reported 1Q consol. EBITDA of INR39bn, in-line with JMfe. EBITDA declined by ~20% QoQ driven by lower LME and lower scale. Zinc CoP for the quarter stood at USD1,010 vs USD994/t in 4QFY25 – expected to be towards the lower-end of the guidance for FY26. Key takeaways from the call are a) volume guidance for FY26 maintained at 1,090- 1,110kt refined metal / 700-710 tons for silver b) Zinc CoP guidance for FY26 also maintained at USD1,025 -1,250 c) 160ktpa roaster at Debari to be commissioned in mid2QFY26 d) 510ktpa fertilizer plant to be commissioned by 1QFY27 – to be fully ramped-up by 2HFY27 with a revenue potential of ~INR20-25bn and EBITDA potential of ~INR4-4.5bn on a steady state basis. The company’s net debt position as on 30 th Jun’25 stood at INR42bn vs INR12bn as of 31st Mar’25. Company expects pre-growth capex free cash flow to be ~INR450-500bn over the next 5 years and capex to be ~INR320-350bn during the same period – leading to stable leverage levels. 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.
* Margins contract given lower scale and lower LME:
The Company registered net sales of INR77bn, down ~15% QoQ, driven by lower LME and lower scale in 1Q. Zinc CoP for 1Q stood at USD1,010 – lowest 1Q CoP since underground transition. The company expects Zinc CoP for FY26 to be towards the lower end of the guidance. Consequently, EBITDA for the quarter came in at INR39bn (down ~20% QoQ) given lower scale and lower realizations. Mined metal production for 1Q stood at 250kt, down 15% QoQ given seasonally higher base in 4QFY25. Volumes were also impacted during the quarter due to some shutdowns undertaken by the company – production to restore to normalcy post August. Adj. PAT came in at INR22.3bn, down 25% QoQ.
* Capacity expansion on track; focus on renewable energy:
The expansion to 2mn tons of capacity is expected to be done in phases with Phase-I adding 250ktpa of refined metal capacity at a capex of ~INR120bn – to be funded through internal accruals and debt. Company expects pre-growth Capex FCF to be ~INR450-500bn over the next 5 years and capex to be ~INR320-350bn during the same period – leading to stable leverage levels. Company has also guided for the 160ktpa roaster at Debari to be commissioned by mid2QFY26. 510 ktpa fertilizer plant to be commissioned by 1QFY27 – to be fully ramped-up by 2HFY27 with a revenue potential of ~INR20-25bn and EBITDA potential of ~INR4- 4.5bn on a steady state basis. Share of renewable energy increased to ~19% in 1Q, up from ~13% in FY25.
* FY26 guidance intact: Volume guidance for FY26 maintained at 1,090-1,110kt refined metal / 700-710 tons for silver. The CoP guidance for Zinc maintained at USD1,025 to USD1,050 for FY26. Post the 250ktpa expansion, company expects revenue to reach ~INR400bn with EBITDA to be in the range of ~INR210bn.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
