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HZL reported a strong 1QFY27, with EBITDA at Rs80.7bn broadly in line with our estimates, supported by a favorable pricing environment, INR depreciation, and robust by-product realizations despite sequentially lower zinc, silver, and lead volumes. Management reiterated its 1.1mt refined metal and 680t silver guidance, while maintaining zinc cost guidance of $975-1,000/t, with elevated sulfuric acid prices and higher production expected to provide further cost tailwinds. We believe strong production volumes as well as supportive zinc and silver prices will continue aiding earnings through FY27, while any near-term impact from lower silver prices would be largely offset by higher silver volumes. We expect FY27 HZL EBITDA at Rs253bn, with further upside if current spot zinc and silver prices sustain. We maintain BUY and TP of Rs350.

Strong by-product contribution aids 1Q EBITDA growth

VEDL’s subsidiary HZL, contributing ~90% of consolidated EBITDA, logged a strong 1Q with EBITDA at Rs80.7bn, broadly in line with our estimate (2.1% vs Emkay; 14.1% vs consensus). EBITDA growth remained modest, increasing 4.3% qoq despite sequentially lower volumes across zinc, silver, and lead—which declined 6.2%, 14.5%, and 15.3% qoq, respectively; this was offset by the favourable pricing environment and INR depreciation. HZL saw strong performance despite lower hedging realizations vs quarterly averages, with EBITDA margin remaining robust at 62%. Thus, PAT rose to Rs54.7bn (vs Rs50.3bn in 4Q), driven by strong operating leverage. HZL generated record FCF of Rs52.5bn after growth capex, ending 1Q with net cash of Rs55.7bn

Outlook remains constructive

Management reiterated confidence in achieving its 1.1mt refined metal and 680t silver production guidance, supported by the absence of any major maintenance shutdowns for the remainder of FY27 and expectations of stronger silver grades over coming quarters. It also maintained zinc cost guidance of $975-1,000/t, while highlighting that elevated sulfuric acid prices and higher production could provide additional cost tailwinds. The company remains constructive on the medium-term outlook for both zinc and silver. We believe strong production volumes and supportive zinc/silver prices will continue supporting earnings momentum during the remainder of FY27. While the recent correction in silver prices could weigh on silver earnings in the near term, we expect this headwind to be largely offset by higher silver volumes over coming quarters.

Earnings to remain supportive; maintain BUY

We expect HZL's FY27E EBITDA to remain robust at Rs253bn (~90% of VEDL's EBITDA), supported by strong margin visibility driven by favorable zinc and silver prices, which are currently 17% and 52% above FY26 average levels, respectively. Should spot prices sustain at around $3,577/t for zinc and $60/oz for silver, earnings could see further upside. Coupled with HZL's first-quartile position on the global zinc cost curve, we remain constructive on its earnings and growth outlook. Accordingly, we maintain BUY on VEDL with unchanged TP of Rs350.

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