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HZL (~90% of VEDL’s EBITDA) beat our/consensus’ 2Q estimates, with reported EBITDA at Rs92.9bn (+14.2% qoq) as zinc CoP fell to $703/t from $851/t. Net cash stood at Rs112.7bn after a record FCF of Rs62.0bn. Management cut its FY27 guidance for CoP to $825-850/t, kept its 680t silver production target, while remaining constructive on Zn and Ag given supply deficits. We believe the recent Ag price correction is a near-term risk, which should though be offset by higher volumes; also, spot prices point to further upside. We maintain BUY and TP of Rs350.

Further improvement in CoP led to the 2Q EBITDA beat

VEDL’s subsidiary HZL, contributing ~90% of its consolidated EBITDA, logged a strong 2Q with reported EBITDA at Rs92.9bn, beating our and consensus’ estimate (6.9% vs Emkay; 9.2% vs consensus). EBITDA growth remained strong, increasing 14.2% qoq, mainly driven by lower zinc CoP ($703/t vs $851/t in 1Q), which was supported by higher sulfuric acid realizations during 2Q; this was further backed by the sequentially higher volumes across silver and lead—which increased 16.1% and 8.5% qoq, respectively, and the INR depreciation. Consequently, HZL saw strong performance despite lower hedging realization vs quarterly average, with EBITDA margin remaining robust at 61.3%. Thus, PAT rose to Rs64.1bn (vs Rs54.7 in 1Q), driven by strong operating leverage. HZL generated a record FCF of Rs62.0bn, ending 2Q with net cash of Rs112.7bn.

Healthy production and cost guidance keeps earnings momentum intact

Management reiterated confidence in achieving its 680t silver production guidance, with ~340t delivered in 1H (including sale of 10kt lead concentrate containing 10t of silver, in 2Q), supported by absence of any major maintenance shutdowns for remaining FY27. HZL reduced zinc CoP guidance to $825-850/t for the full year from $975-1,000/t, also 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, given the supply-demand imbalance in both markets. We believe strong production volumes and supportive zinc prices will continue supporting earnings momentum during 2HFY27. While the recent correction in the price of silver could weigh on silver earnings in the near term, we expect this headwind to be largely offset by higher silver volumes over coming quarters

Strong 2Q numbers to lead FY27E earnings upgrade; maintain BUY We expect HZL to log a robust FY27E EBITDA at Rs302bn (~90% of VEDL's EBITDA) backed by strong margin visibility driven by favorable Zn and Ag prices—now 23% and 28% above the FY26 average level, respectively. Should spot prices sustain at $3,731/t for Zn and $58/oz for Ag, earnings could see further upside. Coupled with HZL's firstquartile 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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