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Performance in line; cost of production declines further

* Hindustan Zinc (HZ)’s 3QFY24 revenue stood at INR73b (down 7% YoY), in line with our estimate of INR75b. EBITDA stood at INR35b (down 5% YoY), in line with our estimate of INR34b. The YoY decline in EBITDA was due to lower zinc sales volumes, lower zinc ASP, higher marketing cost and strategic hedging impact, partially offset by increased silver/lead volumes, reduction in CoP, and favorable exchange rates. 

* The CoP stood at USD1,095/t (the lowest CoP in the last 10 quarters and the fourth consecutive quarter of consistent improvement). The reduction in CoP is driven by better volumes, enhanced operational efficiencies, and the benefits of lower coal prices.

*  APAT stood at INR20b (down 6% YoY), above our estimate of INR18b. APAT was higher on the back of higher ‘other income’ and lower-than-expected tax outgo. HZ declared a second Interim dividend of INR6 per share in Dec 2023. ? Mined metal production stood at 271kt (up 5% YoY), refined Zinc volume stood at 203kt (down 3% YoY), refined Lead volume stood at 56kt (up 22% YoY) and silver volume stood at 197t (up 22% YoY).

* During 9MFY24, revenue stood at INR214b (down 16% YoY), EBITDA stood at INR100b (down 24% YoY), and APAT stood at INR57b (down 28% YoY). HZ posted the highest ever 9M mined metal production of 780kt (up 2% YoY) on the back of improved metal grades.

* Gross debt as on Dec’23 stood at INR101b and cash and cash equivalents on the books are over INR97b.

Guidance on volume and CoP maintained

* HZ has kept its mined metal production target unchanged at 1,075-1,100kt and saleable silver target at 725-750t for FY24. However, silver volumes are expected to be better than anticipated. 

* Fumer facility is expected to add 30kt of silver production from FY25E onwards (30kt run rate expected by 4QFY24). 

* Once the alloy facility is completely operational, it will increase the total VAP to 25% from the current 18-20%. 

* HZ maintained its cost guidance at USD1,125-1,175/t for FY24.

Valuation and view

* The performance has been largely in line with our estimates. To account for lower CoP ahead and improved demand outlook, we have slightly increased our FY25/FY26 EBITDA estimates by 1%/4%. 

* HZ currently trades at 6.7x FY26E EV/EBITDA and we believe all positives are priced in at current levels. We reiterate our Neutral rating on the stock with a TP of INR310 (premised on 6x FY26E EV/EBITDA).

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