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Better-than-expected performance; focus on reducing costs

* 4QFY25 revenue stood at INR90.9b (+20% YoY/+6% QoQ) vs. our estimate of INR85.5b. Revenue growth was driven by high metal production, strong zinc and silver prices, stronger dollar, and strategic hedging gains.

* EBITDA stood at INR48.2b (+32% YoY/+7% QoQ) vs. our est. of INR44.4b. Growth was mainly led by better volumes and prices and lower input costs. EBITDA margin stood at 53% vs. 52.2% in 3QFY25 and 48.3% in 4QFY24.

* The cost of production (CoP) for Zinc fell 5% YoY to USD994/t in 4Q, led by better grades and recovery and lower costs with operational efficiencies.

* APAT stood at INR30b (+47% YoY/+12% QoQ) against our est. of INR25.8b.

* Mined metal production stood at 311kt (+4% YoY/+17% QoQ), driven by better metal grades and an increase in production at Agucha/Zawar mines.

* Refined metal production rose 4% QoQ (-1% YoY) to 270kt, in line with plant availability. Refined zinc production was up 5% QoQ (-3% YoY) at 214kt and lead production grew 2% QoQ (+6% YoY) to 56kt.

* Saleable silver production stood at 177t (+10% QoQ), in line with lead production and higher WIP liquidation.

* In FY25, revenue stood at INR341b (+18% YoY), EBITDA was INR174b (+27% YoY), and APAT came in at INR104b (+33% YoY).

* For FY25, HZ reported mined metal production of 1,095kt (flat YoY), supported by improved mined metal grades and recovery in mills. Refined metal production stood at 1,052kt (+2% YoY), led by better plant availability and operational parameters. Refined zinc production was at 827kt (+1% YoY) and lead production at 225kt (+4% YoY). Saleable silver production fell 8% YoY to 687t, due to a change in mining sequence and lower silver input from SK mine.

* FY25 Zinc CoP was at USD1,052/t (four-year low), down 6% YoY on account of better volumes and grades, higher captive coal/RE share, and softened input cost with operational efficiencies.

Key management commentary

* For FY26, HZ expects mined metal production of 1,125kt and refined metal production of 1,100kt. Zinc CoP is expected to be in the range of USD1,025- 1,050/t.

* HZ expects power costs to decline by ~10% in FY26, as the share of renewable energy is expected to rise to 30-35% in FY26 from 13% in FY25. As a result, HZ anticipates cost savings of USD10-12/t.

* FY26 silver volume guidance is ~700-710t. The implementation of lead and silver recovery technology at Dariba will generate 27t silver and 6ktpa lead per year.

* Zinc prices are projected to remain stable at USD2,800-2,900/t, lead at USD2,000-2,015/t, and silver at USD3,300-3,800/t.

Valuation and view

* HZ’s 4QFY25 performance has been better than our estimates, aided by the company’s focus on cost control. HZ continues to focus on improving production with tight cost-control measures. We largely retain our earnings estimates for FY26-27E and expect HZ to sustain its profitability. The favorable pricing scenario could also support the earnings.

* At CMP, HZ trades at 7.7x FY27E EV/EBITDA, and we believe the current valuation prices in all positive factors. We reiterate our Neutral rating with a TP of INR460 (premised on 8x EV/EBITDA on FY27 estimates).

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