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Performance in line; focus on controlling CoP

* In 2QFY25, revenue stood at INR83b (+22% YoY/+2% QoQ) against our estimate of INR78b. The YoY growth was driven by better metal and silver volumes and zinc and silver prices, further supported by a strong dollar and marginally offset by lower lead prices.

* EBITDA stood at INR41b (+31% YoY/+5% QoQ) against our estimate of INR39b. EBITDA margin came in at 50% vs. 48.5% in 1QFY25. Zinc cost of production (COP) for 2QFY25 stood at USD1,071 (INR89,686) per MT (-5% YoY and -3% QoQ). The improvement was due to higher volume and better linkage coal availability, further supported by softened coal and input commodity prices and operational efficiencies.

* APAT stood at INR24b (+35% YoY/flat QoQ) against our estimate of INR22b. In Aug’24, HZ declared an interim dividend of INR19 per share.

* During 1HFY25, revenues grew 16% YoY, EBITDA rose 24% YoY and APAT increased by 29% YoY.

* Mined metal for 2QFY25 stood at 256kt (+2% YoY/-2% QoQ), driven by higher ore production at Zawar Mine, partly offset by lower mined metal grade at SK Mine.

* Refined Zinc volume stood at 198kt (+7% YoY/-6% QoQ). Refined Lead volume stood at 63kt (+12% YoY/+23% QoQ), aided by the lead mode at pyro plant operations during the quarter.

* Silver volume stood at 184t (+2% YoY/+10% QoQ) on account of the lead mode at pyro plant operations during the quarter, partly offset by lower silver output from SK Mine.

Key management commentary

* The decline in CoP during 2QFY25 was due to better grades, softened coal and input commodity prices, and better linkage coal. The management maintained its zinc CoP guidance of USD1,050-1,100/t for FY25.

* HZ commenced sourcing RE power from the 180mW Serentica Renewables solar project in May’24. This increased share of RE power in total power requirement to 14% in 2QFY25 (8.5% in 1QFY25). The rise in renewable share aided HZL to reduce the energy cost by USD9/t during the quarter.

* The company expects RE power’s share to reach 25% by FY25 end, which would aid CoP and offset the increase in coal prices.

Valuation and view

* The performance was largely in line with our estimates. The company continues to focus on improving production with tight cost control. We retain our earnings estimates and expect HZ to maintain its focus on profitability.

* At the CMP, HZ trades at 8.8x FY27E EV/EBITDA and we believe the current valuation prices in all positive factors. We maintain our Neutral rating on the stock with a TP of INR570 (premised on 10x EV/EBITDA on FY27 estimates).

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