Hindustan Zinc: Firm realisations cushion Q1 performance despite covid impact
Premium- Hindustan Zinc's cost of production saw a steep surge with prices of coal, diesel and other commodities rising sharply
Hindustan Zinc Ltd reported a decent June quarter performance despite the impact of the second wave of covid. Firm base metal prices helped offset rising costs and the sequential decline in production. The stock was up more than 2% in early trade on Friday.
Mined metal production at 221,000 tonne rose 9% year-on-year on a low base, but declined 23% sequentially. Consequently, zinc and lead productions were down 4% and 21% sequentially respectively but were 20% and 9% higher year-on-year. Even silver production declined 21% sequentially.
Support came from zinc prices that averaged $2916 a tonne on the London Metal Exchange (LME) and were up 49% year-on-year and 6% sequentially. Lead prices rose 27% year-on-year and 5% sequentially. Silver prices at $26.7 an ounce, rose 63% year-on-year and 2% sequentially.
Better realisations cushioned the sequential decline in revenues at ₹6531 crore. Revenues were down 6% sequentially but 63.7% higher year-on-year on a lower base.
The cost of production, however, saw a steep surge with prices of coal, diesel and other commodities rising sharply. Zinc production cost surged 5% year-on-year to $1070 a tonne (up 13% sequentially). In rupee terms, it stood at ₹78,952 a tonne, up 3% year-on-year and 14% sequentially. Since the management is targeting a cost below $1,000 a tonne in FY22, the cost trajectory moving forward will be watched. Management said it is working on efficiencies at power plants and other measures to keep costs at desired levels. Ebitda declined 8% sequentially to ₹3558 crore.
Moving forward, production is likely to improve with the easing of Covid-19 led disruption with base metal prices expected to remain firm.
The management remains confident of zinc prices remaining firm with the demand environment holding strong globally. Low inventory levels at LME, equivalent to eight days of consumption, should also support prices. Domestic zinc demand has been improving since June. Analysts at Motilal Oswal Financial Services Ltd too expect a strong outlook for zinc prices as they build in $2,830/$2,750 per tonne for FY22/FY23.
All this should lift the company’s performance moving forward and help it meet production, cost, and capex guidance, say analysts. The production guidance for mined and refined metals stood at 1.025– 1.050 million tonne for FY22, while silver volume guidance was at 720 tonne.
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Zinc and lead outlook would be supported by mine supply cut-backs and relatively lower inventory levels, said analysts at Antique Stock Broking Ltd. They expect firm silver prices, stable costs and higher metal volumes to support earnings.
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