Hind Zinc Net Profit Grows 26.61%, Margins Fall

Vedanta group company, Hindustan Zinc (HZL) has reported a 26.61% rise in its net profit for the quarter ended December 2012. The Company reported total revenues of Rs 3140 crore, up 14.33% on a YoY basis. This is mainly due to the robust volumes and higher realizations it recorded in silver. Revenues from Zinc remained flat during the quarter. Its total income rose by 10.91% to Rs 3178 crore. It had reported a total income of Rs 2786 crore during the same period in the earlier year.

Revenues from Zinc stood at Rs 1975 crore compared to Rs 2004 crore a year earlier. It also saw a 10% decline in Zinc production to 171 Kilo Tonnes (Kt). Realizations in Zinc however went up by 10% on a year-on-year basis.

Lead on the other hand saw a 20% jump in sales to Rs 371 crore. Lead volumes increased by 11% to 32 Kt while realizations increased by 8.41% there.

Silver has maintained its strong volume growth and high realizations during this quarter as well. The metal saw a 103% jump in volumes to 117 Kt. Revenues from Silver rose by 151%, thanks to its realizations which were up by 23.56% during the quarter on a YoY basis.

EBITDA margins of the company during the quarter came down by 257 basis points to 47.01%. On a quarter on quarter (sequential) basis too, margins fell by 335 basis points. This fall was primarily on account of higher material costs as well as increased royalty payments. Total expenditure increased by 18.40% to Rs 1684 crore.

The net profit reported by the company is below market expectations at Rs 1680 crore. The EBITDA too was expected to improve but it declined during the quarter.

The management is expecting higher Zinc volumes in the March quarter of 2013. It has also declared expansion projects in which it will expand one of its existing mines (Sindesar Khurd) from 2 million tonne per annum (mtpa) to 3.75 mtpa. It will also develop an underground mine at Rampura Agucha with a capacity of 3.75 mtpa. HZL also said that it will increase capacity of a few other mines it owns. It intends spending around USD 250 million over the next six years in capex. It however has not indicated anything about its funding options.

The stock declined by 1.59% to Rs 129 immediately after the result was announced. We expect it to remain under pressure when the market opens for trading today.