Hindustan Zinc earnings beat on lower costs as expansion supports long-term growth

Investment View and Valuation

In its July 24, 2026 1QFY27 result update, Motilal Oswal Financial Services maintained its Neutral rating on Hindustan Zinc and retained its FY27E and FY28E estimates. The company delivered a slight earnings beat, supported by favourable metal prices, stronger by-product realisation, a stronger dollar and lower cost of production.

Motilal Oswal considers Hindustan Zinc’s longer-term expansion plans supportive of earnings visibility. However, it believes near-term earnings growth is constrained by limited capacity headroom and that the prevailing valuation already captures the positive factors.

The broker’s target price of Rs 570 is based on 7.5 times FY28E EV/EBITDA, compared with the stock’s valuation of 6.9 times FY28E EV/EBITDA at the report CMP of Rs 532.

1QFY27 Financial Performance

Hindustan Zinc reported 1QFY27 revenue of Rs 137 billion, up 77 per cent year on year and 2 per cent quarter on quarter, and ahead of Motilal Oswal’s estimate of Rs 127 billion. EBITDA increased 109 per cent year on year and 5 per cent sequentially to Rs 80.5 billion, 5 per cent above the broker’s estimate.

EBITDA margin expanded to 58.6 per cent from 56.9 per cent in 4QFY26 and 49.7 per cent in 1QFY26. Adjusted profit after tax rose 145 per cent year on year and 9 per cent quarter on quarter to Rs 54.7 billion, compared with the broker’s estimate of Rs 50 billion.

Zinc cost of production excluding royalty fell to a record US$851 per tonne, compared with US$903 per tonne in 4QFY26 and US$1,319 per tonne in 1QFY26. The improvement was aided by higher renewable-power usage and better mined grades.

Operating Performance and Production Guidance

Mined metal output was 268 kilotonnes, flat year on year and down 15 per cent quarter on quarter. Refined metal production was 260 kilotonnes, up 4 per cent year on year but down 8 per cent sequentially because of planned maintenance at the lead smelter.

Silver production rose 2 per cent year on year to 149 tonnes but fell 16 per cent quarter on quarter along with lead production. Management reiterated FY27 refined-metal production guidance of 1.1 million tonnes and silver guidance of 680 tonnes. It expects higher volumes from 2QFY27 to 4QFY27, with no further maintenance shutdowns planned.

Management said silver contributed about 46 per cent of quarterly profitability and highlighted structural demand from solar, electronics and electrification.

Cost Outlook, Hedging and Key Risks

Management indicated that 2QFY27 zinc cost of production could improve further with higher volumes and stronger sulphuric-acid realisation, subject to input-price movements. However, domestic linkage coal availability declined to 36 per cent in 1QFY27 from 64 per cent in 4QFY26, increasing imported-coal use and power and fuel costs.

Hindustan Zinc had hedged 48 kilotonnes of zinc at US$3,162 per tonne and 34 tonnes of silver at US$63 per ounce. There were no new FY27 hedges amid market volatility, while hedge losses were about Rs 2 billion in 1QFY27.

• Metal and silver price volatility is a potential earnings risk.
• The same volatility could also act as an upside catalyst.
• Lower domestic linkage coal availability could increase imported-coal use and power and fuel costs.
• Limited near-term capacity headroom could constrain earnings growth.

Expansion Projects and Balance Sheet

Hindustan Zinc’s expansion pipeline includes a 250 kilotonnes per annum integrated zinc smelter at Debari, targeted for commissioning over 36 months. The company is also developing a Rampura Agucha tailings reprocessing plant expected to produce 30-35 kilotonnes per annum of zinc, and the Dariba Hot Acid Leaching plant, due in 2QFY27, which is expected to improve lead and silver recovery.

Management expects to seek Board approval in 3QFY27 for a further roughly 650 kilotonnes zinc and lead expansion, requiring estimated capex of Rs 240-250 billion.

Hindustan Zinc ended 1QFY27 with net cash of Rs 55.7 billion and pre-growth-capex free cash flow of Rs 52.5 billion.

Motilal Oswal Estimates

Motilal Oswal’s estimates are retained for FY27E and FY28E. The broker’s valuation framework assigns Hindustan Zinc a target price of Rs 570 based on 7.5 times FY28E EV/EBITDA, versus 6.9 times FY28E EV/EBITDA at the report CMP.