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Arihant Capital
Hindustan Zinc (Hold)
CMP: ₹166.60
Target: ₹175
Hindustan Zinc’s (HZL) 1QFY15 performance was largely in line with estimates. HZL reported 46 per cent y-o-y decline in mined metal production (1.63 lakh tonnes) due to higher excavation of waste as company is in transition phase towards underground mining. However, higher production is planned in H2FY15. Integrated refined metal production of zinc-lead during the quarter was lower by about 20 per cent y-o-y, in-line with mined metal production. Lower production volumes, planned shutdowns and higher mine development expenses impacted cost of production of zinc which went up from ₹46,765 a tonne to ₹60,093 a tonne. Volumes for zinc and lead for HZL are expected to remain flat over the next couple of years as we expect mining ramp up to happen gradually. We will be watchful of ramp up at Rampura Agucha mine and any delay in the same will act as a negative trigger for the stock. Nonetheless, our positive thesis on HZL is based on positive outlook on zinc prices corroborated by falling surplus in the market.
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