Hindustan Zinc’s revenue at R4,130 crore (+13% y-o-y) was above estimate of Rs3,790 crore, on the back of (a) higher refined zinc production at 217kt, (b) a 11% q-o-q rise in metal premium. While integrated silver prod came exactly in line at 74kt, refined lead production was down 5.3% y-o-y at 36kt.
Ebitda at R1,970 crore came above estimates of R1,830 crore, while operating margins was in-line at 48%, attributable to lower metal prices. Overall operating costs/tonne at $1,363 came above, on the back of higher royalty expense and employee expenditure.
Adjusted PAT at R2,000 crore declined on lower other income and higher tax rate. Total cash as on March 2015 came at R30,790 crore. Final dividend came at R2.5/share, taking total dividend at R4.4/share, a pay-out of 27%.
Higher mined metal production and higher blended zinc premium were the key positives. Key negatives were lower other income, higher tax rate and DMF provisioning Factoring in higher tax rate and provisioning for DMF (District Mineral Fund), we revise our FY16/17EPS to R20.3/23, from R20.8/23.4.
We expect a gradual increase in HZL’s mined metal production starting FY16 and higher zinc prices to drive a 9% earnings CAGR over FY15-17e. Any news on balance stake sale by the government will be a positive trigger. Reiterate Outperformer with a revised target of Rs 201.