Hindustan Zinc (HZ) reported an in-line operating performance for 3QFY18. While sales volumes came in higher than EE, this was negated by increased costs due to a spike in commodity prices. Supply deficit in the zinc market is expected to continue in 2018 as well, and therefore zinc prices should remain firm. Driven by the planned ramp-up of underground mines, management is confident of achieving 1.2 m tonne of mined metal production in FY20. We raise our FY19E zinc\/lead pricing assumptions by 6%\/4%, leading to an 8% increase in EBITDA estimates; however, PAT estimates stand upgraded by only 1% on expectations of higher depreciation charges & lower other income. Retain Long with a March 2019 TP of Rs 361 set at 3.5x FY19 BV. New mine production to slightly bridge zinc supply gap, but continued deficit to support prices: Over the next two years, new mine supply is expected from Australia, India and South Africa. In Australia, supply would largely be driven by Dugald River expansion (170k tpa) and New Century tailing production (270k tpa). Vedanta\u2019s Gamsberg mine and part production at Glencore\u2019s 500k tpa mines should also begin in 2HCY18. Despite such incremental supply, an industry report suggests that the zinc market would remain in deficit over 2018, in 2019 though it might be in slight surplus, but going back to deficit again in 2020. We therefore expect zinc prices to remain firm, going ahead. Underground production ramping up well, on track for 1.2 million tonne mined metal capacity in FY20: FY18 would be the last year of production from Rampura Agucha (RA) open-cast mine; however, production ramp-up at underground mines has been impressive with 85% contribution in 9MFY18. The SK mine reached 4.5mtpa production in 3Q. The RA underground mine shaft is expected to start ore production from 3QFY19, enabling HZ to reach 1.2mtpa mined metal production in FY20. The SK mine is also in the process of taking regulatory approvals to increase ore mining capacity to 6 million tonne. Sharply higher input costs push up COP by 19% y-o-y; lower other income weighs on PAT: Prices of key inputs like coal increased sharply y-o-y as well as q-o-q, leading to a 19% y-o-y and 4% q-o-q increase in COP per tonne.