Total mined/ refined volumes came below est. at 188/ 191kt, -30/ -25% y-o-y. While silver volumes positively surprised us at 122t (+5% q-o-q), realisation/t came below est. at Rs 33,033/t (+4% q-o-q).
Revenues of Hindustan Zinc at Rs 31.3 billion (-24% y-o-y) came below est. of Rs 33.6 billion, largely on the back of lower than expected zinc volumes which were down 29% y-o-y at 154kt (est. 168kt), even as metal premium was up $97/t q-o-q at $254 (est. $200). Total mined/ refined volumes came below est. at 188/ 191kt, -30/ -25% y-o-y. While silver volumes positively surprised us at 122t (+5% q-o-q), realisation/t came below est. at Rs 33,033/t (+4% q-o-q).
EBITDA at Rs 13.1 billion (-34% y-o-y) came below estimates, with operating margins down 130bp q-o-q at 41.8% (est. 42.6%). Overall operating costs per tonne negatively surprised us, led by 17% q-o-q rise in mining & manufacturing costs per tonne which came at `58,396 (+11% q-o-q).
While other income came higher at Rs 7.4 billion (+34% q-o-q), reported PAT positively surprised us at Rs 21.5 billion (+8% y-o-y), largely attributable to tax write back of `3 billion (on account of adjusting profits on liquidation of investments against carry fwd losses).
We expect near-term earnings to remain sluggish led by continuing volume decline attributable to transition to u/g mining, however expect an 18% earnings growth in FY18, led by stable zinc prices, volume growth and cost efficiencies. Any news on balance stake sale by the government and production ramp-up at RA u/g and SK mine will be key monitorables. Reiterate ‘outperformer’ with a revised target price of Rs 192.