HZL reported a 23% qoq jump in revenue to Rs39.1bn, quite higher than our estimate of Rs33.7bn. The outperformance in topline was largely due to sales of zinc concentrate and higher lead premiums. HZL during the quarter managed to sell 61,000 tons of concentrate against no sales in the previous quarter and corresponding quarter last year. Mined metal output for the quarter stood at 260,000 tons, its highest ever quarterly output. It was higher by 11.6% qoq and 16.6% yoy and was as per the guidance given by the company.
Inline with the management guidance, the production of refined metal too showed healthy growth in the current quarter. Total zinc production was higher by 6.4% qoq to 182,000 tons from 171,000 tons, but lower by 4.2% on a yoy basis. Production of integrated zinc also declined 4% yoy from 189,000 tons to 181,000 tons. Total lead production increased by 9.4% qoq, but was lower by 5.4% yoy. Production of integrated lead was quite strong at 32,000 tons against 22,000 tons in Q3 FY13. Total silver production was lower on a qoq basis, as last quarter volumes were higher due to custom smelting. Integrated silver production was quite strong at 100 tons.
Operating profit for the quarter jumped 41.6% qoq and 27.5% yoy to Rs21.1bn on the back of concentrate sales and higher integrated refined metal production. OPM for the quarter expanded by 712bps qoq and 122bps yoy to 54.1%. The jump in mined metal output, higher integrated refined metal production and lower royalty payment led to the expansion in OPM. With an increase in mined metal output, consumption of external concentrate declined, leading to a 62% qoq drop in raw material purchase costs. Other manufacturing and mining costs per declined sharply on account of higher volumes. Net zinc metal cost without royalty increased 7.7% on a yoy basis in rupee terms to Rs44,900/ton, but flat at $829/ton in dollar terms. On a qoq basis, Cost of production in both rupee and dollar terms was flat.
PAT increased 35.4% qoq from Rs16.12bn to Rs21.7bn in the current quarter which was quite higher than our estimate of Rs62.5bn. The increase in PAT was led by a lower tax rate which declined from 11% to 9% qoq on account of geographical incentives from the tax schemes and investments in tax-free bonds. Other income during the quarter declined by 18.7% qoq to Rs4.2bn. Cash balance increased from Rs193bn to Rs215bn.
HZL’s earnings growth over the next two years would be led by higher volumes from the new lead smelter and silver refinery. After registering a dismal H1 FY13, the company has managed to recover volumes in H2 FY13. We believe the recovery would continue in FY14 wherein the company expects mined metal output to increase 15% yoy. We expect metals prices to remain subdued in FY14 as excess capacity and high inventory would cap the upside. We have upgraded our refined metal production in FY14 on the back of higher mined metal output. However, this impact has been offset by a lower silver sales volume and lower realisation. At the CMP of 130, the stock is trading at 6.5x P/E and 2.8x EV/EBIDTA on FY14E, which is lower than the range its international peers are trading at. We upgrade our rating from Market Performer to BUY with a 9-month price target of Rs141.
|(Rs mn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|Mining & manufacturing||(14,117)||(14,113)||0.0||(12,025)||17.4|
|OPM (%)||54.1||47.0||712 bps||52.9||122 bps|
|Effective tax rate (%)||8.8||11.2||24.0|
|Adj. PAT margin (%)||55.9||50.7||512 bps||45.3||1052 bps|
|Extra ordinary items||(175)||-||-||(84)||-|
|Ann. EPS (Rs) *||20.7||15.3||35.4||13.5||53.6|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|yoy growth (%)||13.6||11.3||9.0||7.6|
|yoy growth (%)||12.4||25.1||
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