Hindustan Zinc Ltd wants to put its cash to better use than be deployed in relatively low-yielding financial assets. Its earnings before interest and tax to capital employed ratio, based on its September quarter results, works out to 27%.

It may seem good, but take the cash and investments of 16,296 crore out of the capital employed, remove other income from profit, and the ratio jumps to 58%.

Graphic by Ahmed Raza Khan/Mint

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The management in a conference call also indicated that some internal expansion in mining may be on the cards. Thus, some more of its cash may be converted into revenue-earning assets. Acquisitions are another option, but getting government approval (the government owns a 29.5% stake) may become a stumbling block. The firm had not got government approval in time when it had tried acquiring Anglo American Plc’s zinc assets.

Coming to its September quarter results, they are being announced at a time when metal prices have fallen due to fears about the Western world’s economic position. Lead and zinc prices ended September with a 24% loss over the start of the quarter. In October, lead has lost 5% till date, while zinc prices are flat.

Hindustan Zinc’s sales fell 8% quarter-on-quarter to 2,593.5 crore and its operating profit margin declined 67 basis points. Apart from lower realizations, the commissioning of new facilities may also have affected costs. Net profit was down 10% to 1,345 crore.

Compared with the year-ago period, sales have risen by 19.9% and net profit has risen by about 41.7% on the back of higher volumes and contribution from silver. A ramp-up in utilization of its mines and new smelter will lead to higher output. But price trends are the major factor affecting the company’s performance.

The management expects zinc prices to improve from their current levels of about $1,900 (Rs 93,480) a tonne to about $2,200, based on its expectation of a balanced demand-supply situation. But if prices slide further, the company’s performance will be under pressure.

The share price is down by about 18% from its highest level this fiscal year in April. An acquisition or two—at attractive valuations due to depressed metal prices—may be the only way to perk up sentiment.