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Business News/ Opinion / Online-views/  Hindustan Zinc’s performance in 2012-13 hinges on metal prices
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Hindustan Zinc’s performance in 2012-13 hinges on metal prices

Hindustan Zinc’s performance in 2012-13 hinges on metal prices

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An increase in metal prices in the March quarter over the preceding three months ensured that Hindustan Zinc Ltd (HZL) overcame obstacles to output and higher costs. Sales rose by 12.5% to 3,135 crore quarter-on-quarter (q-o-q), and operating profit margin rose by 3.5 percentage points.

HZL’s silver and lead output rose significantly q-o-q but zinc output was virtually flat. What’s worse was that rising coal prices and rupee depreciation affected cost of production. The company said its cost of producing zinc was 41,693 per tonne, or up by 3.5% q-o-q. Apart from higher silver and lead output, performance was helped by higher realizations. Zinc prices were up by 6.7%, lead 5.5% and silver 2.3%.

The decline in zinc output was due to a decline in ore grades at one of its mines, which was made up by higher recoveries across its various mines.

The management said in a conference call that mined metal production in 2012-13 will be slightly higher than the preceding financial year. But production in the first half is expected to be affected due to scheduled work at one mine. While that will be made up in the second half, its per tonne cost of production will increase in the first half. Its new lead and silver smelters are expected to operate at optimal capacity in 2012-13.

The management said it will strive to bring down its tax rate from 24% to less than 20%. In the March 2011 quarter, its tax rate was about 17%. When that happens, net profit growth should look better. Also, coal prices have been declining, which should lower its production cost.

HZL is planning to invest about 2,000 crore as capital expenditure, which, apart from regular capex, will include underground mine development. Another focus area for investment will be making additions to reserves and resources. With metal output expected to be flat in 2012-13, metal prices will hold the key to performance during the year, along with fluctuation in cost of production and its ability to lower effective tax rate.

Metal prices have turned weak recently, as fears grow that China’s demand for metals may weaken as its economy grows at a slower rate. HZL said prices will remain firm due to the rising cost of production, and that unviable capacity will exit the market. The present demand-supply outlook appears to support a weaker trend for metal prices, which, in turn, makes for a weak outlook for metal producers such as HZL.

Also See | Key numbers (PDF)

PDF by Yogesh Kumar/Mint

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Published: 22 Apr 2012, 07:46 PM IST
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