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Hindustan Zinc reported a decent June-quarter performance despite the impact of the second wave of covid-19. Firm base metal prices helped the company tide over the impact of a sequential decline in production and rising costs.

Though mined metal production was up 9% year-on-year (y-o-y) on a low base to 221,000 tonnes, it declined 23% sequentially. Consequently, sequential production of zinc and lead were also down 4% and 21%, respectively. Even silver production was down by 21% sequentially in line with declining lead production. Support was provided by zinc prices that averaged 49% higher y-o-y at $2,916 a tonne, and 6% sequentially. Lead prices too averaged up 27% y-o-y and 5% sequentially at $2,128 a tonne. Silver prices, at $26.7 an ounce, supported the June quarter, averaging 63% higher y-o-y and 2% sequentially.

The better realizations cushioned the sequential decline in revenues, which fell 6% to 6,531 crore. Cost of production, however, saw a steep rise. Rising coal and diesel prices impacted margins as did prices of other commodities. This meant that zinc cost of production (CoP) surged 5% y-o-y to $1,070 a tonne (up 13% sequentially). In rupee terms, the cost was up 3% y-o-y and 14% on a sequential basis. Since the company management is targeting a CoP below $1,000 a tonne in FY22, the cost trajectory will be keenly watched by investors.

Favorable uptick
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Favorable uptick

The company said it was working on efficiencies at power plants and taking other measures to keep costs under control. The company’s Ebitda declined 8% sequentially to 3,558 crore. Ebitda stands for earnings before interest, tax, depreciation and amortization.

Going forward, production is likely to improve with the easing of covid-led disruptions. And base metal prices are also expected to remain firm, said analysts.

The management remains confident on zinc prices staying firm, with the global demand environment remaining strong. The low inventory levels at the London Metal Exchange (LME) equivalent to eight days of consumption is expected to support prices. Domestic zinc demand has been improving since June. Analysts at Motilal Oswal Financial Services Ltd are estimating earnings assuming zinc prices at $2,750-2,830 per tonne for FY22-23, for instance.

All this should help lift the company’s performance and help it meet its production, cost, and capex guidance, said analysts. The production guidance for mined and refined metals stood at over 1 million tonnes, whereas silver volume guidance stands at 720 tonnes for FY22.

Zinc and lead outlook would be supported by the mine supply cutbacks and relatively lower inventory levels, said analysts at Antique Stock Broking Ltd. The analysts are expecting firm silver prices, stable costs and higher metal volumes to support the company’s earnings.

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