Hindustan Zinc’s Q2 numbers in line, but production guidance disappoints1 min read . Updated: 30 Oct 2019, 12:12 PM IST
- HZL stock corrected 2.4% on Wednesday as the company lowered its production guidance for FY20
- Both revenue and Ebitda have been slipping for the last four quarters mainly due to lower sales of silver in the last quarter
Hindustan Zinc’s second quarter was tepid, but nevertheless the numbers were in line with what analysts had pencilled. Still, the stock corrected 2.4% on Wednesday as the company lowered its production guidance for FY20.
Revenues fell 5.2% year-on-year in the second quarter. Both revenue and Ebitda have been slipping for the last four quarters mainly due to lower sales of silver in the last quarter. Ebitda margin fell 193 basis points over last year to 46.9% on rising production costs. However, other income boosted net profit by 14.7% y-o-y. Ebitda is earnings before interest, tax, depreciation and amortization.
The company reduced its FY20 guidance on zinc sales by 5%, while silver sales targets were cut 15%, much to the disappointment of investors who had expected higher production guidance for FY20.
Hindustan Zinc’s expansion plans are on track but trial run and mine stabilization have meant that production is marginally delayed. Additionally, production costs for mining activities are expected to increase due to higher electricity prices.
A worry for investors is the tepid demand globally due to the trade war. “Zinc is facing demand headwinds with slowing global growth whereas upcoming mine supply should reverse the metal deficit in FY2021E. We forecast Zinc price to correct from US$2,550/ton in FY2020E to US$2,400/ton in FY2021E as the market turns into surplus," said analysts at Kotak Institutional Securities in a note to clients.
Besides, analysts have maintained their underweight rating on the stock citing expensive valuations. This may keep up the pressure on the stock.