Hindustan Zinc's robust March quarter (Q4FY26) performance, aided by the sharp rally in silver and zinc prices, masks an underlying vulnerability: its limited capacity for further production growth.
Silver production at 627 tonnes was lower year-on-year in FY26, missing the guidance of 705 tonnes. FY27 guidance is 685 tonnes. Refined metals (zinc plus lead) production of 1.05 million tonnes (mt) in FY26 also missed guidance, and was lower year-on-year. While management has guided for production to reach 1.1 mt in FY27, this could be a tough task, given that output has stagnated around 1.03-1.05 mt over the past four years. A big jump in output is seen only after its 0.25 million-tonnes-per-annum (mtpa) expansion project is commissioned, which is expected by Q2FY29.
Another worry for HZL is the rise in the cost of production (CoP) of zinc, hurt by the higher cost of explosives, chemicals and logistics as a result of the ongoing West Asia war. Management has guided for a CoP of $975-1,000 per tonne for FY27 (excluding royalties), which could hit margins. CoP dropped to an all-time-low of $903 a tonne in Q4FY26, and was $959 a tonne in FY26, led by soft coal prices, higher by-product realization, and better mined grades. HZL is also benefitting from the rising share of renewable energy in total energy consumption.
Volume cap
For now, HZL investors are reaping a bonanza. Average silver realization grew 140% year-on-year to ₹2.3 lakh per kg in Q4FY26, buoyed by strong industrial demand and supply constraints. Zinc realization rose by 13% year-on-year in Q4, with strong demand led by sustained steel production and the global energy transition. Thus, HZL’s consolidated revenue increased by 49% to ₹13,544 crore in Q4, while Ebitda jumped 60% to about ₹7,700 crore. FY26 revenue and Ebitda growth were 20% and 27%, respectively.
Expecting firm prices, Nuvama Research has revised upwards its FY27-28 Ebitda estimates by 21% and 28%. “We are now factoring in London Metal Exchange (LME) zinc price of $3,100/3,000 per tonne in FY27E/28E and silver price of $75 per ounce in FY27E/28E each,” it said. For FY26, average zinc and silver prices were $2,970 per tonne and $53.1 per ounce. However, other brokerages such as JM Financial Institutional Securities have retained their earlier estimates.
HZL stock is up about 28% from its year-to-date low of ₹487.20 on 23 March, led by a 15% increase in zinc prices at LME. With limited room for a volume increase, the trajectory of metal prices is key to the stock’s fortunes from here.