October 20, 2016

Analysis of Hindustan Zinc's segment results in Apr-Sep FY17

Silver sales growth of 26% spurs Hind Zinc Apr-Sep financials

The silver lining in the otherwise falling trend in Hindustan

Zinc Ltd's sales and profit was the silver metal itself.

    An analysis of the September quarter results declared by the miner today

revealed silver's rising contribution to the company's revenue and earnings

before interest and tax.

    In Jul-Sep, the miners's revenue from silver sales increased sharply by

25% on year to 4.82 bln rupees aided by steady production and around 30% on

year increase in silver prices. Revenue from zinc and lead declined year on

year by 14% and 10% each to 27.0 bln rupees and 5.0 bln rupees respectively.

    This trend extended to, and was accentuated in, the first half of

2016-17. In Apr-Sep, silver revenue rose 26% on year to 8.4 bln rupees while

zinc sales fetched 46.2 bln rupees, 25% lower than the year-ago period.

    Volume growth in the first half of 2016-17 was 6% on year to 196 mln

tonnes in silver, while zinc and lead volumes contracted by 37% and 17%


    An analyst said the fall in zinc and lead volume and sales was on

expected lines and silver production was expected to increase as well. If the

company management wants to, it can ramp up the silver production from around

450 mln tonnes to 730 mln tonnes, he said.

    Operating margin from silver held steady for the miner in contrast with

falling margins in zinc and lead.

    The earnings before interest and tax in silver in the September quarter

was 3.8 bln rupees, giving a margin of 79.2%, down just 30bps from the

year-ago quarter. The EBIT margin in zinc, lead and other metals, taken

together, in Jul-Sep fell 600 bps to 37.9%.

    The first half of 2016-17 saw a higher difference in the EBIT margin

growth rates. EBIT margin in silver went up sharply on year by 250 bps to

78.6% on year, while that in zinc, lead and others fell by a steep rate of

1010 bps to 29.3% year on year.

    The company said in its earnings statement that integrated silver

production was up 6% on year in first half of 2016-17 despite lower mined

metal, on account of significantly higher production from Sindesar Khurd

mine. "For the full year, integrated silver production will be higher than FY

2016", the company said.

    In 2015-16, the revenue from silver had increased by nearly 17% on year

while revenues from zinc, lead and other metals fell 6.2%.

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