 "Hindustan Zinc's good show to continue")
Hindustan Zinc, a Vedanta group company, posted stellar profits in the September quarter. Zinc has been one of the best-performing base metals on the London Metal Exchange (LME) and the Street was already expecting good profit. But, the profit number was much better.
LME zinc prices, which had averaged $1,614 a tonne, declining 28 per cent in the December 2015 quarter over a year ago, have rebounded. They averaged $2,255 a tonne in the September 2016 quarter, up 22 per cent over a year ago and up 17 per cent over the June quarter. The company also produces lead and silver, their prices averaging at $1,873 a tonne and $19.6 per ounce, respectively. Their prices also improved 9 and 32 per cent in the September 2016 quarter over a year ago, respectively.
Overall output was lower over a year ago, but in line with its plan. Hindustan Zinc is changing mining from open cast, easier and less costly, to underground mining. Mined metal output in the September quarter at 192,000 tonnes was 20 per cent lower over a year ago, but up 51 per cent sequentially. Output from underground mines has grown 83 per cent over a year ago.
But, the stock closed only 0.7 per cent higher at Rs 250 on Thursday. This comes after a 50 per cent rise in the past four months led by rising zinc prices. Outlook for zinc remains strong. Looking at deficit in zinc globally, analysts at Centrum Broking have increased zinc LME price assumptions to $2,200/2,250 a tonne for FY17/18. And, despite lower production in first half, they have kept their mined metal production estimates of 925,000/985,000 tonnes for Hindustan Zinc for FY17/18.
With improving production, realisations, and lower costs, expect the company to do well. The company's dividend policy (minimum 30 per cent of net profit or 5 per cent of net worth, whichever is higher) ensures optimum usage of surplus free cash flow. Against this backdrop, analysts see more upside for the stock. Bloomberg says HSBC, Macquarie, and Credit Suisse have given stock targets of Rs 270-290 after results.
LME zinc prices, which had averaged $1,614 a tonne, declining 28 per cent in the December 2015 quarter over a year ago, have rebounded. They averaged $2,255 a tonne in the September 2016 quarter, up 22 per cent over a year ago and up 17 per cent over the June quarter. The company also produces lead and silver, their prices averaging at $1,873 a tonne and $19.6 per ounce, respectively. Their prices also improved 9 and 32 per cent in the September 2016 quarter over a year ago, respectively.
Overall output was lower over a year ago, but in line with its plan. Hindustan Zinc is changing mining from open cast, easier and less costly, to underground mining. Mined metal output in the September quarter at 192,000 tonnes was 20 per cent lower over a year ago, but up 51 per cent sequentially. Output from underground mines has grown 83 per cent over a year ago.
But, the stock closed only 0.7 per cent higher at Rs 250 on Thursday. This comes after a 50 per cent rise in the past four months led by rising zinc prices. Outlook for zinc remains strong. Looking at deficit in zinc globally, analysts at Centrum Broking have increased zinc LME price assumptions to $2,200/2,250 a tonne for FY17/18. And, despite lower production in first half, they have kept their mined metal production estimates of 925,000/985,000 tonnes for Hindustan Zinc for FY17/18.
With improving production, realisations, and lower costs, expect the company to do well. The company's dividend policy (minimum 30 per cent of net profit or 5 per cent of net worth, whichever is higher) ensures optimum usage of surplus free cash flow. Against this backdrop, analysts see more upside for the stock. Bloomberg says HSBC, Macquarie, and Credit Suisse have given stock targets of Rs 270-290 after results.