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Hindustan Zinc Ltd’s (HZL) revenue fell by 11% year-on-year to ₹7,550 crore in the March quarter (Q4FY24) thanks to lower realisation and subdued volume growth. The decline in Ebitda was steeper at 14%.
The stock has gained almost 40% since 28 March, possibly in anticipation of a better FY25. However, the run-up in the share price doesn’t leave much upside. The stock also faces uncertainty around the eventual exit of the government of India, which holds about 30% in the company. The current public holding is just about 2% and the sale could substantially boost market liquidity.
HZL produces three metals, zinc, lead and silver. Its profits rely most heavily on zinc, which contributed almost two-thirds of revenue in Q4FY24. A fall of nearly 25% in average zinc prices to about $2,500 a tonne in FY24 took a toll on HZL, causing Ebitda to drop 22%. While zinc prices were a drag, the company reduced its cost of production by 11% year-on-year in FY24, helped by production of better grades, higher availability of low-cost coal, and softer commodity prices. Still, Ebitda margin contracted to 47% in FY24 from 51% in FY23.
The domestic zinc market remained strong, with 20% growth in consumption in FY24, the company said in the earnings call. This is expected to continue thanks to robust growth in demand for steel (zinc is used as a coating for stainless steel). Moreover, zinc prices could rise in 2024 owing to a marginal deficit in supplies, against a surplus in 2023.
Prices have already risen to almost $2,800 a tonne from a low of $2,400 near the end of March. Continued strength in demand and a potential upturn in zinc prices could help HZL reap rich rewards. Nuvama Institutional Equities expects the company’s Ebitda to increase by 20% for FY25 and FY26.
Its cash position has weakened in recent years, but HZL should still be able to meet its capex needs. At the end of FY24, cash & cash equivalents stood at ₹10,186 crore against debt of ₹8,455 crore. For perspective, at the end of FY22, total cash & cash equivalents stood at over ₹20,000 crore, while debt was much lower at ₹2,823 crore. The change in the cash position is due to a large dividend payout of ₹32,000 crore in FY23.
In FY25, HZL expects capex to be about ₹2,500 crore and more than ₹3,000 crore after that. The company is also looking to ramp up its mining capacity over the next five years. While the cash position doesn’t pose an imminent threat, investors should keep a close eye on it.
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