MUMBAI: Hindustan Zinc Limited, the leading global integrated producer of zinc, lead and silver, reported its results for the third quarter and nine month ended December 31, 2019.
Commenting on the Q3 performance, Sunil Duggal, CEO, said, “We have delivered good performance in a challenging market environment and are committed to maintain the growth trajectory. We remain focused on our fundamentals of sustainability, efficiency, technology & digitisation to maintain industry leadership and deliver healthy return to our shareholders.”
Swayam Saurabh, CFO, said: “Our target is to maintain cost leadership by bringing in operational efficiencies and higher productivity though technology adoption and digital transformation, aided by completion of our key projects.”
Operational Performance
Mined metal production for the quarter was 235kt, up 7% sequentially on account of higher ore production and better overall grades. From a year ago, mined metal production was down 5% in Q3 and 3% YTD on account of lower grades at Kayad and Sindesar Khurd (SK) mines, partly offset by higher ore production.
Integrated metal production was 219kt for the quarter, up 4% sequentially driven by 7% increase in zinc production to 178kt while lead production declined by 7% to 41kt. Integrated zinc production increased in line with higher mined metal availability. The decline in integrated lead production was due to temporary issue at DSC lead smelter. Integrated silver production was 149 MT, up 11% sequentially on account of higher silver grades at SK mine. From a year ago, integrated metal & silver production declined by 9% and 16% respectively in Q3 and by 3% and 9% respectively YTD in line with lower mined metal production, lower lead production and lower silver grades.
Financial Performance
Revenue from operations during the quarter was Rs. 4,672 Crore, an increase of 4% sequentially on account of higher zinc & silver volume, better LME prices and rupee depreciation. From a year ago, revenue declined 16% primarily due to lower volume and a 9% decline in zinc LME prices, partly offset by a recovery in lead LME & silver prices. For the nine-month period, revenue was lower by 9% on account of an average 9% decline in LME prices and lower volume, partly offset by higher silver prices and rupee depreciation.
Zinc cost of production before royalty (COP) during the quarter was $1077 (Rs. 76,571) per MT, higher by 3% (4% in Rs) sequentially and higher by 8% y-o-y (7% in Rs). For the nine-month period, zinc COP excluding royalty was $1065, higher by 4% y-o-y (5% in Rs.). The COP during the quarter and the year so far has benefited from lower imported coal prices and higher linkage coal.
The sequential increase in COP is due to higher mine development expenses and increased one-time repair & maintenance costs, partly offset by higher volume, operational efficiencies and lower coal costs. The y-o-y increase in COP in Q3 and 9-months included lower grades, higher mine development expense, higher cement prices and lower acid credits, partly offset by lower power costs. The COP has been impacted by higher electricity duty on captive power plants from Rs 0.40 to Rs 0.60 per unit starting July 2019.
EBITDA for the quarter was Rs. 2,288 Crore, up 8% sequentially on account of higher revenue, partly offset by higher operating costs. EBITDA was down 20% in Q3 from a year ago and 13% YTD primarily due to lower revenues.
Net profit for the quarter was Rs. 1,620 Crore, a decline of 22% sequentially and 27% y-o-y. Excluding the one-time impact of deferred tax reversal in Q2, Net Profit for the quarter was lower by 3% sequentially. Investment income during the quarter benefited from a higher corpus while rate of return was in line with the general interest rates. The effective tax rate in Q3 was 23%, similar to that in H1 after excluding the impact of one-time reversal in Q2 of Rs. 365 Crore pursuant to Taxation Law (Amendment) Ordinance 2019. From a year ago, Net profit in Q3 was impacted by higher depreciation and amortisation expense on account of higher ore production and higher capitalisation, and also lower investment income due to market to market gains last year.
For the year-to-date, Net profit was Rs 5,466 Crore, down 8% on account of lower EBITDA and higher D&A expense, partly offset by higher investment income due to higher corpus & higher rate of return and lower tax rate due to one-time deferred tax reversal.
Expansion Projects
Update on ongoing expansion projects during the quarter
The ongoing mining expansion is in its final phase and on track to achieve capacity of 1.2 million MT per annum.
Capital mine development increased by 23% y-o-y to 13.3 km in Q3 and by 17% to 36.4 km YTD.
At Rampura Agucha, UG shaft was commissioned and ore hauling from shaft is expected to start in February 2020. This will allow RA UG to achieve 4.5 mtpa production. Furthermore, it will provide an opportunity to explore Galena zone underneath the shaft.
At Zawar, the two backfill plants are under commissioning and back filling into voids is expected to commence in February 2020. This will improve mine stability and provide an opportunity for pillar mining to remove left-out high grade ore.
The Fumer plant at Chanderiya is undergoing hot commissioning and expected to produce first metal by February 2020.
Liquidity and investment
As on December 31, 2019, the Company’s net cash and cash equivalents was Rs. 19,513 Crore as compared to Rs. 16,952 Crore at the end of FY 2019 and was invested in high quality debt instruments. The portfolio continues to be rated “Tier –1” implying Highest Safety by CRISIL.
