Mining company Hindustan Zinc on January 21 reported a 27 percent year-on-year (down 22 percent QoQ) fall in Q3FY20 profit at Rs 1,620 crore on revenue of Rs 4,672 crore which fell 16 percent YoY (up 3.6 percent QoQ).
The company in its BSE filing said excluding the one-time impact of deferred tax reversal in Q2, net profit for the quarter was lower by 3 percent sequentially.
The sequential increase in revenue was due to higher zinc and silver volume, better LME prices and rupee depreciation.
At the operating level, earnings before interest, tax, depreciation and amortisation grew by 8.1 percent QoQ (down 19.34 percent YoY) to Rs 2,289 crore for the quarter ended December 2019 on account of higher revenue, partly offset by higher operating cost.
Here are key highlights from Hindustan Zinc's conference call by Narnolia Financial Advisors:
Management Participants: Sunil Duggal - CEO, Swayam Saurabh - CFO
The negative sentiments prevailed in FY20 initially by US-China trade war has reversed key trade deals signed between the two countries, which put zinc prices higher during the quarter.
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Zinc projects adding supplies have a deleterious element like silica, manganese etc. Penalties for impurities along with elevated traded charges at current price level are stressing margins and will discourage ongoing expansions.
With China's massive road initiative, India's strong push run for infrastructure to boost GDP coupled with other infrastructure projects demand for zinc has the potential to grow.
Improving demand through positive momentum from the resolution of trade disputes and continuing deficit in Zinc market will support higher zinc prices.
Prime minister plans to spend about $1.5 trillion to upgrade and built infrastructure the Indian railways is setting a target to galvanized rail tracks and speeding up the replacement of old tracks with galvanized routes. This has opened a new opportunity to significantly increase zinc demand.
A buildup in refined zinc inventory also reduced topline in Q3FY20 while it will be added in Q4FY20.
Imported coal prices improved further in Q3FY20 with the contribution of linkage coal to 22 percent in the overall mix, lead to a decline in the power cost on QoQ basis despite the 50 percent increase in electricity duty on captive power plant from July 2019 by Rajasthan government.
Zinc cost of production (CoP) excluding royalty increase to $1,077 per tonne while higher production improved the fixed cost leverage. CoP increased on account of higher mine development expense to secure production profile.
One time raw and material expenses incurred in Dariba Zinc Smelter due to roster breakdown. However, the roster is back in operation and will not impact Q4FY20 production.
In February, ore hauling from Agucha Shaft is expected. The Shaft will also provide an opportunity to provide Galina zone under the shaft.
At Zawar, the two backfilling plants are under commissioning and backfilling is expected to commence in February 2020. In addition to improving mine stability, this will help in recovering high-grade ore from the old pillar at Zawar improving volume and grade.
The fumer plant at Chanderiya is undergoing hot commissioning and expected to produce first metal by February.
The debottlenecking of smelters to 1.13 MT was completed during the quarter and further debottlenecking to 1.2 MT is underway.