HZL reported Q1 EBITDA of `11.3 billion down c32% y-o-y on the back of 45% y-o-y drop in mined metal production and fall in zinc and lead prices partially offset by rupee depreciation, higher silver volumes and higher silver prices. While optically the EBTIDA was a slight beat vs Street expectation of `10.6 billion, adj for deferred mine expenses of `1.9 billion (as IFRS allows for capitalising excess overburden in periods of high waste stripping) was a clear miss. Q1 zinc production of 101kt was one of the lowest productions reported in many years as Rampura Agucha (RAM) open cast experiences “feast and famine” mining activity. However, this was in line with HZ’s guidance of H1FY17 production to be one-third of full-year production and Q1 to be substantially lower vs Q2.
Main shaft sinking at RAM has crossed 900mtrs mark, just shy of the final depth of 950mtrs. Sindesar Khurdh main shaft sinking work has been completed. Ore production from SK has reached the 3.75mtpa run-rate and RAM underground mine crossed 1mtpa production rate during the quarter. Zawar mill debottlenecking is also on track while Kayad mine expansion has achieved its expected capacity of 1mtpa Zinc continues to remain our preferred metal. We recently raised CY2016e zinc prices by c4% on the back of the strong run seen YTD. This has largely resulted in our FY17/18e EBITDA rising by 8/3% and TP up to `210 (from `200).We maintain our ‘buy’ rating.
