MOSL: HINDUSTAN ZINC (Neutral)-In-line-Production ramp-up slower than expected-Announces next phase of expansion to 1.35mt

HINDUSTAN ZINC: In-line; Production ramp-up slower than expected; Announces next phase of expansion to 1.35mt; Maintain Neutral

(HZ IN, Mkt Cap USD20.6b, CMP INR326, TP INR336, 3% Upside, Neutral)

4Q performance on expected lines

• HZL's 4QFY18 EBITDA grew 12% QoQ (-3% YoY) to INR36.2b (in-line).
• Mine production grew 6% QoQ (-18% YoY) to 255kt. Sales volumes rose 5% QoQ (to 210kt) for zinc, 11% QoQ (to 50kt) for lead and 27% QoQ (to 167t) for silver.
• CoP declined 9% QoQ to USD925/t on operating leverage and an increase in linkage coal, but increased 16% YoY due to higher coal and diesel cost.
• PAT grew 12% QoQ (-18% YoY) to INR25.6b (est. of INR26.6b). PAT is adjusted for INR0.5b provision for gratuity enhancements and write-back of DMF.

FY18: Mine production/EBITDA grew 4.4%/26% to 947kt/INR123b, but adj. PAT grew slower by 7% to INR89b due to lower other income and a higher tax rate.

 Announces INR45b capex; guides for slower production ramp-up

• Mine production is expected to be slightly higher in FY19 (estimate was ~11%), with the targeted 1.2mt rate likely in FY20. Silver production is expected to be 650-700t and CoP will range USD950-975/t in FY19 (v/s USD976 in FY18).
• HZL announced next phase of expansion from planned 1.2mt to 1.35mt over the next three-years (by FY21) at a capex of INR45b.