>Hindustan Zinc (Motilal Oswal)

■ PAT declined ~57% YoY to Rs5.5b. This was higher than our estimate of Rs3.8b primarily due to sale of surplus lead concentrate during the quarter.

■ Net sales declined 44.3% YoY to Rs12.6b. Revenues from the zinc segment declined 33% YoY to Rs9.6b due to a 39% YoY decline in rupee realizations, partly cushioned by 11% YoY growth in refined zinc volumes to 152,796 tons. Mined zinc posted a growth of 27% to 175,438 tons, driven by the ramp-up of the stream-III concentrator at the Rampura Agucha mine. The company sold 25,055 tons of surplus lead concentrate during the quarter.

■ EBITDA declined 62.5% YoY to Rs5.6b and margins declined 21pp YoY to 44% primarily on account of lower realizations from the sale of by–products and metal. LME zinc and lead prices declined 51% YoY to US$1,208/ton and 60% YoY to US$1,173/ton, respectively. Mining & manufacturing expenditure declined QoQ due to correction of coal prices (used in power generation) and other inputs. Employee cost too was lower QoQ because there was a production bonus payment in 3QFY09.

■ Capacity expansion to 1m tons for both zinc and lead combined is expected to be completed on schedule by mid-2010. Earnings are likely to decline ~36% YoY to Rs41.6/share in FY10 on LME zinc price assumption of US$1,200/ton. Our marked-to-market FY10E EPS at current zinc and lead prices of US$1,425/ton has an upside of ~22%. On 31 March 2009, cash & cash equivalents were Rs96b (Rs228/share), which are invested as follows: (1) Rs69b in debt mutual funds, and (2) Rs27b in fixed deposits with banks. The stock trades at 1.3x FY10E book value (RoE of 11%). Maintain Buy.

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