Improved vol and better realisations boost performance - HZL's Q3FY11 revenue increased 17% YoY to Rs26.3bn, owing to 15% YoY rise in metal sales and higher LME zinc price (up 6% YoY). Operating profit grew by 9% YoY to Rs15.1bn on higher raw material and stripping cost. PAT grew by 12% YoY to Rs12.9bn on higher treasury income and lower tax rate.

Volume growth: Mined metal output increased 11% YoY on higher output from steam IV concentrator at Rampura Agucha. While refined zinc output rose 20% YoY to 178kt aided by 46kt output from 210ktpa smelter at Rajpura Dariba, lead output at 12.5kt declined 35% YoY. Sales vol grew 15% YoY to 215kt (incl. 25kt metal in conc. sales).

By-product gains: Silver and sulphuric acid revenues grew 15% and 211% YoY respectively, mainly due to improved realisations.

Share bonus and split: HZL has announced bonus share of 1:1 and split of one share of FV Rs10 into 5 shares of FV Rs2 each.

Cash: HZL has cash and equivalent of Rs130.9bn as of Q3FY11.

Expansion projects delayed further: The 100k tpa lead smelter at Dariba and 1.5mn tpa mill at Sindesar Khurd Mine are expected in Q4FY11. Silver capacity is expected to increase ~4x to 500t by FY13. The company has announced 150MW wind power project at a capex of Rs8.65bn, to be commissioned by Sep'11 in two phases.

OUTLOOK

During 2010, while LME copper have risen by 29% and aluminium by 10%, rise in lead have been only 3% and zinc have declined by 4%. Although inflation threatens to put a brake to growth in China, we believe that growth would still be substantial, which would keep demand for resources high. We revise HZL's estimates to factor in our revised price assumptions (pls see pg4 for details).

VALUATIONS AND RECOMMENDATION

Although we like HZL's highly cost-competitive ops. (EBITDA margin of 55%+), 30yrs mining life and strong balance sheet, we are concerned about rising mining cost and lack of growth projects. At
5.6x FY12E EV/EBITDA, we find the stock fairly valued. Maintain `HOLD' with a revised TP of Rs1,317 (5.5x FY12E EV/EBITDA).