Hindustan Zinc came out with its Q2 report card for 2017 yesterday. The second quarter was far better compare to the first quarter of 2017. But it was disappointing result if we compare with the last year second quarter.

Hindustan Zinc is trading at Rs 250 per share, the stock price had climbed almost 31% in the last three months. Is there still any value investor will get if they buy today?

Let us first look at the quarterly results of Hindustan Zinc. Total income from operations dropped down by 11.02% to Rs 3,877.47 crore on QoQ basis. Earnings before tax, were down by 17.60%. This was mainly because of the change in depreciation method where they migrated from straight line method to written down method. Net profits for the quarter were also down by 16.09% on QoQ basis.

Let us look at its half yearly performance:

Hindustan Zinc 1H – 2017 % 1H – 2016 % % Difference
Revenues 6,681.59 100% 8,324.97 100% -19.74%
EBT 3,648.79 54.61% 4,891.67 58.76% -25.41%
Net Profits 3,013.37 45.10% 4,212.61 50.60% -28.47%


Hindustan zinc mines Zinc, Lead and silver from its mines. The results look negative is because of the transition to new method of mining from the old. This change is impacting on the quantity they are mining out today. The refine zinc production was down 30%, lead by 22% and Silver by 3%. However this downfall in production was compensated by jump in its underlying prices of zinc and silver this quarter.

This is what Mr. Agnivesh Agarwal, Chairman said: “The price rally in zinc continued this quarter with prices climbing 18% from the previous quarter, consistent with its strong fundamentals. Silver prices too have rallied coupled with increasing silver volumes. Favorable market scenario and Company’s smooth transition to underground mining has boosted investor confidence, heralding the Company’s entry in top 25 club in terms of market capitalization in India.”

The management had forecasted that the second half of this financial year will be strong compare to its first half. Analysts who follow this business closely are expecting its profits for 2017 in the range of Rs 6,506 crore – Rs 8,517 crore. If we punch in those earnings expectation in our calculation of its intrinsic value, then the spectrum comes in range of Rs 147 – Rs 244 per share.

We find investing in commodity producers risky. Because their profits are dependent on the market price of that particular commodity. In other terms, our conviction level is always low. Imagine how the profits will look if the zinc price instead of rallying 18%, falls down.

We consider Hindustan Zinc is expensive on its 2017 earnings expectations. But it is also trading within the 2018 valuation band. Where there is a good chance for price to go up further from here on. If you would like to know its 2018 intrinsic value spectrum please leave your comment below and I will be happy to share it with you.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.