Originally posted by basant About that Hindustan Zinc story the production cost per tonne should indicate the efficiency not the profit per tonne and though I have no indepth study on the same I saw a couple of years back how the cost per tonne has been brought down. Probably it was a write up in business India.

 

What makes you think that I changed my view (investing strategy) in cyclicals, commodities. I was just indicating efficiency in terms of a management change (public to private) and nothing else. HZL was just one example.

  

1) It has ventured into developing its own captive power (and sell the excess) - This would further reduce its cost per tonne and become self reliant.

  

2) This is the only company that i have heard which pays more taxes than expenditure - when does this happen - it happens if the profit margins are as high as 50% or more ..

 

3) High prices of Zinc are sustainable for 2 reasons:

  

    A) Zinc forms only 3% of galvanized steel cost - so even if zinc prices rises to 200% - then it means overall finalized steel cost rises to only additional 3%

  

    B) Zinc has no replacement for galvanizing

 

4) Hind. Zinc charges per tonne at its Chandriya and other factory gates - the same prices which it would cost an indian consumer company to buy from LSE plus shipping charges from London to Chandriya - Almost Complete Monopoly type situation except that LSE determines the rates

 

Remember, manishdave's post stating that zinc at one place can be sold at a higher price at the same time than zinc at any other place ...

  

5) It takes 2-3 years to develop new mines ... So no new capacity worldwide for next 2 years atleast

 

6) And Demand have increased at significant pace owing to overall infrastructure dev. in asia (high cost can be sustained for reasons mentioned above in #3)

 

7) Very low floating shares held by public (around 5%) !

 

8) Trigger of govt stage sale (or Sterlite or public is being debated, other issues ongoing on this)

  

9) Trigger of delisting - if stake sale happens to Sterlite !!

  

10) Company has lots of cash and its putting it into good use - develop captive power (also reduces taxes - the second largest outflow other than profits, since initial investments becomes an expenditure and hence artificially reduces profit) -  Also its increasing its capacity of zinc

  

11) Zinc is sold in concentrate form and solid zinc form - they have changed their mix to have more of the profitable ones - as part of first phase of efficiency drive

   

12) For couple of quarters, they show "zinc reserves" with them as closing stock. They bill the cost to make them as expenses - but since its unsold - the revenues does not get added - while there is NO inventory problem in Zinc as of now - Hind Zinc does it to artificially make it show it has had lower earnings per quarter - so that sterlite can get govt. remaining stake at lower prices (since mrkt price would not rise very high - if earnings are artificially moderated)

 

13) Enam covers this stock and is very bullish on it for past 1-2 years..

 

14) Hindustan Zinc also sells Lead - and its fundamentals are also same as Zinc

    

 

 

    

ENAM on Hindustan Zinc (need 2 clicks)