Accumulate Hindustan Zinc; target of Rs 134: PLilladher

Prabhudas Lilladher is bullish on Hindustan Zinc and has recommended accumulate rating on the stock with a target of Rs 134 in its July 13, 2012 research report.

“Hindustan Zinc management highlighted that project team touched 340 metre depth and expects to touch ore body in August 12. Management expects UG operations to contribute 1m tonnes in FY14. The operations would contribute 4.5mtpa at its peak capacity, likely in FY18/19, when its vertical shaft would become operational. Management guided for CoP in the range of US$300-310/tonne, in line with US$300/tonne in existing open cast (OC) operations.”

“Management expects to get the renewal of mining lease for Mochia, Zawarmala and Baroi leases in Zawar during Q2FY12, substantiated by state government’s favorable recommendations to honourable Supreme Court stating that these leases are not part of Aravali valley. Management expects 45-50k tonnes of incremental lead production, provided these mines resume in Q3FY12. Management guided for capex of Rs15- 20bn in FY13 which includes sustenance capex of Rs3.5bn. Growth capex would primarily be focussed on UG projects in RA, Sindesar Khurd (SK), Kayar and 5th Roaster of 170ktpa at Dariba. Company has already ordered two vertical shafts of 4.5mtpa each for RA and SK mine at total outlay of Rs30bn.”

“Stock’s valuations de-rated post February, largely on account of structural upward shift in CoP due to transition of RA’s OC operations to UG, strong possibility of government’s stake buy-out at lower levels, elevated capital spending in RA and falling ore grades. Neverthless, attractive valuations (EV/EBITDA-4.5x FY13E) and strong free cash flow generation of Rs34-35bn p.a presents a strong case for our positive outlook on the stock. We maintain ‘Accumulate’ rating with TP of Rs134, EV/EBITDA of 5.5x FY13E,” says Prabhudas Lilladher research report. 

Public holding more than 90% in Indian cos

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