Buy Hindustan Zinc; target of Rs 167: Motilal Oswal

Motilal Oswal is bullish on Hindustan Zinc and has recommended buy rating on the stock with a target of Rs 167 in its January 21, 2013 research report.
 
“Hindustan Zinc's (HZL) 3QFY13 EBITDA increased 4% QoQ to INR14.9b, 9% below est., due to higher custom smelting of lead and silver at the cost of integrated production. Lower tax rate and higher other income boosted the bottom line. PAT was INR16.1b v/s est. of INR15.5b. Cost of production (CoP) declined by USD15 to USD829/t. The reduction in cost is lower than estimate due to lower by-product credits, which partially offset the productivity and coal cost gains. Mine production increased 23% QoQ to 233kt in accordance with the guidance. Inventories of concentrate are up 33kt which will drive EBITDA growth in subsequent quarters.”
 
“HZL announced USD1.5b capex (USD250m pa spread over 6 years) to increase MIC capacity by 20% to 1.2mtpa. The benefits of higher capacity will start kicking in from FY17. Integrated silver production volumes have been disappointing. Hence, we have reduced FY13E silver volumes by 10% to 302tons and EBITDA by 4% to INR61b. Although we will watch couple of quarters (because of past to & fro on volume guidance) before upgrading Zn-Pb volumes in our model, yet we believe stock appears attractive at EV/EBITDA of 4x and 3.3x on FY14 and FY15 valuations (Zinc at USD2000/t and Lead at USD2100/t for FY14). Growth in volumes due to USD1.5b capex and possible higher dividends will re-rate the stock. Buy with a target price of INR167 (29% upside),” says Motilal Oswal research report.

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