Buy Hindustan Zinc; target of Rs 158: Sushil Finance

Sushil Finance is bullish on Hindustan Zinc and has recommended buy rating on the stock with a target of Rs 158 in its January 21, 2013 research report.
 
“During the quarter ended Q3FY13, HZL’s revenues grew by 14.1% YoY and 10.9% QoQ to Rs.31.8 Bn because of higher realizations coupled with good sales volume from Silver segment. For 9MFY13 the revenue stood at Rs.87.9 Bn up by 6.3% YoY. Mined metal production was 233 KT in Q3FY13 and 610 KT in 9MFY13, an increase of 11.5% and 0.5% YoY respectively. Integrated production of refined Zinc was 168 KT in Q3FY13 and 479 KT in 9MFY13 down by 10.6% and 14.9% YoY respectively. Integrated production of refined Lead was also down by 12% YoY in Q3FY13 to 22 KT but up by 29.3% YoY in 9MFY13 to 75 KT. Integrated refined Silver production was 62 tonnes in Q3FY13 and 222 tonnes in 9MFY13, up 6.9% YoY and 44.2% YoY respectively, driven by the ramp-up of SK mine and the new Dariba lead smelter. Its EBITDA has grown at a relatively lower rate of 8.9% YoY and 3.5% QoQ to Rs.15 Bn due to higher raw material cost and mining royalty. EBITDA margins decreased by 222 bps YoY to 47.1%. For 9MFY13 the EBITDA stood at Rs.43.7 Bn down by 0.7% YoY, with Operating Profit Margin at 49.7%.”
 
“The Zinc COP, excluding royalty, during the quarter was Rs.44,900/MT ($829), 11% higher in rupee terms and 6% in USD compared with the corresponding prior quarter. The increase in cost was primarily on account of higher excavation cost and lower by-product credits. However, it’s RPAT increased by 25.8% YoY to Rs.16.1 Bn mainly because of higher other income with Net Profit Margin of 50.8%. For 9MFY13 the Net profit stood at Rs.47.4 Bn up by 14.3% YoY with NPM at 53.9%. The Other income increased by 26.2% YoY to Rs.5.1 Bn for Q3FY13. For 9MFY13, Other income is up by 41.3% YoY to Rs.16.2 Bn. AEPS for the quarter stood at Rs.3.8 vs Rs.3 of the corresponding period last year. As of Q3FY13 the company has cash and cash equivalents of Rs.192.8 Bn which is 35% of the MCAP.”
 
“Hindustan Zinc has come out with good set of numbers for Q3FY13. The company’s mined metal production was well in line with its mining plan for the year. It expects a slight growth in mined metal production on a YoY basis for FY13, which implies good performance in Q4FY13. As guided by the company’s management, the cost of production is lower in Q3FY13, at Rs.44900/MT and is likely to to reduce further in Q4FY13 due to higher utilization levels. We expect its APAT to grow at 8.2% and 5.9% for FY13E and FY14E respectively. Current valuations for HZL imply $1700/tonne of zinc and lead price, which is fairly conservative, considering the current zinc and Lead price of $2028/tonne and $2320/tonne respectively. The zinc prices are also likely to hold up due to increasing mining cost, stable demand and supply side constraint in future. We thus maintain our positive outlook on the company with BUY rating and a target price of Rs 158,” says Sushil Finance research report.

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