Buy Hindustan Zinc; target of Rs 149: Angel Broking

Angel Broking is bullish on Hindustan Zinc and has recommended buy rating on the stock with a target of Rs 149 in its January 18, 2013 research report.
 
“For 3QFY2013, HZL’s net sales increased by 14.3% yoy to Rs3,140cr (above our estimate of Rs3,044cr) mainly on account of a higher lead and silver production. Lead production volumes grew by 11.0% yoy to 32kt and silver production volumes grew 103.0% yoy to 117tonne. However, zinc production volumes declined by 10.0% yoy to 171kt. The cost of production of zinc increased by 11.0% yoy to Rs44,900/tonne during the quarter. Hence, HZL’s EBITDA margin contracted by 348bp yoy to 47.6%. Other income was higher by 32.6% yoy to Rs506cr while the tax rate was lower at 11.2% in 3QFY2013 (20.9% in 3QFY2012). Hence, the adjusted net profit was lower than our estimate of Rs1,685cr and grew by 26.0% yoy to Rs1,613cr. HZL’s board has approved the development of 3.75mtpa underground mine at Rampura Agucha and expansion of the Sindesar Khurd mine from 2.0mtpa to 3.75mtpa, Zawar mine from 1.2 mtpa to 5.0mtpa, Rajpura Dariba mine to 1.2 mtpa and Kayad mine to 1.0 mtpa.”
 
“With a cash-rich balance sheet and strong production growth expected of lead and silver over FY2012-15, we maintain our positive stance on HZL. Although realizations are expected grow modestly, higher volumes of lead and silver are expected to drive earnings growth of 11.2% in FY2014. HZL is currently trading at an inexpensive valuation of 5.3x and 3.8x FY2013E and FY2014E EV/EBITDA, respectively. Valuing the stock at 5.0x FY2014 EV/EBITDA, we recommend Buy on HZL with a target price of Rs149,” says Angel Broking research report.

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