Buy Hindustan Zinc; target of Rs 150: PLilladher

Prabhudas Lilladher is bullish on Hindustan Zinc and has recommendation buy rating on the stock with a target of Rs 150 in its April 26, 2013 research report.
 
"Hindustan Zinc reported Q4FY13 earnings ahead of our expectation on the back of better-than-expected concentrated sales volumes. Given the strong likelihood of Govt. stake sale at a much higher price and beaten down valuations (EV/EBITDA:3.6x FY14E), we reiterate our .BUY. rating with TP of Rs150, EV/EBITDA of 4.5x FY15E."
 
Strong concentrated sales leads the beat: Thanks to higher-than-expected concentrated sales (61kt v/s PLe: 30kt), revenues grew ahead of our expectation at Rs38.5bn (PLe: Rs37.3bn), up 22.6 percent QoQ (24.5 percent YoY). Higher concentrated sales compensated lower-than-expected refined metal (215kt v/s PLe: 220kt) and silver (107t v/s PLe: 119t) volumes. Led by higher concentrated sales, EBITDA grew ahead of our expectation at Rs20.6bn (PLe: Rs19.4bn); up 46 percent QoQ (27 percent YoY). Gap further widened on PAT level on account of lower tax rate (9 percent v/s PLe: 13 percent). Adj. PAT grew ~39.5 percent QoQ (53.7 percent YoY) at Rs21.8bn (PLe: Rs20.1bn).
 
Key takeaways from earnings con-call: 1) Zawar (capacity of 1.2mtpa) secured all requisite approvals to resume production 2) Management guided 15 percent growth in mined metal production in FY14 at 1m tonnes on the back of increased production in Zawar, SK and Kayar mines 3) Integrated saleable silver production (net of own consumption) is guided to grow 25 percent YoY at 360t. 4) Net addition of 16m tonnes to Reserves and Resources (R&R) after depletion of 8.6m tonnes in FY13. Total R&R stood at 348m tonnes at the end of FY14 with a mine life of 25+ years. 5) Cost of production guided to remain stable in FY14 6) Tax rate is guided to be in mid-teens in FY14.
 
Valuation and Outlook: We remain positive on the stock given the play on attractive valuations and quality assets, coupled with strong likelihood of Govt’s stake sale at a significant premium. We maintain our BUY. rating with TP of Rs150, EV/EBITDA of 4.5x FY15E," says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos

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