Hold Hindustan Zinc; target of Rs 140: R K Global

R K Global has recommended hold rating on Hindustan Zinc with a target of Rs 140, in its April 20, 2012 research report.

“Hindustan Zinc revenue decline ~3.2%Y-o-Y below our expectation by ~8.6% during the quarter at Rs31350mn (our expectation Rs34172mn) in Q4FY12 due to the 15%-20% correction in the metal prices (zinc & lead) and low refined zinc output. Operating profit too declined by 10.2% Y-o-Y below our expectation by ~11.5 Y-o-Y during the Q. EBITDAM too declined ~12.7% during the quarter with high cost pressure.”

“HZL has registered revenue decline of ~3.2% at Rs31350mn during Q4 below our expectation of Rs34172mn in Q4FY12 on the back of huge correction in the zinc and lead prices by 15% & 20% respectively during Q4. During Q4, average Zinc and Lead LME prices were $2025 per ton and $2093 per ton respectively, compared with $2393 per ton and $2605 per ton, in the corresponding prior quarter. We expected that the company will report voluminous growth but disappointed the street with the fall in the mined metal by 2% Y-o-Y at 190KT although lead and silver volume increased primarily on account of the ramp-up of the SK mine, Dariba Lead smelter and the new Silver refinery. HZL reported EBITDA declined at Rs16590mn in Q4FY’12 compared to Rs19632mn in Q4FY’11 (our estimate was Rs19815mn). The company’s total expenditure as a percentage of sales grew by 19.6% Y-o-Y impacted the operational profit of the company. Further rupee depreciation and higher raw material cost led total zinc cost to increase by 17% Y-o-Y to Rs41693/MT. EBITDAM too slid by 1207bps to ~53% compared to 60% of corresponding quarter of previous year. PAT too declined by 20% Y-o-Y at Rs14128mn in Q4FY’12 (our estimate of Rs19704mn) compared Rs17712mn in Q4FY’11.”

“We maintain our earlier target price of Rs140 per share on expectation that the company is likely to get the support from the silver business and the voluminous growth in FY13 as SK Mine is expected to deliver volumes near its capacity of 2.0mtpa in FY2013. Further silver production is projected to be around 350tons in FY2013. Hence we maintain our earlier target price of Rs140 per share using EV/EBITDA of 6.2x and recommend our investors to “Hold” the stock with potential upside of ~11%,” says R K Global research report.     

Non-Institutions holding more than 90% in Indian cos

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