Buy Hindustan Zinc; target of Rs 152: Motilal Oswal

Motilal Oswal is bullish on Hindustan Zinc and has recommended buy rating on the stock with a target of Rs 152 in its April 20, 2012 research report.

“Hindustan Zinc's (HZ) 4QFY12 adjusted PAT increased 11% QoQ to INR 14.2b due to higher volumes and better realizations. This figure is marginally below our estimate of INR14.9b due to higher tax rate at 24%. Net sales increased 12% QoQ due to higher volumes and better realizations. Zinc and lead mine production declined 3% YoY to 223kt due to higher overburden. Mine production is expected to be impacted further in 1HFY13, and ramp-up in 2HFY13 is expected to make up for lost production. Total dividend for the year was INR2.4/share, translating into 21% payout ratio. Management has guided for dividend payout ratio of 20%, going forward.”

“Production loss on account of the shutdown of the 56ktpa Vizag Zinc smelter (production in FY12 was only 28kt) would be made up by full ramp-up in Rajasthan smelters. Reserves and Resources (R&R) increased 27.1m tons to 332.3m tons after depletion of 8m tons during FY12. R&R are now equivalent to 35m tons of zinc-lead MIC and 912m ounces of silver. Cash and equivalents increased 10% QoQ to INR179.5b. The yield on liquid investments is expected to be 9-10% as investments have been locked in for 12-18 months in the tight money market in 4QFY12. SK mine has achieved a production rate of 1.8mtpa by year end and is expected to further ramp-up to 2mtpa. The stock is trading at attractive valuation of 7.7x FY14E EPS and 3.5x FY14E EV/EBITDA, LME prices of USD2,000 for both lead and zinc. Maintain Buy,” says Motilal Oswal research report.  

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