Accumulate Hindustan Zinc; target of Rs 158: Sushil Finance

Sushil Finance is bullish on Hindustan Zinc and has recommended accumulate rating on the stock with a target of Rs 158 in its October 22, 2012 research report.

“During the quarter ended Q2FY13, HZL’s revenues grew by 8.7% YoY to Rs.28.7 Bn despite of a drop in realization, mainly on the back of good sales volume from Lead and Silver segment. For H1FY13 the revenue stood at Rs.56.1Bn up by 2.4% YoY  Mined metal production was 190 KT in Q2FY13 and 377 KT in H1FY13 a drop of 9.5% and 5.3% YoY respectively. Integrated production of refined Zinc was 153 KT in Q2FY13 and 310 KT in H1FY13 down by 17.3% and 17.6% YoY respectively. Integrated production of refined Lead was substantially up by 41.2% in Q2FY13 to 24 KT and 60.6% up in H1FY13 to 53 KT, driven by the ramp-up of the new 100 KT Dariba Lead smelter. Integrated refined Silver production was 80 tonnes in Q2FY13 and 160 tonnes in H1FY13, up 63.3% and 66.7% respectively, driven by the ramp-up of SK mine and the new Dariba lead smelter.  Its EBITDA remained flattish YoY to Rs.14.4 Bn due to higher cost of production. EBITDA margins decreased by 420 bps YoY to 50.4%. For H1FY13 the EBITDA stood at Rs.28.7 Bn down by 5% YoY, with Operating Profit Margin at 51.2%.”

“The Zinc COP, excluding royalty, during the quarter was Rs.46,750/MT ($844), compared to Rs.38,800/MT ($847) in the corresponding prior quarter. The increase in cost was primarily on account of higher excavation cost and Rupee depreciation.  However, it’s RPAT increased by 13% YoY to Rs.15.4 Bn mainly because of higher other income with Net Profit Margin of 53.8%. For H1FY13 the Net profit stood at Rs.31.2 Bn up by 9.1% YoY with NPM at 55.7%  The Other income increased by 39.8% YoY to Rs.5.4 Bn for Q2FY13.  AEPS for the quarter stood at Rs.3.6 vs Rs.3.2 of the corresponding period last year.  It has recommended an interim dividend of 80% i.e. Rs. 1.6 per share on equity share of Rs 2 each, as compared to an interim dividend of Rs 1.5 per share last year.  As of Q2FY13 the company has cash and cash equivalents of Rs.191.4 Bn which is 33.7% of the MCAP.”

“Hindustan Zinc has come out with better than expected set of numbers for Q2FY13. 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 H2FY13. Its cost of production is likely to be flattish on a full year basis, COP is thus likely to be lower in H2FY13. We have therefore revised our FY13E and FY14E EBITDA & APAT numbers keeping revenue the same. 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 $1894/tonne and $2167/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 ACCUMULATE rating and a revised target price of Rs 158,” says Sushil Finance research report.

Institutional holding more than 40% in Indian cos

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