Buy Hindustan Zinc; target of Rs 146: Emkay

Emkay Global Financial Services is bullish on Hindustan Zinc and has recommended buy rating on the stock with a target of Rs 146 in its October 19, 2012 research report.

“Hindustan Zinc, despite 2% fall in LME zinc and lead, flat sales of zinc (162kt) and slightly lower sales of lead (26kt) on QoQ basis the topline of the grew 4% due to a) 2% depreciation in INR, b) higher premiums for lead and c) higher silver sales. Due to better demand and INR depreciation the premiums for lead rose to US$399/ tonne against US$205 in Q1FY13. Thus, the realizations for lead rose by US$194/ tonne more (up 9%) than Q1FY13. Silver volume also rose 86% YoY to 92 tonne mainly due to higher contribution from custom smelting, as integrated silver production stood at 80 tonne. The company during the quarter had imported 15 kt of concentrates, which was rich in silver content.”

“Operating performance remained satisfactory and came in line with the earlier guidance. The CoP of zinc stood at Rs 46,750/ tonne (US$844), against Rs 45,759/ tonne (US$844) for Q1FY13. This looks good given the lower volume of zinc and lead and ongoing under ground mining project. Bottomline was again boosted by the higher other income of Rs 5.4 bn, backed by higher yield (post tax 9%), ~700 mn kicker and higher interest rate. Going ahead however, a slight reduction is likely due to maturity of high yielding investments and also due to expected fall in interest rate. Tax rate for the quarter remained lower at ~15% and is likely to remain so for full FY13 mainly due to benefits from wind power, CPP and exemption on refineries in Uttarakhand.”

“The management is confident of delivering better performance in H2FY13 due to better progress of project activities. The zinc mined metal production is likely to surpass 400 kt with silver and lead to go up further. The company expects lower zinc CoP in H2. Full year capex is seen at Rs 16 bn. Kayar should start contributing in early FY14. At the CMP of Rs 135, the stock is trading at 8.4xFY14 EPS and 4.4xFY14 EV/ EBITDA. With slight upgradation in FY14 estimates continue to value HZL at 5xFY14 EV/ EBITDA, which translates to a fair value of Rs 146/ share. Maintain BUY,” says Emkay Global Financial Services research report.  

Public holding more than 90% in Indian cos

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