ICICI Direct is bullish on Hindustan Zinc has recommended buy rating on the stock with a target price of Rs 350 in its research report dated May 02, 2018.
ICICI Direct's research report on Hindustan Zinc
Hindustan Zinc reported a healthy set of Q4FY18 numbers. The performance was above our estimates. HZL reported operating income of 6277 crore (up 0.3% YoY, 6.0% QoQ, vs. our estimate of 6151 crore). Zinc sales volume for the quarter came in at ~210000 tonnes (down 3.2% YoY, up 5% QoQ, in-line with our estimate of ~210000 tonnes). Lead sales volumes came in at ~50000 tonnes (up 6.4% YoY, 8.7% QoQ, higher than our estimate of ~47000 tonnes). While the silver sales came in at ~167000 kg (up 23.7% YoY, 26.5% QoQ, vs. our estimate of ~135000 kg). The reported EBITDA margin came in at 57.7% (our estimate: 54.3%, Q3FY18: 54.8% and Q4FY17: 59.9%). The reported EBITDA stood at 3620 crore (down 3.4% YoY, up 11.6% QoQ, higher than our estimate of 3342 crore). The zinc metal cost of production per tonne before royalty (COP) during the quarter declined by 9.9% QoQ to 59569/tonne (US$925/tonne), which aided margin expansion. HZL reported an other income of 486 crore up 1% YoY, 63.1% QoQ (our estimate: 350 crore), exceptional item (expense) of 51 crore related to gratuity provision for earlier years. The resultant PAT stood at 2505 crore (down 18.1% YoY, up 12.3% QoQ).
Hindustan Zinc reported a healthy set of Q4FY18 numbers primarily on account of a sharp sequential decline in zinc cost of production. For FY19E, the management has guided a slightly higher mined metal production for zinc-lead, while the silver production is guided at 650-700 tonnes. Going forward, we expect the topline and EBITDA to clock a CAGR of 11% and 15%, respectively, during FY18-20E. We continue to value the stock at 7x FY20E EV/EBITDA and arrive at a target price of 350. We maintain our BUY recommendation.
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