July 25, 2016 / 15:33 IST
Religare's research report on Hindustan Zinc
HZ’s Q1FY17 mined metal volumes were muted at 127kt while EBITDA fell 14% QoQ (-32% YoY) to Rs 11.3bn, beating our estimate of Rs 10.7bn only due to capitalisation of excess waste mining expenses. Volume guidance remains unchanged, implying end-product pricing is the only short-term trigger (zinc at 14-mth high, silver on the rise). We raise our Mar’17 TP from Rs 190 to Rs 195 on higher silver prices.
We attribute HZ’s stock outperformance to higher prices of LME zinc (+18% to US$ 2,167/t in FY17 YTD) and silver (+12% to Rs 39,095/t). Assuming zinc at US$ 2,500/t and refined zinc volumes of 780kt, we see an upside of Rs 30 to our base case TP of Rs 195 (set at 6x FY18E EV/EBITDA). Maintain BUY.
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