Moneycontrol Bureau
Shares of Hindustan Zinc (HZL) have rallied 3 percent intraday Tuesday as brokerages have remained bullish on the stock post strong September quarter earnings led by volume growth and operational performance despite a subdued pricing environment. It was in addition to 3 percent rally in previous session.
With maintaining outperform and raising target price to Rs 213 apiece (from Rs 189 earlier, implying 36 percent upside), Macquarie says the company has reported earnings 10 percent above its estimates led by strong volume and physical premiums.
Strong volume growth visibility, lowest quartile cost producer, a strong balance sheet and a bullish outlook on zinc makes HZL high conviction pick in metals space, it says.
The brokerage has increased volume estimates for FY16-18 by 4-5 percent led by impressive progress (on SK mine, the Kayad mine and the Rampura Agucha open pit deepening project) by HZL in ramping up production and increase earnings per share (EPS) by 9-13 percent in FY16-17. It expects HZL to achieve 930kt in FY16. For every 1 percent change in volume, profit increases by 1.1 percent.
HZL's profit grew by 4.6 percent year-on-year to Rs 2,285 crore and revenue increased by 6.1 percent to Rs 4,033 crore during July-September quarter, which were estimated at Rs 1,945 crore and Rs 3,680 crore respectively (according to a CNBC-TV18 poll).
Operating profit jumped 8.2 percent on yearly basis to Rs 2,164 crore on account of higher revenue, rupee depreciation and lower cost of production.
Macquarie remains bullish on Zinc in the medium to long term driven by an expectation of concentrate deficit in 2016 with closures of key mines. Also, the recent surprise announcement by UK-based Glencore to cut zinc production by 5 lakh tonne per annum would further deepen the deficit, it says.
Government stake sale (which holds 29.54 percent) and LME zinc price movement are key catalyst, according to the brokerage.
Deutsche Bank has enthused by company's announcement of special interim dividend of Rs 1.9 per share which takes the total interim dividend to Rs 3.8 per share, implying a dividend payout ratio of around 39 percent for H1FY16 (a sharp improvement from around 23 percent payout in FY15).
With reiterating buy and target price of Rs 180, the brokerage says a combination of positive outlook for LME zinc, higher mined metal production and attractive valuations continues to underpin its positive view on the stock.
Deutsche expect strong operating performance to continue in 2HFY16 as well.
HZL's mined metal production increased by 13 percent Y-o-Y to 240kt during the quarter, driven by higher ore production across mines. Integrated zinc metal production rose by 22 percent Y-o-Y to 211kt due to enhanced smelter efficiency and conversion of WIP inventory.
At 11:50 hours IST, the scrip of Hindustan Zinc was quoting at Rs 159.70, up Rs 1.30, or 0.82 percent on the BSE.Posted by Sunil Shankar Matkar
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