ICICI Direct recommended hold rating on Hindustan Zinc with a target price of Rs 230 in its research report dated October 21, 2020.
ICICI Direct's research report on Hindustan Zinc
Hindustan Zinc reported a mixed performance for Q2FY21. The topline came in line with our estimate while EBITDA and PAT were lower than our estimate. For the quarter, zinc sales volumes came in at ~181000 tonnes (up 8% YoY, 11% QoQ, marginally lower than our estimate: 185419 tonnes), lead sales volume came in at ~57000 tonnes (up 30% YoY, 27% QoQ, lower than our estimate: 60125 tonnes) while silver sales volume came in at ~203000 kg (up 50% YoY, 39% QoQ, higher than our estimate: 195000 kg). Topline came in at Rs 5660 crore (up 25% YoY, 42% QoQ), in line with our estimate of Rs 5668 crore. EBITDA came in at Rs 2952 crore (up 39% YoY, 87% QoQ), lower than our estimate of Rs 3031 crore. EBITDA margin came in at 52.2%, marginally lower than our estimate of 53.5%. Ensuing PAT was at Rs 1940 crore (up 43% QoQ but down 7% YoY). HZL has announced an interim dividend of Rs 21.3/equity share with a record date of October 28, 2020.
There was healthy traction in both zinc and Lead prices on the LME. During Q2FY21, average zinc prices on the LME were at US$2335/tonne (up 19% QoQ) while lead prices for Q2FY21 were at US$1873/tonne (up 12% QoQ). The uptick in both zinc and lead prices augurs well for the company. We model EBITDA margin of 50.7% in FY21E and 53.8% in FY22E. We value the stock at 6x FY22E EV/EBITDA and arrive at a target price of Rs 230, with a HOLD recommendation on the stock.
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