ICICI Direct recommended hold rating on Hindustan Zinc with a target price of Rs 260 in its research report dated January 22, 2019.
ICICI Direct's research report on Hindustan Zinc
Zinc sales volume for the quarter was at ~187000 tonne, up 17% QoQ, down 6% YoY, higher than our estimate of 180031 tonne. Lead volumes were at ~54000 tonne, up 17% YoY, 10% QoQ, broadly in line with our estimate of 54575 tonne, while silver volumes were at ~178000 kg, up 35% YoY, 11% QoQ higher than our estimate of 169183 kg. HZL reported an operating income of Rs 5540 crore, down 6% YoY, up 16% QoQ, higher than our estimate of Rs 5304.5 crore Reported EBITDA margin was at 51.2%, broadly in line with our estimate of 51.9% (Q3FY18: 54.8% and Q2FY19: 48.9%). Reported EBITDA was at Rs 2838 crore (down 13% YoY, up 22% QoQ) higher than our estimate of Rs 2751.6 crore. Zinc metal cost of production per tonne before royalty (CoP) during the quarter increased 9% YoY, down 1% QoQ to Rs 71855/tonne (US$ 997/tonne) HZL reported other income of Rs 550 crore (up 85% YoY, 40% QoQ), notably higher than our estimate of Rs 263.5 crore. Tax incidence came in lower at 22.4% (Q3FY18: 26.7%, Q2FY19: 20.2%, our estimate: 25.0%). Subsequently, PAT came in at Rs 2211 crore (down 1% YoY, up 22% QoQ), higher than our PAT estimate of Rs 1949.8 crore.
Hindustan Zinc reported a steady performance for Q3FY19, wherein sequentially the mined metal production increased 6% QoQ to 247 KT while CoP (without royalty), declined 1% QoQ to Rs 71855/tonne. Going forward, we expect this trend of decline in cost to continue in Q4FY19. We continue to value the stock on 6.5x FY20E EV/EBITDA and arrive at a target price of Rs 260, maintaining HOLD rating on the stock.
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