Neutral Hindustan Zinc; target of Rs 300: Motilal Oswal

Motilal Oswal's research report on Hindustan Zinc

Hindustan Zinc (HZ)’s 1QFY24 revenue came in at INR73b (down 22% YoY), which was in line with our estimate of INR74b. EBITDA stood at INR33b (down 35% YoY), in line with our estimate of INR33b. The decline in EBITDA was attributed to lower LME prices that were partially offset by lower cost of production (CoP). The CoP dipped to USD1,194/t in 1QFY24 from USD1,214/t in 4QFY23. The decline in CoP was driven by benefits from higher coal linkages, softening coal prices, better ore grades and a strong operational performance. APAT stood at INR20b (down 37% YoY) in line with our estimate of INR19b. Refined zinc sales for 1QFY24 stood at 208kt (up 1% YoY), refined lead sales came in at 50kt (down 7% YoY) and silver sales stood at 179t (up 1% YoY). HZ posted the highest ever 1Q mined metal production aided by higher ore production at Kayad and Rampura Agucha mines, improved metal grades and better-than-expected mill recovery.  Refined lead production was hit by low plant availability, which indirectly impacted silver production adversely QoQ in 1QFY24.

Outlook

HZ is currently trading at a rich valuation of 6.2x FY25E EV/EBITDA. We retain our estimates for FY24 and FY25 and reiterate our Neutral rating on the stock with a TP of INR300 (premised on 6x FY25E EV/EBITDA).