HZ's Q4FY18 operating performance was higher than our estimates, due to higher metal volume, sharp jump in silver volume (boost by improved silver feed grade from SK mine) and sequential decline in the cost of production. The company announced its next phase of expansion to increase mined metal volume from 1.2MT to 1.35MT in the next three years at a project cost of Rs45 bn.
- The outperformance on EBITDA was on account of higher than expected metal volumes, mined metal production increased 6% QoQ to 255KT and record silver production. Cost of production also declined to US$925/tonne.
- HZL's next phase of expansion will enable the company to increase mined metal production capacity to 1.35mtpa by FY23E and ultimately to 1.5mtpa.
- Management reiterated bullish outlook for Zinc due to low global inventory (6 days of consumption) and continued supply constraints. In CY18, demand for Zinc is expected to grow at 2.5% to 14MT as compared to supply growth of 5% to13.6MT.
- We have revised our earnings estimate higher for FY19E and FY20E to Rs24.4 (earlier Rs23.5) and Rs25.8 (earlier Rs24.9), respectively, as we see HZ benefitting from the favorable zinc environment and strong volume growth (1.2MT by FY20E). Though we are positive on HZ, given its presences in the lower end of the cost curve globally (backed by high grade captive mines), diversified revenue stream with an increasing contribution from silver and strong balance sheet. However, at the current valuation of 6.9x/6.2x FY19E/FY20E EV/EBITDA, HZ is fairly valued and, we believe, most of the positives are already priced in. We maintain REDUCE with revised target price of Rs318 (earlier Rs315).
Shares of HINDUSTAN ZINC LTD. was last trading in BSE at Rs.303.85 as compared to the previous close of Rs. 309.5. The total number of shares traded during the day was 125062 in over 1690 trades.
The stock hit an intraday high of Rs. 310 and intraday low of 299.55. The net turnover during the day was Rs. 37880477.