Hindustan Zinc - 4QFY2012 Result Update - Angel Broking

Hindustan Zinc's (HZL) 4QFY2012 results were slightly ahead of our expectations. Net sales decreased by 3.2% yoy and EBITDA margin slipped by 794bp yoy, mainly due to lower realizations of zinc and lead. We recommend Accumulate on the stock.

Top line decreases by 3.2% yoy: For 4QFY2012, HZL's net sales decreased by 3.2% yoy to Rs.3,094cr (slightly above our estimate of Rs.2,919cr) mainly on account of a decline in realizations of zinc and lead.

Lower realizations and higher costs dent EBITDA margin: Cost of production of zinc increased by 17.0% yoy to Rs.41,693/tonne during the quarter. Hence, HZL's EBITDA margin contracted by 794bp yoy to 53.6% and EBITDA decreased by 15.7% yoy to Rs.1,659cr. Other income was higher by 26.0% yoy to Rs.381cr. Thus, adjusted PAT decreased by 19.8% yoy to Rs.1,421cr.

Expansion projects remain on track: HZL's underground mine development work at Rampura Agucha mine and greenfield Kayar mine development are on schedule. The company expects production to increase to 2mn tonnes at its Sindesar Khurd mine. The company also expects overall silver production to increase to 350 tonnes in FY2013.

Outlook and valuation: Despite a decline in zinc prices over the past one year, we expect HZL's net profit to grow by 12.3% and 11.9% yoy in FY2012 and FY2013, respectively, on the back of higher sales volumes of lead and silver. At the CMP, the stock is trading at inexpensive valuation of 4.5x and 3.3x FY2013E and FY2014 EV/EBITDA, respectively. Hence, we recommend Accumulate on the stock with a target price of Rs.139.

Source : Equity Bulls

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