Hindustan Zinc - 4QFY2013 Result Update - Angel Broking

Hindustan Zinc (HZL)'s 4QFY2013 results were above our expectations due to higher-than-expected concentrate sales. Maintain Buy.

Strong growth in silver volumes: HZL's net sales increased by 24.5% yoy to Rs. 3,850cr (above our estimate of Rs. 3,091cr), mainly due to increased sales volumes of silver and higher rupee realizations. Net sales were above our estimates due to higher-than-expected metal-in-concentrate (MIC) sales. Refined zinc production volumes, however, declined 4.0% yoy to 182kt while refined silver production volumes grew 33.0% yoy to 117kt.

EBITDA up 27.5% yoy: EBITDA margin expanded by 133bp yoy to 55.0%. Cost of production increased by 8.0% yoy to Rs. 44,901/tonne due to higher strip ratio at Rampura Agucha and lower acid credits, partially offset by lower power costs. The EBITDA increased by 27.5% yoy to Rs. 2,116cr in line with increase in net sales.

Lower depreciation and taxes boosts PAT: The company's other income rose by 8.1% yoy to Rs. 412cr while depreciation decreased by 27.0% yoy to Rs. 122cr. The tax rate was also lower at 8.9% in 4QFY2013 (vs 24.1% in 4QFY2012). Hence, the adjusted net profit grew by 53.6% yoy to Rs. 2,183cr.

Outlook and valuation: With a cash-rich balance sheet and strong growth in the production of zinc, lead and silver over FY2013-15, we maintain our positive stance on HZL. While we expect earnings growth to remain flat in FY2014, we expect higher earnings growth in FY2015 on the back of improvement in both, realizations as well as volumes. HZL is currently trading at inexpensive valuations of 3.5x and 2.4x FY2014E and FY2015E EV/EBITDA, respectively. Valuing the stock at 4.0x FY2015EV/EBITDA, we recommend Buy on HZL with a target price of Rs. 145.

Source : Equity Bulls

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