Hindustan Zinc - Target Price of Rs. 154 - Dolat Capital

Hindustan Zinc is amongst the lowest cost producer of Zinc and Lead with the cost in first quartile due to its fully integrated operations of mines, smelter and captive power plants. HZL currently has a reserve and resource base of 348.3mn tonnes with the mine life of over 25 years.

- HZL is increasing its mining output to 1.2mn tonne over next 6yrs this by incurring a capex of USD 1.5bn. This also includes expansion of the output at Sindesar Khurd mine and starting of underground mines at Rampura Agucha. HZL expects the cost of production to remain same post the starting of the underground mining at Rampura Agucha mine.

- Zn is amongst the most preferred base metals as we expect the current surplus in Zn markets to turn into deficit over next 3-4yrs post the mine closures of 2-3 large mines (1.2 mn tonne) and constraints in supply of low cost large mines. We expect the current high inventory to be used up to meet the growing demand. The global decline in supply, resulting from mine closures and depleting inventory, will keep the Zinc prices strong.

We continue to maintain our Buy with target price of Rs. 154 (5xFy15EV/EBITDA) on HZL given its low cost resource base, 7% volume CAGR over FY13-FY15E, strong balance sheet and compelling valuations of 2.3xFY15 EV/EBITDA. Acquisition of 29.5% stake of Govt of India by Vedanta remains additional trigger in the stock

Source : Equity Bulls

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