Hindustan Zinc - Q1FY14 Result Update - Sushil Finance

Hindustan Zinc has come out with good set of numbers for Q1FY14. We attended the concall and some of the key takeaways are:-

For Q1FY14, HZL's revenues grew by 8.6% YoY to Rs.29.8 Bn because of good sales volume and Rupee depreciation partially offset by lower realizations.

- Mined metal production was 238 KT in Q1FY14 an increase of 27% YoY due to ramp up of Zawar mines. Q1FY14 mined metal production is in line with the management's annual target of 1MT for FY14. Integrated production of Refined Zinc was up by 10.2% YoY at 173 KT and Refined Lead was flat at 29 KT. Integrated Refined Silver production was 77 tonnes up 8.5% YoY due to higher contribution from SK mine and ramp up of Zawar mine.

- Its EBITDA has grown by 5.4% YoY to Rs.15.1 Bn. EBITDA margins decreased by 153 bps YoY to 50.5% due to higher cost and lower realizations.

- Zinc realization was down by 4.6% YoY and 9.5% QoQ to $1840/tonne while Lead realization was up by 3.8% YoY to $2049/tonne. Silver realization was down by 18.4% YoY and 23.2% QoQ to $23.8/oz.

- The Zinc COP, excluding royalty, during the quarter was Rs.46,765/MT ($836), 2% higher in rupee terms and 1% lower in USD compared with the corresponding prior quarter. The increase in cost was primarily due to lower sulphuric acid credits and higher excavation cost, partially offset by lower coal price, lower specific coal consumption and benefits of higher utilization.

- The Other income increased by 8% YoY to Rs.6.2 Bn for Q1FY14.

- It's RPAT increased by 5.3% YoY to Rs.16.7 Bn with Net Profit Margin of 55.8% down by 180 bps YoY.

- As of Q1FY14 the company has cash and cash equivalents of Rs.223.7 Bn which is 51% of the MCAP.

Expansion

Based on long-term evaluation of assets the company has finalized the next phase of growth plan. It comprises of developing a 3.75 MTPA underground mine at Rampura Agucha and expanding Sindesur Khurd mine from 2 MTPA to 3.75 MTPA, Zawar mines from 1.2 MTPA to 5MTPA, Rajpura Dariba mine to 1.2 MTPA and Kayar mine to 1 MTPA. It will also involve opening up of a small new mine at Bamnia Kalan in Rajpura Dariba belt. The projects will be completed in 6 years and benefit of growth projects will start flowing in from third year. Annual capital expenditures for these projects will average $250mn a year over next 6 years.

OUTLOOK & VALUATION

Hindustan Zinc has come out with good set of numbers for Q1FY14. The company's mined metal production was well in line with its target for the entire year of 1 MT, 15% higher on a YoY basis. However considering the recent significant Rupee depreciation we have revised our USD-INR assumptions to Rs.57 and Rs.55 for FY14E and FY15E positively impacting the earnings. However we have also marginally lowered our zinc and lead price estimate for FY14 to $1890/tonne and $2050/tonne vs earlier estimate of $1967/tonne and $2123/tonne respectively, keeping in mind the current global prices. Its net sales and APAT for FY14E are likely to degrow by 5.1% and 10.1% respectively. For FY15E its Net sales and APAT is likely to grow by 9.8% and 18.2% respectively. We believe that the zinc prices are likely to hold up and not fall below $1800/tonne on a sustainable basis due to increasing mining cost, stable demand and supply side constraint in future. We thus continue to maintain our positive outlook on the company for longer term horizon with BUY rating and a target price of Rs.158.

Source : Equity Bulls

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