Hindustan Zinc - 3QFY14 Result Update - Motilal Oswal

Results in line but volume guidance cut; zinc demand strong

Hindustan Zinc (HZ) 3QFY14 adjusted PAT increased 7% YoY to INR17.2b on expected line, driven by strong growth in volumes (zinc +17%, lead +23%, silver +31%).

- INR/USD depreciation by 14% YoY more than offset the 3-4% decline in LME. Silver realization was down 22% YoY, while zinc and lead prices were up.

- Although refined zinc production is on the rise, production of lead and silver has been declining on a QoQ basis. HZ has altered its mining plan and cut the mine production guidance further by 50kt to 900kt for FY14 due to slower-than-expected ramp-up of underground mines and some change in the mining sequence wherein preference has been given to primary mine development. Saleable silver volume guidance too is cut by ~10% to 290-300t for FY14.

- Zinc metal cost of production before royalty increased 4% QoQ to INR52,014/t (USD840) due to lower by-product credit.

- We cut the mine production estimate by 50kt for FY14E and FY15E and increase the zinc LME prices by USD100 to USD2,000/ton for 4QFY14E and FY15E due to strengthening demand-supply equation. Hence, FY14E EPS is cut 3% but FY15E EPS gets a 2.6% upgrade.

- According to ILZSG, zinc demand grew 7.6% YoY during 11MCY13 leading to a deficit of 18kt. LME has bottomed out as demand outstripped supply during Sept-Nov 2013. Stock trades at attractive FY15E valuations of 3.1x EV/EBITDA and 7.1x P/E. Maintain Buy.

Source : Equity Bulls

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