Hindustan Zinc Ltd - PINC Result Review

HZL's Q1FY11 revenue increased 29% YoY to Rs19.7bn, driven by 36% YoY rise in LME zinc price and higher by-product revenue, even though metal sales declined 6% YoY. EBITDA at Rs10.2bn grew 31% YoY and PAT rose 24% YoY to Rs8.9bn. As on June 2010, HZL has cash and equivalents of Rs123bn.

Capex update: The newly commissioned 210ktpa zinc smelter at Rajpura Dariba produced 33kt in Q1FY11. Further, 100ktpa lead smelter, 2nd unit of 80MW CPP (1 st unit of 80MW synchronized in Jun'10) and 1mntpa mine development are on schedule for commencement by Q2FY11.

OUTLOOK

LME Zinc prices have declined by >20% since Apr'10, under-performing copper and aluminium. We believe that zinc prices have limited downside and could inch up in Q3FY11, driven by sequential improvement in profitability of steel (~50% of global zinc demand). We have assumed average LME zinc price of USD2,000 & USD2,100 for FY11 & FY12 respectively.

VALUATIONS AND RECOMMENDATION

We believe that at 3.5x FY12E EV/EBITDA, the stock is attractively valued, given volume CAGR of 10% over FY10-FY12E, highly cost-competitive operations (EBITDA margin 50%+), >30 years of mining life and strong balance sheet. We recommend 'BUY' on the stock with a target price of Rs1,170 valuing the company at 5.5x FY12 EV/EBITDA giving an upside of 17.8% from CMP of Rs993.

Source : Equity Bulls

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