Buy Hindustan Zinc Ltd - Motilal Oswal

Hindustan Zinc (HZ IN; Mkt Cap USD12.5b, CMP Rs1,339, Buy)

Hindustan Zinc's 3QFY11 PAT grew 12.3% YoY to Rs12.9b, higher than our estimate of Rs12b. EBITDA increased 9% YoY to Rs15.1b.

Net sales increased 19.5% QoQ to Rs26.3b, driven by higher realization. Production of refined zinc grew 1% QoQ to 178k tons.

Lead and silver production declined due to maintenance shutdown at the Ausmelt and ISF smelters.

Mine production grew 9% QoQ to 222k tons. The company sold 17,678 tons of zinc concentrate during the quarter.

The Sindesar Kurd mine along with 1.5mtpa also commenced trial runs in end Dec 2010. Silver production capacity expansion to 500 tons is expected by FY13.

Motilal Oswal remains positive on the stock, given strong volume growth of zinc metal and sharper growth in lead and silver production over the next few years. The stock trades at an EV of 5.9x FY12E EBITDA and at 10.5x FY12E EPS assuming zinc and lead prices of US$2,200/ton. At present, zinc prices are ~US$2,450/ton. For every US$100/ton change in LME prices, the EPS upside is 5-6%. Maintain Buy.

Source : Equity Bulls

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