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Hindustan Zinc
Performance Highlights
Quarterly highlights (Standalone) Particulars (` cr) 4QFY13 Net sales EBITDA EBITDA margin (%) Adjusted PAT 3,850 2,116 55.0 2,183 4QFY12 3,094 1,659 53.6 1,421 % chg (yoy) 24.5 27.5 133bp 53.6 3QFY13 3,140 1,494 47.6 1,613 % chg (qoq) 22.6 41.6 738bp 35.4
BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Base Metals 50,176 (21,479) 1.0 147/107 134,070 2 19,407 5,916 HZNC.BO HZ@IN
`119 `145
12 months
Hindustan Zinc (HZL)s 4QFY2013 results were above our expectations due to higher-than-expected concentrate sales. Maintain Buy. Strong growth in silver volumes: HZLs net sales increased by 24.5% yoy to `3,850cr (above our estimate of `3,091cr), mainly due to increased sales volumes of silver and higher rupee realizations. Net sales were above our estimates due to higher-than-expected metal-in-concentrate (MIC) sales. Refined zinc production volumes, however, declined 4.0% yoy to 182kt while refined silver production volumes grew 33.0% yoy to 117kt. EBITDA up 27.5% yoy: EBITDA margin expanded by 133bp yoy to 55.0%. Cost of production increased by 8.0% yoy to `44,901/tonne due to higher strip ratio at Rampura Agucha and lower acid credits, partially offset by lower power costs. The EBITDA increased by 27.5% yoy to `2,116cr in line with increase in net sales. Lower depreciation and taxes boosts PAT: The companys other income rose by 8.1% yoy to `412cr while depreciation decreased by 27.0% yoy to `122cr. The tax rate was also lower at 8.9% in 4QFY2013 (vs 24.1% in 4QFY2012). Hence, the adjusted net profit grew by 53.6% yoy to `2,183cr. Outlook and valuation: With a cash-rich balance sheet and strong growth in the production of zinc, lead and silver over FY2013-15, we maintain our positive stance on HZL. While we expect earnings growth to remain flat in FY2014, we expect higher earnings growth in FY2015 on the back of improvement in both, realizations as well as volumes. HZL is currently trading at inexpensive valuations of 3.5x and 2.4x FY2014E and FY2015E EV/EBITDA, respectively. Valuing the stock at 4.0x FY2015EV/EBITDA, we recommend Buy on HZL with a target price of `145. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 64.9 2.0 1.5 31.6
3m (3.5) (7.8)
FY2012 11,255 12.1 5,569 13.2 13.1 52.6 9.1 1.9 22.4 21.2 2.9 5.5
FY2013E 12,526 11.3 6,917 24.2 16.3 50.4 7.3 1.6 23.3 19.0 2.1 4.2
FY2014E 12,358 (1.3) 6,778 (2.0) 16.0 51.4 7.4 1.3 19.4 16.2 1.8 3.5
FY2015E 13,659 10.5 7,438 9.7 17.6 51.6 6.8 1.2 18.4 15.6 1.3 2.4
Bhavesh Chauhan
Tel: 022- 39357800 Ext: 6821 Bhaveshu.chauhan@angelbroking.com
Vinay Rachh
Tel: 022- 39357800 Ext: 6841 Vinay.rachh@angelbroking.com
4QFY13 3,850 1,168 30.3 244 6.3 177 4.6 204 5.3 1,793 46.6 58 2,116 55.0 11 122 412 18 2,378 61.7 212 8.9 2,166 56.3 2,183
4QFY12 3,094 973 31.5 229 7.4 144 4.7 129 4.2 1,476 47.7 41 1,659 53.6 2 167 381 8 1,862 60.2 449 24.1 1,413 45.7 1,421
yoy % 24.5 20.0 6.5 22.4 58.3 21.5 40.7 27.5 351.3 (27.0) 8.1 27.7 (52.9) 53.3 53.6
3QFY13 3,140 1,142 36.4 269 8.6 169 5.4 104 3.3 1,684 53.6 37.6 1,494 47.6 7 177 506 0 1,816 57.8 203 11.2 1,613 51.3 1,613
qoq % 22.6 2.2 (9.2) 4.5 97.3 6.5 55.3 41.6 44.8 (31.2) (18.7) 31.0 4.3 34.3 35.4
FY2013 12,526 3,450 27.5 920 7.3 650 5.2 518 4.1 5,538 44.2 174 6,482 51.7 29 647 2,032 18 7,820 62.4 921 11.8 6,899 55.1 6,917
FY2012 11,255 3,230 28.7 838 7.4 535 4.8 421 3.7 5,024 44.6 150 6,069 53.9 14 611 1,543 43 6,945 61.7 1,419 20.4 5,526 49.1 5,569
yoy % 11.3 6.8 9.8 21.6 23.1 10.2 16.0 6.8 108.6 6.0 31.7 12.6 (35.1) 24.9 24.2
estimate of `3,091cr), mainly due to increased sales volumes of silver and higher rupee realizations. Zinc production volumes however declined 4.0% yoy to 182kt, while silver production volumes grew 33.0% yoy to 117kt due to higher production from Sindesur Khurd mine and new Dariba lead and silver capacities.
(` cr)
2,000 1,500 1,000 500 0 4QFY11 2QFY12 4QFY12 2QFY13 Net sales yoy growth - RHS 4QFY13
50 30 10 (10)
( ` cr)
( ` cr)
(%)
1,200 900 600 300 0 4QFY11 2QFY12 4QFY12 2QFY13 4QFY13 EBITDA (LHS) EBITDA margins (RHS)
40
(%)
1,200
(%)
2,500
70
Investment arguments
Mining in Kayar could be the next phase of growth
Since the expansion at Sindesur Khurd is complete, HZL has commenced work at its underground Kayar mine, which has 11mn tonne of high-grade reserves (10-12% zinc content). The company expects to increase its capacity from 1.0mn tonne to 1.2mn tonne. Moreover, given the cash-rich balance sheet, HZL is actively exploring greenfield projects through prospecting licenses and mining lease projects across different states.
Angel forecast
16.0 17.6
Variation (%)
(1.0) 4.8
(` cr)
Dec-06
Mar-08
Aug-08
Dec-11
Apr-05
Apr-10
Jul-06
Jul-11
Nov-04
Nov-09
May-07
2x
Source: Bloomberg, Angel Research
4x
6x
8x
10x
May-12
Mar-13
Oct-07
Feb-06
Feb-11
Sep-05
Sep-10
Oct-12
Jun-04
Jan-04
Jan-09
Jun-09
(` )
100 50 0
Oct-07
Feb-06
Nov-04
Nov-09
Sep-05
Feb-11
Sep-10
May-07
May-12
Dec-06
Aug-08
Dec-11
Oct-12 Oct-12
Jun-04
Jan-04
Jan-09
Jun-09
Apr-05
Apr-10
Jul-06
Jul-11
2.0x
Source: Bloomberg, Angel Research
6.0x
Mar-08
10.0x
14.0x
(` )
Dec-06
Aug-08
Mar-08
Dec-11
Apr-05
Apr-10
Jul-06
Jul-11
Nov-04
May-07
Nov-09
0.5x
Source: Bloomberg, Angel Research
2.0x
3.5x
5.0x
May-12
12.1
18.4
Company background
Incorporated in 1966, HZL, a subsidiary of Sterlite Industries, is a vertically integrated company with its mining and smelting operations located mainly in Rajasthan and Andhra Pradesh. HZLs current zinc reserves stand at 34.1mn tonne with a production capacity of 1.1mn tonne of zinc p.a., indicating a mine life of 31 years. HZL currently operates two underground mines, namely Sindesar Khurd and Rajpura Dariba, and one open cast mine - Rampura Agucha.
Mar-13
Feb-06
Oct-07
Sep-05
Sep-10
Feb-11
Jun-04
Jan-04
Jan-09
Jun-09
Mar-13
FY2010 8,017 122 8,139 43.3 3,347 1,961 613 457 316 4,792 75.3 58.3 334 4,458 82.0 55.6 44 600 12.0 5,014 49.3 5,014 973 19.4 4,041 4,041 48.2 49.7 9.6 9.6 48.2
FY2011 10,039 10,039 23.3 4,431 14 803 511 3,104 5,608 17.0 55.9 475 5,133 15.1 51.1 18 866 14.5 5,981 19.3 21 5,960 1,059 17.8 4,900 4,922 21.8 49.0 11.6 11.6 21.3
FY2012 11,255 150 11,405 13.6 5,336 312 838 535 3,651 6,069 8.2 52.6 611 5,459 6.3 48.5 14 1,543 22.1 6,988 16.8 43 6,945 1,419 20.4 5,526 5,569 13.2 48.8 13.1 13.1 12.8
FY2013 12,526 174 12,700 11.4 6,218 681 920 650 3,968 6,482 6.8 50.4 647 5,835 6.9 46.6 29 2,032 25.9 7,838 12.2 18 7,820 921 11.8 6,899 6,917 24.2 54.5 16.3 16.3 24.9
FY2014E 12,358 192 12,549 (1.2) 6,006 309 897 721 4,078 6,544 1.0 51.4 712 5,832 (0.0) 47.2 12 2,154 27.0 7,974 1.7 7,974 1,196 15.0 6,778 6,778 (2.0) 54.0 16.0 16.0 (1.8)
FY2015E 13,659 211 13,870 10.5 6,606 328 978 793 4,508 7,264 11.0 51.6 783 6,481 11.1 47.4 14 2,283 26.1 8,750 9.7 8,750 1,313 15.0 7,438 7,438 9.7 53.6 17.6 17.6 9.7
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Long term loans and adv. Other Non-current assets Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Total Assets
FY2010 423 17,701 18,124 60 711 18,896 8,241 2,077 6,164 1,113 10,949 1,995 928 457 611 1,326 669 18,896
FY2011 845 21,688 22,533 0.4 945 24 23,502 9,879 2,624 7,254 595 9,335 617 130 7,123 5,633 286 1,204 1,551 5,572 23,502
FY2012 845 26,036 26,881 0.4 1,109 17 28,008 11,658 3,145 8,513 445 12,695 628 164 6,979 5,255 270 1,454 1,415 5,564 28,008
FY2013E 845 31,403 32,248 0.4 1,109 17 33,375 13,858 3,792 10,066 145 12,695 628 164 12,436 11,111 270 1,055 2,759 9,678 33,375
FY2014E 845 36,648 37,493 0.4 1,109 17 38,620 15,558 4,504 11,054 95 12,695 628 164 16,722 15,415 270 1,037 2,738 13,985 38,620
FY2015E 845 42,554 43,399 0.4 1,109 17 44,525 17,258 5,287 11,971 45 12,695 628 164 21,820 20,470 270 1,080 2,797 19,023 44,525
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers
FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 5,014 335 173 (563) 785 4,173 (3,922) (96) 5,960 475 (239) 1,116 4,244 6,945 611 (61) 1,502 4,492 7,820 647 1,741 921 9,288 (1,900) (1,900) 1,532 (1,532) 5,855 29 11,111 7,974 712 (2) 1,196 7,487 (1,650) (1,650) 1,532 (1,532) 4,305 11,111 15,415 8,750 783 16 1,313 8,237 (1,650) (1,650) 1,532 (1,532) 5,054 15,415 20,470
(835) (1,501)
2,288 (4,082) 43 198 33 (187) 8 2,719 928 (60) 296 8 250 28 277
(363) (1,242)
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
Note: Some of the figures from FY2011 onwards are reclassified; hence some ratios may not be comparable with previous year ratios
10
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Hindustan Zinc No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) :
11