RESULT UPDATE

HINDUSTAN ZINC
Better times ahead…
COMPANYNAME
India Equity Research| Metals and Mining

EDELWEISS 4D RATINGS
Hindustan Zinc’s (HZL) Q1FY19 EBITDA of INR27.1bn was 8% lower than
consensus (slightly surpassed our estimate) due to: 1) highest-ever cost of Absolute Rating BUY
Rating Relative to Sector Outperform
production (COP/t) of USD1,043 on account of higher employee &
Risk Rating Relative to Sector Low
manufacturing expenses; 2) 11% YoY dip in zinc volume; and 3) grade
Sector Relative to Market Underweight
deterioration. Going ahead, we expect cost pressure to recede led by:
a) volume ramp up; b) lower haulage cost due to evacuation via shafts
instead of declines and; c) overall grade improving to ~8.0% from 7.6%. MARKET DATA (R: HZNC.BO, B: HZ IN)
Maintain ‘BUY’ with TP of INR327, implying an exit multiple of 11.7x. CMP : INR 268
Target Price : INR 327
EBITDA misses consensus estimate on higher CoP, employee cost 52-week range (INR) : 340 / 261
Share in issue (mn) : 4,225.3
HZL’s Q1FY19 EBITDA of INR27.1bn (up 14% YoY) missed consensus estimate by 8% due
M cap (INR bn/USD mn) : 1,131 / 16,432
to: 1) highest-ever CoP of USD1,043/t (up 7% YoY) owing to lower volume & higher
Avg. Daily Vol.BSE/NSE(‘000) : 2,127.4
energy/crude derivatives cost; and 2) long-term wage settlement (one-time INR1.3bn
impact). Going ahead, we expect cost to recede driven by: i) production ramp up;
SHARE HOLDING PATTERN (%)
ii) lower haulage cost; and iii) higher proportion of linkage coal.
Current Q4FY18 Q3FY18
Promoters * 64.9 64.9 64.9
Operating guidance maintained; expect performance to improve
MF's, FI's & BK’s 31.1 31.1 31.2
Management maintained FY19 operating guidance of: 1) USD950-975/t CoP; 2) 650-
FII's 2.3 2.3 2.2
700t silver production; and 3) slightly higher mined metal (MM) production compared
Others 1.7 1.7 1.7
to FY18. We expect the performance to improve primarily driven by higher MM * Promoters pledged shares : NIL
production (5% higher at ~1.0mt) and better grades. We expect relief on cost front as: (% of share in issue)

1) haulage cost declines once shafts at Rampura Agucha (RA) & Sindesar Khurd (SK)
mines start functioning in Q3FY19; and 2) grades improve to ~8%. Any increase in PRICE PERFORMANCE (%)

linkage sourcing will be an additional sweetener. EW Metals

Stock Nifty and Mining
Index
Outlook and valuations: Sustained growth; maintain ‘BUY’
1 month (9.1) 2.3 (8.9)
We envisage HZL to benefit from volume growth of 1.2mtpa by FY20E and reduced 3 months (18.3) 3.7 (20.5)
CoP/t as haulage cost reduces & grades improve in ensuing quarters. As a result, we 12 months (4.2) 10.7 (4.1)
estimate EPS CAGR of 12% through to FY20. At CMP, the stock is trading at 9.5x FY20E
EPS. We maintain ‘BUY/SO’ with TP of INR327, implying an exit multiple of 11.7x.

Financials (INR mn)

Year to March Q1FY19 Q1FY18 % Chg Q4FY18 % Chg FY18 FY19E FY20E Amit A Dixit
Net revenues 53,100 50,130 5.9 62,770 (15.4) 225,210 262,578 285,476 +91 22 6620 3160
amita.dixit@edelweissfin.com
EBITDA 27,130 23,840 13.8 36,200 (25.1) 127,090 153,793 164,968
Adjusted Profit 19,575 18,760 4.3 25,410 (23.0) 94,730 112,220 118,592 Meera Midha
+91 22 4088 5804
Adjusted Diluted EPS 4.6 4.4 4.3 6.0 (23.0) 22.4 26.6 28.1 meera.midha@edelweissfin.com
Diluted P/E (x) 11.9 10.1 9.5
EV/EBITDA (x) 7.2 5.5 4.7
ROAE (%) 28.6 28.4 25.3
July 23, 2018
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
 Metals and Mining
Chart 1: Operating cost rose on lower MM volume… Chart 2: Silver volume remained steady in Q1FY19…
1,100 350
180
880 280
140

('000 tonnes)
660 210
(USD/t)

(Tonnes)
100
440 140
60
220 70

0 0 20

Q3FY18
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18

Q4FY18
Q1FY19

Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
(20)

Mined metal production

Refined silver
Zinc- COP without Royalty- USD

Chart 3: .. and ramp up of SK mine led to higher lead volumes Chart 4: …however, zinc volumes fell due to lower grades
60 300

48 240

36 180
(kt)
(kt)

24 120

12 60

0 0

Q4FY17
Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19
Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Total Lead Total Zinc

Chart 5: EBITDA declined due to lower volume and higher CoP

75.0 41,500

60.0 34,200

45.0 26,900 ((INR mn)

(%)

30.0 19,600

15.0 12,300

0.0 5,000
Q4FY16

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q3FY18

Q4FY18

Q1FY19
Q1FY17

Q2FY18

EBITDA EBITDA margin

Source: Company, Edelweiss research

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Table 1: Volumes decline on the transition to underground mining from opencast at Rampura Agucha
Year to March Q1FY19 Q1FY18 Y-o-Y (%) Q4FY18 Q-o-Q (%)
Production volume
Mined metal content (Kt) 212.0 233.0 (9.0) 254.8 (16.8)
Refined zinc – integrated (Kt) 172.0 194.0 (11.3) 206.1 (16.5)
Refined lead - integrated (Kt) 42.0 35.0 20.0 49.8 (15.7)
Salable silver production (tonnes) 138.0 115.0 20.0 170.0 (18.8)
Wind power (MU) 139.0 156.0 (10.9) 58.0 139.7
Sales volume
Refined zinc (Kt) 170.0 190.0 (10.5) 210.0 (19.0)
Refined lead (Kt) 42.0 34.0 23.5 50.0 (16.0)
Silver (tonnes) 141.0 102.1 38.2 167.0 (15.6)

Net sales value

Zinc (INR mn) 38,140 34,460 10.7 45,640 (16.4)
Lead (INR mn) 7,290 5,310 37.3 8,670 (15.9)
Silver (INR mn) 5,470 4,010 36.4 6,370 (14.1)
Other (INR mn) 1,680 1,460 15.1 1,060 58.5
Total (INR mn) 52,580 45,240 16.2 61,740 (14.8)
EBITDA (INR mn) 27,130 23,690 14.5 36,600 (25.9)
EBITDA margin (%) 51.6 52.9 59.3
Net realisations
Zinc (USD/t) 3,346 2,815 18.9 3,370 (0.7)
Lead (USD/t) 2,588 2,424 6.8 2,688 (3.7)
Silver (INR/kg) 38,794 39,291 (1.3) 38,144 1.7
Blended EBITDA/t (INR/t) 127,887 105,711 21.0 140,679 (9.1)
Blended EBITDA/t (USD/t) 1,907 1,640 16.3 2,181 (12.6)
Source: Company, Edelweiss research

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Metals and Mining

Q1FY19 conference call: Key takeaways

Macro outlook
 Management reiterated bullish outlook for Zn due to low global inventory (30 days
of consumption) and sustained supply constraints despite the USD strengthening
and global trade war concerns.
 In CY18, refined Zn demand is expected to grow at 2% YoY driven by emerging
markets where the level of galvanisation is low in infrastructure and automotive
industry.
 Zn market is highly sensitive to the timing of new supply coming on board.
However, management expects market tightness to continue as incremental
supply is lower than demand.
 Treatment/Refining charges (TC/RCs) for Q3CY18 have been negotiated at
progressively lower level of USD25-30/t, indicating that tightness in Zn market will
persist.

Operational highlights
 This was the first quarter post closure of opencast mining. Hence, metal in
concentrate (MIC) reduced 9% YoY and 17% QoQ to 212kt.
 Average Zn-lead grade in Q1FY19 was at 7.64% compared to 8.41% in Q1FY18
(8.74% in Q4FY18). Zn grade has reduced QoQ as this was the first quarter of 100%
underground mining and operations will take one more quarter to stabilise.
 CoP/t before royalty was INR69,907 (USD1,043) in Q1FY19, up 7% YoY (up 13%
QoQ), primarily due to higher cost of coal, lower grades and adverse impact of
USD33/t due to long-term wage settlement. However, management is confident
that overall cost in FY19 will be in the USD950-975/t range as proportion of linkage
coal increases progressively and mines ramp up.
 HZL had expected to source 40% of coal via linkages. However, actual sourcing was
at mere 7.8% due to evacuation issues. On the positive front, coal not received in a
particular quarter is deferred to future quarters. However, the company is looking
at various initiatives such as utilising private siding in order to source coal from
linkages to the maximum extent possible.
 HZL has no hedges at Q1FY19 end as had been announced by the management in
Q4FY18. Hedging loss in Q1FY19 was of USD2mn.

Other financial information

 HZL has completed a five-year, long-term wage settlement with the key wage
union. This resulted in adverse impact of USD33/t of MM production on EBITDA,
excluding arrears of INR1.3bn not included in CoP. Of INR1.3bn, close to INR1bn is
included in other manufacturing expenses as it pertains to contractual cost.
 Cash & cash equivalents at Q1FY19 end stood at INR210bn.
Expansion projects
 HZL has received environmental permit for capacity expansion of the Sindesar
Khurd mine from 4.5mtpa to 6.0mtpa and associated benefication plant from
5.0mtpa to 5.5mtpa.

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 Hindustan Zinc

 Capital mine development increased 18% YoY to 10.4km.

 Chanderiya smelter is being suitably modified to be able to cater to rising lead
metal production from SK mine.
 At RA mines, shaft development is on track, and HZL is planning to commission the
mid shaft production by Q2FY19 end with production stabilising by Q4FY19.
Management intends to fast track shaft production and optimise cost by using
shaft for 33-35% of the haulage, following which MIC will be evacuated via ramps.
 Ventilation fans have been installed at RA mine, thus resolving the mine’s
ventilation problem for its entire life.
 Management is planning to put up a dry tailing unit at Zawar to increase life of the
tailing plant by 25 years without resorting to land acquisition for wet tailing
disposal. Fumer project at Zawar is 75% complete and expected to be
commissioned by Q3FY19.

Outlook and guidance

 FY19 MIC is expected to be slightly higher compared to FY18.
 Employee costs expected to be at INR2bn per quarter.
 Silver production is expected to be 650-700t in FY19.
 CoP/t before royalty is estimated at USD950-975.
 Quarterly depreciation expense is pegged at INR4bn.

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Q4FY18: Key conference call highlights

Macro outlook: Market tightness to keep Zn prices at high levels
 Management reiterated bullish outlook for Zn due to low global inventory (six days
of consumption) and continued supply constraints. In CY19, demand for finished Zn
is expected to grow at 2.5% to 14mt as compared to supply growth of 5% to
13.6mt.
 Normal Zn inventory at stock exchanges has historically been 20 days of
consumption. Zn market tightness is likely to continue as against 1.5mt of
incremental demand; supply is expected to grow only by 1mt.
 Zn market is highly sensitive to the timing of new supply coming on board.
However, management expects market tightness to continue as incremental supply
is lower than demand.

Operational highlights
 In FY18, underground production of ore and MIC went up 26% YoY and 52% YoY,
respectively. Metal in Concentrate (MiC) production at 714kt was the highest. The
last leg of open pit mining was completed in Q4FY18. Henceforth, the entire
production would be underground.
 Average Zn-lead grade in Q4FY18 was at 8.74% compared to 11% in Q4FY17. Zn
grade has improved sequentially with underground transition complete.
 HZL is making scheduled transition to underground mining with total production
from UG mines increasing by 54% YoY to 714kt. In FY19, management expects MiC
production to be slightly higher as compared to FY18 with estimated split of 45:55
between the two halves of the year.
 The Zn metal CoP/t before royalty was INR59.569 (USD925) in Q4FY18, up 12% YoY
(down 10% QoQ), primarily due to higher cost of carbon products (up 50% YoY) and
oil derivatives and lower grades. However, management is confident that overall
cost in FY19 will be in the USD950-975/t range as proportion of linkage coal
increases progressively and grades improve.
 HZL is expected to source 40% of coal through linkages. The company will be
participating in upcoming coal auctions to further increase the domestic coal mix.
Imported coal cost for Q4FY18 was USD92/t. Management expects this cost to
come down to USD85/t in FY19.
 HZL has residual hedges of 70kt for Zn at USD3,076/t and 15kt for lead at
USD2,374/t. This will be exhausted in Q1FY19. Management has not taken any
further forward contracts going ahead.
 Reserves and Resources (R&R) at the end of FY18 stood at estimated 411mt. HZL
added 19.5mt in FY18 as against depletion of 12.5mt.

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 Hindustan Zinc

1.2mtpa in sight, planning for next frontier of 1.5mtpa

 HZL is evaluating plans to increase its mined metal capacity from 1.2mtpa to
1.5mtpa. Phase 1 of the project has been approved which is likely to increase MIC
capacity from 1.2 to 1.35mtpa in three years at an investment of INR 45bn.
 HZL will be putting up a new smelter of 240ktpa (likely at Dariba).
 Capacity increment at Rampura Agucha, Sindersar Khurd and Raajpur Daariba
mines is expected at 0.5mtpa each.

Outlook and guidance: Reiterated production guidance of 1.2mt by FY20

 FY19E MIC is expected to be slightly higher as compared to FY18
 Silver production is expected to be 650-700 tonnes in FY19
 COP/t before royalty is expected to be USD950-975
 Tax rate is expected to slightly higher as compared to FY18
 Project capex in FY19 is expected to be USD 400mn
 Quarterly depreciation expense is expected to be INR3.5-4bn

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Financial snapshot (INR mn)

Year to March Q1FY19 Q1FY18 % change Q4FY18 % change FY18 FY19E FY20E
Net revenues 53,100 50,130 5.9 62,770 (15.4) 225,210 262,578 285,476
Dec/(inc) in stock 410 1,250 (67.2) 180 127.8 - - -
Raw material costs - - - 2,156 2,264 2,377
Stores & spares - - - 1,693 2,257 3,720
Power and fuel 4,400 3,870 13.7 4,420 (0.5) 16,387 16,969 19,597
SG&A
Employee expenses 2,320 1,740 33.3 1,820 27.5 7,760 8,381 8,548
Other Expenses 12,530 13,940 (10.1) 11,860 5.6 43,653 50,120 55,071
Mining royalty 6,310 5,490 14.9 8,290 (23.9) 26,470 28,795 31,194
Total expenditure 25,970 26,290 (1.2) 26,570 (2.3) 98,120 108,786 120,508
EBITDA 27,130 23,840 13.8 36,200 (25.1) 127,090 153,793 164,968
Depreciation 3,870 3,600 7.5 4,590 (15.7) 14,830 17,363 19,433
EBIT 23,260 20,240 14.9 31,610 (26.4) 112,260 136,429 145,534
Interest 150 1,370 (89.1) 450 (66.7) 2,830 - -
Other income 2,990 5,300 (43.6) 4,860 (38.5) 17,510 15,220 19,177
Add: Exceptional items (510) (100.0)
Profit before tax 26,100 24,170 8.0 35,510 (26.5) 126,940 151,649 164,711
Provision for taxes 6,525 5,410 20.6 10,460 (37.6) 32,210 39,429 46,119
Reported net profit 19,575 18,760 4.3 25,050 (21.9) 94,730 112,220 118,592
Adjusted Profit 19,575 18,760 4.3 25,410 (23.0) 94,730 112,220 118,592
Diluted shares (mn) 4,225 4,225 4,225 4,225 4,225 4,225
Adjusted Diluted EPS 4.6 4.4 4.3 6.0 (23.0) 22.4 26.6 28.1
Diluted P/E (x) - - - 11.9 10.1 9.5
EV/EBITDA (x) - - - 7.2 5.5 4.7
ROAE (%) - - - 28.6 28.4 25.3
Raw material 0.8 2.5 0.3 1.0 0.9 0.8
Employee cost 4.4 3.5 2.9 3.4 3.2 3.0
Stores & spares - - - 0.8 0.9 1.3
Power & fuel 8.3 7.7 7.0 7.3 6.5 6.9
Mining royalty 11.9 11.0 13.2 11.8 11.0 10.9
SG&A
EBITDA 51.1 47.6 57.7 56.4 58.6 57.8
Reported net profit 36.9 37.4 40.5 42.1 42.7 41.5
Tax rate 25.0 22.4 29.5 25.4 26.0 28.0

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 Hindustan Zinc

Company Description
HZL is a part of the Vedanta Group and is the only integrated zinc manufacturer in India,
with zinc smelting capacity of 823 ktpa and lead smelting capacity of 185 ktpa. The company
is the second-largest integrated zinc and lead producer in the world. It caters to ~80% of
zinc demand in India. The company’s fully-integrated zinc operations include three lead-zinc
mines, two zinc smelters, a lead smelter, and one lead-zinc smelter in Rajasthan. HZL’s
mines supply most of its concentrate requirements.

Investment Theme
Continued supply constraints following mine closures provide a stable growth outlook for
Zinc going forward. Further, volume ramp in the forecast period will result in benefits of
operating leverage. We like HZL for its ability to deliver ~50% EBITDA margins and maintain
good dividend yield. It is among the lowest cost in the world and has a strong Balance Sheet
with no debt. We maintain BUY/SO’ with TP of INR385, implying P/E of 12.7x FY20E.

Key Risks
HZL’s share price is sensitive to LME zinc prices. Lower-than-estimated LME prices in the
event of a demand slowdown or oversupply will adversely impact the company’s earnings.

Lower than expected volume growth

INR appreciation and/or lower metal premiums

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Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E
Macro Net revenue 187,980 225,210 262,578 285,476
GDP(Y-o-Y %) 6.6 6.5 7.1 7.6 Materials costs 57,436 63,890 71,610 80,766
Inflation (Avg) 4.5 3.6 4.5 5.0 Accretion to stock (3,141) - - -
Repo rate (exit rate) 6.3 6.0 6.0 6.5 Mining Royalty 22,692 26,470 28,795 31,194
USD/INR (Avg) 67.1 64.5 66.0 66.0 Employee costs 7,220 7,760 8,381 8,548
Sector Total SG&A expenses 6,389 - - -
Zinc LME (USD/t) 2,366.0 3,057.0 2,964.2 2,881.9 Total operating expenses 90,596 98,120 108,786 120,508
Lead LME (USD/t) 2,001.7 2,379.0 2,327.4 2,259.4 EBITDA 97,384 127,090 153,793 164,968
Copper Tc/Rc (c/lb) 22.0 22.0 22.0 22.0 Depreciation 18,112 14,830 17,363 19,433
Company EBIT 79,272 112,260 136,429 145,534
Zinc production (t) 671,990 791,000 838,750 921,760 Less: Interest Expense 2,017 2,830 - -
Lead production (t) 144,294 168,000 166,500 203,500 Add: Other income 24,737.2 17,510.00 15,219.64 19,176.75
Silver production (kg) 488,750 558,000 650,000 750,000 Profit Before Tax 101,992 129,340 151,649 164,711
Zinc premium (USD/t) 357 346 339 336 Less: Provision for Tax 18,837 32,210 39,429 46,119
Lead premium (USD/t) 298 287 284 281 Add: Exceptional items - 2,400 - -
Mining & mfg cost(INR/t) 70,363 66,621 71,411 72,060 Reported Profit 83,156 97,130 112,220 118,592
Zinc royalty (%) 13.0 13.0 13.0 13.0 Exceptional Items - 1,802 - -
Lead royalty (%) 18.9 18.9 18.9 18.9 Adjusted Profit 83,156 95,328 112,220 118,592
Employee exp. growth (%) 0.2 12.0 0.2 2.0 Shares o /s (mn) 4,225 4,225 4,225 4,225
SG&A expenses growth (%) 1.0 3.0 3.0 3.0 Adjusted Basic EPS 19.7 22.6 26.6 28.1
Depreciation rate (%) 10.4 8.5 8.5 8.0 Diluted shares o/s (mn) 4,225 4,225 4,225 4,225
Tax rate (%) 20.0 24.0 26.0 28.0 Adjusted Diluted EPS 19.7 22.6 26.6 28.1
Dividend payout (%) 179.3 43.7 36.0 36.0 Adjusted Cash EPS 23.2 27.4 32.0 34.0
Capex (INR mn) 23,625 24,062 26,400 26,400 Dividend per share (DPS) 29.4 8.0 8.0 8.4
Net borrowings (INR mn) (320,703) (221,860) (289,689) (363,740) Dividend Payout Ratio(%) 179.3 43.7 36.0 36.0
Debtor days 4 3 3 3
Inventory days 95 95 95 95 Common size metrics
Payable days 45 45 45 45 Year to March FY17 FY18 FY19E FY20E
Cash conversion cycle 54 52 52 52 Operating expenses 48.2 43.6 41.4 42.2
Depreciation 9.6 6.6 6.6 6.8
Interest Expense 1.1 1.3 - -
EBITDA margins 51.8 56.4 58.6 57.8
Net Profit margins 44.2 42.3 42.7 41.5

Growth ratios (%)

Year to March FY17 FY18 FY19E FY20E
Revenues 32.1 19.8 16.6 8.7
EBITDA 47.3 30.5 21.0 7.3
PBT 18.5 26.8 17.2 8.6
Adjusted Profit 1.8 14.6 17.7 5.7
EPS 1.8 14.6 17.7 5.7

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 Hindustan Zinc
Balance sheet (INR mn) Cash flow metrics
As on 31st March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E
Share capital 8,451 8,451 8,451 8,451 Operating cash flow 162,266 29,969 115,981 119,419
Reserves & Surplus 299,600 350,869 422,690 498,589 Financing cash flow (193,889) (123,398) (40,399) (42,693)
Shareholders' funds 308,051 359,320 431,141 507,040 Investing cash flow 115,110 29,055 (11,980) (8,423)
Total Borrowings 80,005 - - - Net cash Flow 83,487 (64,374) 63,601 68,303
Long Term Liabilities 1,697 59,670 59,670 59,670 Capex (23,625) (24,062) (27,200) (27,600)
Def. Tax Liability (net) 6,677 (22,080) (16,340) (10,600) Dividend paid (270,758) (40,563) (40,399) (42,693)
Sources of funds 396,430 396,910 474,471 556,110
Gross Block 174,413 204,312 231,512 259,112 Profitability and efficiency ratios
Net Block 98,655 111,810 121,647 129,813 Year to March FY17 FY18 FY19E FY20E
Capital work in progress 30,713 32,200 32,200 32,200 ROAE (%) 24.4 28.6 28.4 25.3
Intangible Assets 1,275 1,210 1,210 1,210 ROACE (%) 27.3 34.7 38.4 35.1
Total Fixed Assets 130,643 145,220 155,057 163,223 Inventory Days 101 95 85 95
Non current investments 40,822 20,590 20,590 20,590 Debtors Days 4 3 2 2
Cash and Equivalents 321,630 221,860 285,461 353,764 Payable Days 67 61 51 45
Inventories 19,358 13,790 19,373 22,670 Cash Conversion Cycle 38 36 35 52
Sundry Debtors 1,360 1,840 1,641 2,144 Current Ratio 2.9 23.4 26.8 37.4
Loans & Advances 18 10 10 10 Gross Debt/EBITDA 0.8 - - -
Other Current Assets 4,128 3,930 3,930 3,930 Gross Debt/Equity 0.3 - - -
Current Assets (ex cash) 24,864 19,570 24,954 28,753 Adjusted Debt/Equity 26.0 - - -
Trade payable 12,051 9,470 10,731 9,361 Net Debt/Equity (78.4) (61.7) (66.2) (69.8)
Other Current Liab 109,478 860 860 860 Interest Coverage Ratio 3,930.4 3,966.8 - -
Total Current Liab 121,530 10,330 11,591 10,221
Net Curr Assets-ex cash (96,665) 9,240 13,363 18,532 Operating ratios
Uses of funds 396,430 396,910 474,471 556,110 Year to March FY17 FY18 FY19E FY20E
BVPS (INR) 72.9 85.0 102.0 120.0 Total Asset Turnover 0.5 0.6 0.6 0.6
Fixed Asset Turnover 1.9 2.1 2.2 2.2
Free cash flow (INR mn) Equity Turnover 0.6 0.7 0.7 0.6
Year to March FY17 FY18 FY19E FY20E
Reported Profit 83,156 97,130 112,220 118,592 Valuation parameters
Add: Depreciation 18,112 14,830 17,363 19,433 Year to March FY17 FY18 FY19E FY20E
Interest (Net of Tax) 1,644 2,125 - - Adj. Diluted EPS (INR) 19.7 22.6 26.6 28.1
Others (27,485) (36,184) (9,480) (13,437) Y-o-Y growth (%) 1.8 14.6 17.7 5.7
Less: Changes in WC (86,838) 47,933 4,123 5,169 Adjusted Cash EPS (INR) 23.2 27.4 32.0 34.0
Operating cash flow 162,266 29,969 115,981 119,419 Diluted P/E (x) 13.6 11.9 10.1 9.5
Less: Capex 23,625 24,062 27,200 27,600 P/B (x) 3.7 3.1 2.6 2.2
Free Cash Flow 138,641 5,907 88,781 91,819 EV / Sales (x) 4.3 4.0 3.2 2.7
EV / EBITDA (x) 9.1 7.2 5.5 4.7
Dividend Yield (%) 11.0 3.0 3.0 3.1

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)
Name (USD mn) FY19E FY20E FY19E FY20E FY19E FY20E
Hindustan Zinc 16,432 10.1 9.5 5.5 4.7 28.4 25.3
Korea Zinc Co Ltd 6,230 10.7 9.8 4.7 4.4 10.5 10.6
United Co RUSAL PLC 4,666 2.8 2.6 5.1 4.9 36.5 31.1
Median - 10.1 9.5 5.1 4.7 28.4 25.3
AVERAGE - 7.8 7.3 5.1 4.7 25.1 22.3
Source: Edelweiss research

11 Edelweiss Securities Limited

 Metals and Mining

Additional Data
Directors Data
Agnivesh Agarwal Chairman Navin Agarwal Director
A R Narayanaswamy Director Reena Sinha Puri Director
Sunil Duggal CEO & Whole-time Director Farida M. Naik Director
Arun L. Todarwal Director Sudhir Kumar Director

Auditors - Deloitte Haskins & Sells

*as per last annual report

Holding – Top10
Perc. Holding Perc. Holding
Vedanta limited 64.99 Government of india 29.54
Goldman sachs group 0.37 Janus henderson grou 0.29
Vanguard group 0.19 Uti asset management 0.18
Hdfc life insurance 0.17 L&t mutual fund 0.17
Sbi funds management 0.07 Aditya birla sun lif 0.06
*in last one year

Bulk Deals
Data Acquired / Seller B/S Qty Traded Price

No Data Available
*in last one year

Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded

No Data Available
*in last one year

12 Edelweiss Securities Limited

 RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk
Coal India BUY SP M Hindalco Industries BUY SO M
Hindustan Zinc BUY SO L Jindal Stainless Ltd BUY SO H
Jindal Steel & Power BUY SO M JSW Steel BUY SO M
NMDC BUY SO M Steel Authority of India REDUCE SU M
Tata Steel BUY SO M Vedanta BUY SO M

ABSOLUTE RATING
Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe
within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

13 Edelweiss Securities Limited

 Metals and Mining

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com

ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES
Aditya Narain LIMITED, ou=HEAD RESEARCH, cn=ADITYA
NARAIN,
serialNumber=e0576796072ad1a3266c279
Head of Research 90f20bf0213f69235fc3f1bcd0fa1c30092792

NARAIN
c20, postalCode=400005,
2.5.4.20=6b7d777d3c8c77e0e2c454e91543
f9f4d9b8311cf0678cd975097fc645327865,
aditya.narain@edelweissfin.com st=Maharashtra
Date: 2018.07.23 19:18:19 +05'30'

Coverage group(s) of stocks by primary analyst(s): Metals and Mining

Coal India, Hindalco Industries, Hindustan Zinc, Jindal Stainless Ltd, Jindal Steel & Power, JSW Steel, NMDC, Steel Authority of India, Tata Steel, Vedanta

Recent Research

Date Company Title Price (INR) Recos

23-Jul-18 Metals & China’s coal supply constraints

Mining - Advantage Coal India;
Sector Update
20-Jul-18 Jindal At the cusp of turning 56 Buy
Stainless around…; Company Update
19-Jul-18 Alcoa EBITDA guidance trimmed;
market dynamics intact;
Global Pulse

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
743
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
594

One year price chart

446
(INR)

350
297 330

149 310
(INR)

- 290
Apr-14

Sep-14
Feb-14

Mar-14

Jun-14

Dec-14
Jul-14

Aug-14

Oct-14

Nov-14
May-14
Jan-14

270

250
Dec-17
Aug-17

Oct-17

Apr-18
Nov-17

May-18
Sep-17

Feb-18
Jan-18

Mar-18

Jun-18
Jul-17

Jul-18

Hindustan Zinc

14 Edelweiss Securities Limited

 Hindustan Zinc
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Metals and Mining

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 Hindustan Zinc

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