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Hindustan Zinc
Performance Highlights
ACCUMULATE
CMP Target Price
1QFY11 % chg (yoy) 1,951 1,022 52.4 891 44.6 55.8 406bp 67.8 4QFY11 % chg (qoq) 3,197 1,969 61.6 1,771 (11.8) (19.1) (514)bp (15.6)
`138 `156
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Base Metals 58,393 1.0 155/98 113092 2 18,436 5,542 HZNC.BO HZ@IN
For 1QFY2012, Hindustan Zincs (HZL) net revenue at `2,821cr was marginally lower than our estimate of `2,941cr. However, net profit at `1,495cr was in-line with our estimate of `1,532cr. We recommend Accumulate on the stock. Strong performance continues in 1QFY2012: HZLs net revenue increased by 44.6% yoy to `2,821cr on account of higher sales volume and realisation. Despite the shutdown at Rampura Agucha mine during the quarter, zinc volumes grew by 16.5% yoy to 192kt and lead sales volumes grew by 4.5% yoy to 15kt. Silver sales volume increased by 14.2% yoy to 40,908kg and lead concentrate sales stood at 10,086dmt. Average zinc, lead and silver realisation increased by 11.6%, 25.5% and 98.0% yoy, respectively. On the operating front, staff cost declined by 14.0% yoy to `127cr, which led to EBITDA margin expanding by 406bp yoy to 56.4%. Thus, EBITDA grew by 55.8% yoy to `1,592cr. Further, other income was higher by 124.3% yoy to `355cr, which resulted in net profit growing by 67.8% yoy to `1,495cr despite depreciation increasing by 19.8% yoy to `135cr and higher tax rate at 17.1%. Outlook and valuation: Currently, the stock is trading at 5.9x FY2012E and 4.4x FY2013E EV/EBITDA. We expect HZL to benefit from the expansion of zinc-lead smelting capacity during FY201213. Furthermore, HZLs expansion in silver-rich Sindesar Khurd mine should result in robust bottom-line growth. HZL had a huge cash balance of `15,720cr as of June 30, 2011 (`37 per share). We recommend Accumulate on the stock with a target price of `156. Key financials
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 1.9 1.5 31.7
3m (5.9)
1yr 2.6
(9.0) 36.7
FY2010 8,017 41.1 4,041 48.2 9.6 58.3 14.4 3.2 24.9 26.4 5.8 10.0
FY2011 9,912 23.6 4,900 21.3 11.6 55.4 11.9 2.6 24.1 24.3 4.4 7.9
FY2012E 11,538 16.4 5,870 19.8 13.9 56.4 9.9 2.1 23.2 23.3 3.3 5.9
FY2013E 12,679 9.9 6,512 10.9 15.4 56.8 9.0 1.7 21.0 21.2 2.5 4.4
Bhavesh Chauhan
Tel: 022- 39357800 Ext: 6821 Bhaveshu.chauhan@angelbroking.com
Pooja Jain
Tel: 022- 39357800 Ext: 6839 pooja.j@angelbroking.com
(US $/tonne)
(tonnes)
(tonnes)
120,000 90,000 60,000 30,000 0 1QFY09 4QFY09 3QFY10 2QFY11 1QFY12 Volume (LHS) Realisation (RHS)
15,000 10,000 5,000 0 1QFY09 4QFY09 3QFY10 2QFY11 1QFY12 Volume (LHS) Realisation (RHS)
In 1QFY2012, average silver realisation increased substantially by 98.0% yoy to ~`55,758/kg. On a yoy basis, zinc and lead realisations registered growth of 11.6% and 25.5% to US$2,392/tonne and US$2,827/tonne, respectively. Thus, net revenue grew by 44.6% yoy to `2,821cr due to higher sales volume and realisations.
Operating performance
During the quarter, staff cost declined by 14.0% yoy to `127cr, which led to EBITDA margin expanding by 406bp yoy to 56.4%. Thus, EBITDA grew by 55.8% yoy to `1,592cr. Further, other income was higher by 124.3% yoy to `355cr, which resulted in net profit growing by 67.8% yoy to `1,495cr despite depreciation increasing by 19.8% yoy to `135cr and higher tax rate at 17.1%.
(` cr)
(` cr)
(%)
900 600 300 0 1QFY09 3QFY09 1QFY10 3QFY10 1QFY11 3QFY11 1QFY12 EBITDA (LHS) EBITDA margins (RHS)
20 10 0 1QFY09 3QFY09 1QFY10 3QFY10 1QFY11 3QFY11 1QFY12 Net profit (LHS) Net profit margins (RHS)
20 0
Expansion projects
The 100ktpa lead smelter at Rajpura Dariba has been commissioned with saleable lead production expected to start operation by mid-2QFY2012E. The expansion of the 273MW wind power plant is on scheduled and expected to be commissioned in 2QFY2012.
(%)
1,200
40
1,200
30
(US $/tonne)
2,000
Outlook
Global zinc metal market likely to remain in surplus
As per ILZSG, global zinc usage is expected to grow by 6.3% to 13.4mn tonnes in CY2011. Refined zinc production is expected to grow by 5.6% to 13.6mn tonnes in CY2011. Hence, global zinc metal supply is likely to remain in surplus for the fifth successive year by over 200,000 tonnes in CY2011E.
1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Jul-11
Inventory (RHS)
Source: Bloomberg, Angel Research
Inventory (RHS)
Source: Bloomberg, Angel Research
(tonnes)
Valuation
Currently, the stock is trading at 5.9x FY2012E and 4.4x FY2013E EV/EBITDA. We expect HZL to benefit from the expansion of zinc-lead smelting capacity during FY201213. Furthermore, HZLs expansion in silver-rich Sindesar Khurd mine should result in robust bottom-line growth since there are no additional direct costs involved in silver mining. HZL had a huge cash balance of `15,720cr as of June 30, 2011 (`37 per share). We recommend Accumulate on the stock.
We have only marginally tweaked our estimates for FY2012 and FY2013 since 1QFY2012 results were broadly in line with our estimates.
Earlier estimates FY12E 11,748 6,775 57.7 7,316 5,999 51.1 FY13E 12,560 7,291 58.0 7,868 6,452 51.4
Revised estimates FY12E 11,538 6,636 57.5 7,158 5,870 50.9 FY13E 12,679 7,358 58.0 7,941 6,512 51.4
Upgrade/(downgrade) (%) FY12E (1.8) (2.1) (16)bp (2.1) (2.1) (19)bps FY13E 0.9 0.9 (1)bp 0.9 0.9 (1)bps
(` cr)
14.0x
100 50 0 Apr-03
5.0x
3.5x
200 150 100 50 0 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 0.5x 2.0x
156 Accumulate
Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Share warrants Minority interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-Progress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Mis. exp. not written off Total assets 5,182 1,485 3,697 465 6,332 2,712 1,363 384 965 898 1,813 12,308 5,856 1,751 4,105 1,108 6,929 3,784 2,719 313 751 1,001 2,783 14,925 8,241 2,077 6,164 1,113 10,949 1,995 928 457 611 1,326 669 18,896 9,802 2,548 7,254 875 9,335 7,589 5,633 752 1,204 1,575 6,014 23,478 10,802 3,067 7,735 575 9,335 13,001 10,769 752 1,480 1,710 11,291 28,936 11,329 3,638 7,691 275 9,335 19,506 17,159 752 1,595 1,816 17,689 34,991 423 11,426 11,848 0 460 12,308 423 13,935 14,358 9 559 14,925 423 17,701 18,124 60 711 18,896 845 21,688 22,533 0 945 23,478 845 27,146 27,991 0 945 28,936 845 33,201 34,046 0 945 34,991 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
2,288 (4,082.4)
10
Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of debt (post tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage (0.6) (1.4) 213.4 (0.7) (3.5) 111.9 (0.7) (2.5) 101.5 (0.7) (2.7) 265.4 (0.7) (3.0) 313.7 (0.8) (3.6) 535.4 1.8 76 21 52 34 1.0 68 11 46 30 1.1 49 7 52 11 1.1 63 8 39 11 1.1 63 12 50 17 1.1 63 12 50 17 51.0 149.1 45.1 18.0 58.9 20.8 26.4 88.5 24.9 24.3 76.0 24.1 23.3 77.0 23.2 21.2 82.4 21.0 65.5 73.4 2.0 94.5 94.5 43.1 81.2 1.1 40.2 40.2 55.6 80.6 1.3 59.3 59.3 51.9 82.2 1.3 55.2 55.2 53.0 82.0 1.3 58.5 58.5 53.5 82.0 1.5 65.0 65.0 10.4 10.4 10.9 5.0 28.0 6.5 6.5 7.1 4.0 34.0 9.6 9.6 10.4 6.0 42.9 11.6 11.6 12.7 0.7 53.3 13.9 13.9 15.1 0.8 66.2 15.4 15.4 16.8 0.9 80.6 13.3 12.6 4.9 3.6 6.4 9.4 4.1 21.4 19.4 4.1 2.9 8.6 17.8 3.3 14.4 13.3 3.2 4.3 5.8 10.0 2.5 11.9 10.9 2.6 0.5 4.4 7.9 1.8 9.9 9.1 2.1 0.6 3.3 5.9 1.3 9.0 8.2 1.7 0.7 2.5 4.4 0.9 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
11
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) :
12