FY21e Ebitda up 14% given positive guidance; ‘Hold’ retained with TP of Rs 200
While HZ’s reported Ebitda of Rs 15.8 bn for Q1FY21 was broadly in line with consensus, its adjusted Ebitda (adjusted for Rs 1 bn one-off) of Rs 16.8 bn was 8% ahead of consensus. Ebitda contracted in Q1FY21 by 32% y-o-y due to sharp drop in commodity prices, lower volumes and lower metal premiums (due to higher share of exports), partially offset by favourable currency and lower costs. The adjusted cost of production (CoP) of $954/t declined by 11% y-o-y and by 4% q-o-q, driven primarily by lower coal, diesel and metcoke prices. Adjusted PAT of Rs 14.4 bn fell 18% y-o-y but came in 35% ahead of consensus on higher operating profit, better-than-expected other income and lower taxes.
FY21 volumes guided at 925-950kt and CoP to remain below $1,000/t: Notwithstanding the lower production in Q1FY21, HZ has guided for FY21 mined and refined metal to be in the range of 925-950kt, slightly higher than the 917kt reported for FY20. Saleable silver production is also guided at ~650mt (vs FY20 at 610kt). The guidance was much higher than expected. So, we raise our FY21e volume assumption and now estimate HZ to report c900kt in refined metal sales for FY21e.
Reiterate Hold: We raise our Ebitda estimate for FY21e by 14% on higher volumes and as we incorporate our higher zinc price estimates for CY20 as published but partially offset by the rising INR. However, our Ebitda estimate for FY22e remains largely unchanged. So, we maintain our TP of Rs 200, which is based on 6.5x our Ebitda estimate for FY22e. We remain cautious on the zinc price outlook. We reiterate Hold rating given the potential for volume growth and a strong dividend yield, which should support HZ’s valuation at the current level.