Maintain ‘buy’ on Hind Zinc, target Rs 175: Kotak Institutional Equities

By: | Published: January 23, 2016 12:09 AM

Hindustan Zinc’s EBITDA of Rs 14.8 billion (-29% y-o-y, -32% y-o-y) was 9% higher than our estimate.

Hindustan Zinc’s EBITDA of Rs 14.8 billion (-29% y-o-y, -32% y-o-y) was 9% higher than our estimate. EBITDA was aided by higher metal volumes of zinc (5% y-o-y) and lead (+17% y-o-y) from conversion of work-in-process inventory despite lower mined volumes (-6% y-o-y). Integrated silver volumes increased by 67% y-o-y led by ramp-up of SK mine.

We believe full ramp-up of this mine can help deliver annual silver volumes of 500 tons. We maintain our positive view on HZ due to its low production costs and our expectation of early recovery in zinc prices due to closure of large mines. We maintain ‘buy’ with unchanged target price of Rs 175.

EBITDA outperformance led by higher refined zinc, lead and silver production Hindustan Zinc’s EBITDA of R14.8 billion (-29% y-o-y, -32% q-o-q) was 9% higher than our estimate. EBITDA was aided by higher-than-expected zinc and lead production from usage of mined metal inventory.

Zinc production increased by 5% y-o-y to 206,000 tons (-2% q-o-q) and lead production increased by 17% y-o-y to 35,000 tons (-13% q-o-q) despite 6% y-o-y decline in mined metal volumes to 228,000 tonne (-5% q-o-q).

The integrated silver production increased by 67% y-o-y to 116 tons (+6% q-o-q). Net income of R18.1 billion (-24% y-o-y, -21% q-o-q) was 20% higher than our estimate from lower tax rate of 2.4% (20% in 2QFY16). The tax rate was low due to YTD adjustments to capture the lower zinc/lead prices in the upstream smelting/mining business.

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