FY19e earnings moderated to reflect 9MFY19 showing; ‘Hold’ maintained with TP revised to Rs 259 from Rs 273
Hindustan Zinc (HZL) reported Q3FY19 slightly below estimates as costs were a tad higher. Reported Ebitda at Rs 28.4 bn was 3% below expectations. Volumes were broadly in-line. MIC production is expected to be slightly higher y-o-y given ramp-up of underground mines, in line with the annual guidance; however, refined production may be slightly lower y-o-y. Q4FY19e should clock MIC production run-rate of 1mtpa as expected and progressively reach 1.2mtpa by FY20e.
However, better clarity on complete commissioning of Rampura Agucha shaft (Q2FY20) allows us to taper down FY20e zinc volume by 11%. We have not altered our lead and silver volumes yet, though both fumer projects and Sindesur Khurd (SK) mine commissioning are delayed by a quarter each.
Management clarified that as MIC volumes reach 1.2mnte, smelting capacity will be constrained at 1.13mnte in the near-term. The same also dictates our volume choice for FY20e. We maintain Hold with a TP of Rs 259 (earlier Rs 273).
Minor delay in expansion projects leads us to revise downward FY20e volumes: There have been minor delays in SK mine shaft commissioning as well as fumer projects. Rampur Agucha (RA)
full shaft commissioning is expected in Q2FY20. Using a similar benchmark, full commercial commissioning of SK is estimated to be complete sometime in FY20e. Fumer projects are also delayed by one quarter. While we acknowledge the risks of delays in SK mines and fumer projects to our increased lead volume assumptions, for now we have only reduced FY20e zinc volumes by 11%.
CoP guidance modified to reflect 9MFY19 performance: As against FY19e guidance of $950-975/te earlier, H2FY19 guidance is now pegged at $950-975/te. With Q3FY19 costs at ~$997/te, that seems a tall ask. Management expects higher volumes as well as lower coal and fuel costs to help achieve the target.
Maintain Hold: We have moderated our FY19e earnings to reflect 9MFY19 performance. Capex for FY19e has been moderated to $350 mn from $400 mn-450 mn. We revise TP to Rs 259/share.