Target Price: Rs.959
India Research
Potential Upside: 44%
Hindustan Zinc Relative to sector: Outperformer
Lead Analyst: Jagdishwar Toppo Email:
[email protected] Tel: 9122 6754 7605
Associate: Pallav Agarwal Email:
[email protected] Tel: 9122 6754 7761
Associate: Ravindra Deshpande Email:
[email protected] Tel: 9122 6754 7627
Relative Performance
220 180 140 100 60 Apr-06
Oct-06
Apr-07
Sensex
HZL
Source: Bloomberg, ENAM Research
: 423mn : Rs 282bn : Rs 1119/Rs 415 : 453,600 shares : HZ IN : HZNC.BO
Shareholding (%) Mar-07 QoQ chg
Promoters FIIs MFs / UTI Banks / FIs Others
: : : : :
64.9 1.8 0.6 30.1 2.6
Hindustan Zinc’s (HZL) net revenues increased by only 13.8% YoY to Rs 20.2bn in Q4FY07 despite the fact that zinc LME prices were up significantly (~50% YoY). Average LME zinc prices stood at USD 3,460/ tonne in Q4FY07 as against USD 2,248/ tonne in Q4FY06. While EBITDA grew 11.2% YoY to Rs 14bn, PAT jumped 16.6% YoY aided by higher other income and lower effective tax rate.
Q4FY07 Highlights Zinc production (mined metal content) was lower by 3% YoY at ~121,423 MT in Q4FY07, while refined metal output was higher by 4% on account of increased output from the new smelter at Chanderiya. The company had to export zinc as local demand fluctuated inline with LME zinc prices and substitution of zinc by aluminium (Galume). The company exported 70,301 dry metric tonnes of zinc and lead concentrate during the quarter. The 170,000tpa expansion project at Chanderiya is on schedule for commissioning in early 2008. The debottlenecking projects (88,000tpa) are progressing on schedule.
Global outlook: Zinc
Stock data
No. of shares Market cap 52 week high/low Avg. daily vol. (6mth) Bloomberg code Reuters code
ROBUST FUNDAMENTALS
0.0 0.6 (0.5) (0.1) (0.0)
Financial summary
Zinc prices have been stable and are trading in the range of ~USD 3,300/ tonne to USD 3,600/ tonne after declining to levels of USD 3,050/ tonne. (Zinc price trend overleaf). We believe Zinc fundamentals continue to remain healthy in the short term, underpinned by strong Chinese demand and tight concentrate supply. Our zinc price assumptions are USD 3,340/tonne and USD 2,700/ tonne for FY08 & FY09 respectively, which are lower than current spot prices. To factor in our revised USD:INR assumptions of Rs 42.1 (Rs 44.1) for FY08, we revise our FY08 earnings forecasts to Rs 106.6 (Rs 111.9). In FY09, despite lower zinc price assumptions we forecast higher earnings of Rs 111.2 on the back of higher volumes. At CMP (Rs 668), the stock trades at 6.3x FY08E EPS. We believe that the valuations do not fully capture the quality and sizable life of HZL’s Rampura Agucha mine and the sizeable cash reserves of ~USD 1bn. We upgrade the stock to sector Outperformer rating with a revised lower target price of Rs 959 (8x FY08E + FY07E cash of ~Rs 106 / shr).
Sales (Rs mn)
PAT (Rs mn)
Consensus EPS* (Rs )
2006
38,770
14,383
2007
85,600
44,420
Y/E Mar
EPS (Rs )
Change YoY (%)
P/E (x)
RoE (%)
RoCE (%)
EV/EBIDTA (x)
DPS (Rs.)
-
34.0
138
15.4
52.2
67.6
9.0
2.9
-
105.1
209
5.4
80.3
111.6
3.2
5.0
2008E
87,168
45,025
111.1
106.6
1
6.3
46.7
68.8
3.3
10.0
2009E
87,711
46,981
100.0
111.2
4
6.0
34.1
48.8
2.7
10.0
Source: *Consensus broker estimates, Company, ENAM estimates
ENAM Research is available on Bloomberg (ENAM
), Multex.com and Firstcall.com
26 April 2007
RESULTS UPDATE
Rs.668
ENAM Securities
Hindustan Zinc
Results update Quarter ended
12 months ended
(Rs mn)
Mar-07
Mar-06
% Chg
Dec-06
% Chg
Mar-08E
Mar-07
% Chg
Net Sales
20,210
17,760
13.8
24,800
(18.5)
87,168
85,600
1.8
EBIDTA
14,000
12,590
11.2
19,070
(26.6)
64,786
64,070
1.1
740
370
100.0
750
(1.3)
4,040
2,310
74.9
14,740
12,960
13.7
19,820
(25.6)
68,826
66,380
3.7
450
380
18.4
370
21.6
2,466
1,560
58.1
20
30
(33.3)
-
-
-
280
-
14,270
12,550
13.7
19,450
(26.6)
66,359
64,540
2.8
Other income PBIDT Depreciation Interest PBT Tax
4,920
4,530
8.6
6,100
(19.3)
21,335
20,120
6.0
PAT
9,350
8,020
16.6
13,350
(30.0)
45,025
44,420
1.4
No. of shares (mn) EBIDTA margins (%)
423
423
-
423
-
423
423
-
69.3
70.9
-
76.9
-
74.3
74.8
-
PBIDT margins (%)
72.9
73.0
EPS - annualized (Rs.)
88.4
75.8
-
79.9
16.6
126.2
(30.0)
79.0
77.5
106.6
105.1
1.4
Source: Company, ENAM Research
Zinc LME Price trend 5,000
Lead LME Price trend 2,600
($/ton)
4,500
($/ton)
2,100
4,000 3,500
1,600
3,000 2,500 2,000
1,100
1,500 1,000
600
500 Apr-07
Oct-06
Apr-06
Oct-05
Apr-05
Oct-04
Apr-04
Oct-03
Apr-03
Apr-07
Oct-06
Apr-06
Oct-05
Apr-05
Oct-04
Apr-04
Oct-03
100 Apr-03
0
Source: Bloomberg, ENAM Research
APRIL 2007
ENAM Securities
2
Hindustan Zinc
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. The intent of this document is not in recommendary nature Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors Enam Securities Private Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval Enam securities Private Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of ENAM Securities Private Limited. The views expressed are those of analyst and the Company may or may not subscribe to all the views expressed therein This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Copyright in this document vests exclusively with ENAM Securities Private Limited.
APRIL 2007
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