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EARNINGS REVIEW
Hindustan Zinc (HZNC.BO)
Not Rated
In line with expectations; delivers strong operating performance
What surprised us
Hindustan Zinc (HZNC) reported 3QFY11 net income of Rs12.9 bn (+12%
yoy, +36% qoq), largely in line with GS estimates and 18% above Reuters’
consensus. Revenue came in at Rs26.0 bn (+20% qoq, +17% yoy) led by
stronger realizations and volumes. It was another quarter of record
volumes, with mined metal production at 222,250 tons, +11% yoy, +9%
qoq. While refined zinc volumes were up 20% yoy, it was partially offset by
lead production, which was lower by 35% due to maintenance shutdowns.
Both zinc and lead realizations were strong, up 15%/13% qoq respectively.
At the operating level, zinc EBITDA margin came in at 57%, down 386 bp
yoy, as higher volumes and realizations were offset by higher coal and
stripping costs -zinc metal costs (ex. Royalty) were up 5% yoy.
The brownfield expansion plan to build 100 ktpa lead smelter facility is on
track for commissioning by 4QFY11. With the commissioning of the
1.5mtpa mill, the company plans to exit FY12 with silver production
capacity of 500 tonnes (16 million oz), making it one of the world’s top
silver producers. In FY13, silver would contribute 10% to revenues vs. 3%
for 9MFY11. As of December 31, the company had cash of Rs130.9 bn, i.e.,
23% of current market cap.
What to do with the stock
We revise FY11E-FY13E EPS estimates by 2%/6%/8% to account for new
currency assumptions. The stock is currently trading at 2.2X FY12E P/B vs.
25% FY12E RoE, which compares with 2.0X P/B vs. 17% RoE for the global
base metals. We are Not Rated on the stock.
Financial advisory disclosures
Goldman Sachs is acting as financial advisor to Vedanta Resources Plc in one announced
strategic transaction and to another party in a second announced strategic transaction
involving Vendanta Resources Plc, both transactions which may be deemed as material to
Hindustan Zinc Limited.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Hindustan Zinc (HZNC.BO)
Not Rated
In line with expectations; delivers strong operating performance
What surprised us
Hindustan Zinc (HZNC) reported 3QFY11 net income of Rs12.9 bn (+12%
yoy, +36% qoq), largely in line with GS estimates and 18% above Reuters’
consensus. Revenue came in at Rs26.0 bn (+20% qoq, +17% yoy) led by
stronger realizations and volumes. It was another quarter of record
volumes, with mined metal production at 222,250 tons, +11% yoy, +9%
qoq. While refined zinc volumes were up 20% yoy, it was partially offset by
lead production, which was lower by 35% due to maintenance shutdowns.
Both zinc and lead realizations were strong, up 15%/13% qoq respectively.
At the operating level, zinc EBITDA margin came in at 57%, down 386 bp
yoy, as higher volumes and realizations were offset by higher coal and
stripping costs -zinc metal costs (ex. Royalty) were up 5% yoy.
The brownfield expansion plan to build 100 ktpa lead smelter facility is on
track for commissioning by 4QFY11. With the commissioning of the
1.5mtpa mill, the company plans to exit FY12 with silver production
capacity of 500 tonnes (16 million oz), making it one of the world’s top
silver producers. In FY13, silver would contribute 10% to revenues vs. 3%
for 9MFY11. As of December 31, the company had cash of Rs130.9 bn, i.e.,
23% of current market cap.
What to do with the stock
We revise FY11E-FY13E EPS estimates by 2%/6%/8% to account for new
currency assumptions. The stock is currently trading at 2.2X FY12E P/B vs.
25% FY12E RoE, which compares with 2.0X P/B vs. 17% RoE for the global
base metals. We are Not Rated on the stock.
Financial advisory disclosures
Goldman Sachs is acting as financial advisor to Vedanta Resources Plc in one announced
strategic transaction and to another party in a second announced strategic transaction
involving Vendanta Resources Plc, both transactions which may be deemed as material to
Hindustan Zinc Limited.
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