Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Good but not compelling
Growth potential seems priced in; Retain HOLD
Raising silver/lead production and metal price forecasts
Do not expect cost pressures to ease off
Key risks: delays in ramp-up and a decline in base metal prices
Growth seems priced in; HOLD
We maintain our HOLD rating on Hindustan Zinc (HZL), as we believe the
current stock price already factors in the positives, such as higher silver/lead
production, reduction in power costs and the bullish trend in metal prices. Our TP
for HZL is based on 6.0x FY12E
EV/EBITDA. Even if we value the company
on 6.0x FY14E EV/EBITDA and discount
back the valuation to end FY12, we get a
fair value of INR152, only 16% upside
potential from current levels. Thus, even
after accounting for all potential triggers,
we see little room for stock outperformance
over the next 12 months.
Higher visibility on silver production
Post the visit to HZL’s facilities, we came back incrementally confident on
growth in silver production with the planned ramp-up of the SK mine in
FY12. We now raise our FY12-13 silver production forecast to 312/423
tonnes (vs 255/282 tonnes earlier). We expect silver’s contribution to
EBITDA to increase from 7-9% over FY09-11 to 18-22% over FY12-14.
Yet, no respite on operating costs
We expect HZL’s operating costs to remain high in the near term, due to
a continued high stripping ratio (12:1) at the Rampura Agucha (RA) mine.
We expect ore haulage/processing costs to increase over FY12-13, with
a rising share of production from underground and lower-grade mines.
The likely start-up of initial work on underground mining at RA could add
to cost pressure. Also, rising coal costs could dilute the benefits from the
new 160MW captive power plant at Dariba. We expect HZL’s average
cost of production to increase 4-6% y-y over FY12-13.
Revising estimates and TP
We increase our EPS estimates by 27% for FY12 and 35% for FY13,
factoring in a 23-50% higher silver output and 2-5% higher base metal
prices in FY12-13E. Our new TP of INR135.00 (up from INR118.90) is
based on an unchanged FY12E EV/EBITDA multiple of 6.0x. Any delays
in increasing silver production and the ramp-up of the 100,000-tonne lead
smelter/SK mine could put HZL’s FY12-13 earnings growth at risk. Base
metal prices could see pressure from rising concerns about the unrest in
the Middle East and potential end to loose monetary policy. We note that
spot metal prices are currently below our FY12 assumptions and imply
10%/9%/7% downside to our FY12E EBITDA/EPS/TP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Good but not compelling
Growth potential seems priced in; Retain HOLD
Raising silver/lead production and metal price forecasts
Do not expect cost pressures to ease off
Key risks: delays in ramp-up and a decline in base metal prices
Growth seems priced in; HOLD
We maintain our HOLD rating on Hindustan Zinc (HZL), as we believe the
current stock price already factors in the positives, such as higher silver/lead
production, reduction in power costs and the bullish trend in metal prices. Our TP
for HZL is based on 6.0x FY12E
EV/EBITDA. Even if we value the company
on 6.0x FY14E EV/EBITDA and discount
back the valuation to end FY12, we get a
fair value of INR152, only 16% upside
potential from current levels. Thus, even
after accounting for all potential triggers,
we see little room for stock outperformance
over the next 12 months.
Higher visibility on silver production
Post the visit to HZL’s facilities, we came back incrementally confident on
growth in silver production with the planned ramp-up of the SK mine in
FY12. We now raise our FY12-13 silver production forecast to 312/423
tonnes (vs 255/282 tonnes earlier). We expect silver’s contribution to
EBITDA to increase from 7-9% over FY09-11 to 18-22% over FY12-14.
Yet, no respite on operating costs
We expect HZL’s operating costs to remain high in the near term, due to
a continued high stripping ratio (12:1) at the Rampura Agucha (RA) mine.
We expect ore haulage/processing costs to increase over FY12-13, with
a rising share of production from underground and lower-grade mines.
The likely start-up of initial work on underground mining at RA could add
to cost pressure. Also, rising coal costs could dilute the benefits from the
new 160MW captive power plant at Dariba. We expect HZL’s average
cost of production to increase 4-6% y-y over FY12-13.
Revising estimates and TP
We increase our EPS estimates by 27% for FY12 and 35% for FY13,
factoring in a 23-50% higher silver output and 2-5% higher base metal
prices in FY12-13E. Our new TP of INR135.00 (up from INR118.90) is
based on an unchanged FY12E EV/EBITDA multiple of 6.0x. Any delays
in increasing silver production and the ramp-up of the 100,000-tonne lead
smelter/SK mine could put HZL’s FY12-13 earnings growth at risk. Base
metal prices could see pressure from rising concerns about the unrest in
the Middle East and potential end to loose monetary policy. We note that
spot metal prices are currently below our FY12 assumptions and imply
10%/9%/7% downside to our FY12E EBITDA/EPS/TP.
No comments:
Post a Comment