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Hindustan Zinc (HZ)
Metals & Mining
Buy into strong volume growth. Our confidence in the timely commissioning of
expansion projects and growth from silver has significantly increased after our recent
interaction with the management and visits to HZ’s mines and smelter. We raise our
zinc-lead volume estimates by 3-6% and silver production by 12-36% for FY2012-13E.
We also raise our EPS estimates by 4.4% and 3.9% for FY2012E and FY2013E to
Rs13.1 and Rs14.6. We maintain our BUY rating with a revised TP of Rs160.
Upgrading volume growth estimates
We raise our zinc-lead volume estimates by 5.6% to 943 kt for FY2012E and 2.8% to 1,010 kt for
FY2013E. Zinc mine and smelter capacity will likely ramp up to rated capacity in 1QFY12E. Note
that HZ expanded zinc mine (Rampura Agucha) and smelting capacity to 879 kt in March 2010. In
addition, commissioning of the 100 ktpa lead smelter will likely be completed soon. HZ
management is confident of zinc-lead volumes of 960 kt in FY2012E and 1 mn+ in FY2013E.
Silver production will start making a difference in FY2012E
Silver production will increase significantly in FY2012E courtesy expansion of the Sindeshwar
Khurd (SK) mine. Production at SK mine has commenced and HZ is on track to mine 1.5 mt of ore
in FY2012E. HZ has already reached annualized monthly run-rate of 1.2 mtpa of ore production in
March 2011. SK mine is rich with silver content of 188 ppm and will drive incremental growth in
silver production. HZ management has targets of FY2012E exit capacity of 500 tonnes of silver and
production of 400 tonnes. Based on progress of SK mine and higher-than-expected silver content
in the ore, we raise silver production estimate by 35.9% for FY2012E to 285 tonnes. A back-ofthe-
envelope calculation suggests that HZ can generate EBITDA of Rs14.9 bn in FY2012E at the
current silver prices.
Raise estimates and target price, BUY rating maintained
We raise our FY2012E and FY2013E EPS estimates by 4.4% and 3.9% to Rs13.1 and Rs14.6.
Upgrade in volumes and silver production numbers is offset to some extent by likely increase in
power and fuel and raw material costs. We have not considered likely tax benefits from the Pant
Nagar silver refinery; our tax rate assumption stands at 30% versus management guidance of 20%.
HZ is a strong play on volume growth, ramp-up of profitable silver refinery and firm zinc prices.
The stock trades at 5.3X FY2012E EV/EBITDA and 10.5X FY2012E EPS. We ascribe 6.5X to
FY2012E EBITDA with cash and cash equivalents contributing Rs48/share to end-FY2012E fair
value of Rs160 (Rs153 earlier). Maintain BUY
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Zinc (HZ)
Metals & Mining
Buy into strong volume growth. Our confidence in the timely commissioning of
expansion projects and growth from silver has significantly increased after our recent
interaction with the management and visits to HZ’s mines and smelter. We raise our
zinc-lead volume estimates by 3-6% and silver production by 12-36% for FY2012-13E.
We also raise our EPS estimates by 4.4% and 3.9% for FY2012E and FY2013E to
Rs13.1 and Rs14.6. We maintain our BUY rating with a revised TP of Rs160.
Upgrading volume growth estimates
We raise our zinc-lead volume estimates by 5.6% to 943 kt for FY2012E and 2.8% to 1,010 kt for
FY2013E. Zinc mine and smelter capacity will likely ramp up to rated capacity in 1QFY12E. Note
that HZ expanded zinc mine (Rampura Agucha) and smelting capacity to 879 kt in March 2010. In
addition, commissioning of the 100 ktpa lead smelter will likely be completed soon. HZ
management is confident of zinc-lead volumes of 960 kt in FY2012E and 1 mn+ in FY2013E.
Silver production will start making a difference in FY2012E
Silver production will increase significantly in FY2012E courtesy expansion of the Sindeshwar
Khurd (SK) mine. Production at SK mine has commenced and HZ is on track to mine 1.5 mt of ore
in FY2012E. HZ has already reached annualized monthly run-rate of 1.2 mtpa of ore production in
March 2011. SK mine is rich with silver content of 188 ppm and will drive incremental growth in
silver production. HZ management has targets of FY2012E exit capacity of 500 tonnes of silver and
production of 400 tonnes. Based on progress of SK mine and higher-than-expected silver content
in the ore, we raise silver production estimate by 35.9% for FY2012E to 285 tonnes. A back-ofthe-
envelope calculation suggests that HZ can generate EBITDA of Rs14.9 bn in FY2012E at the
current silver prices.
Raise estimates and target price, BUY rating maintained
We raise our FY2012E and FY2013E EPS estimates by 4.4% and 3.9% to Rs13.1 and Rs14.6.
Upgrade in volumes and silver production numbers is offset to some extent by likely increase in
power and fuel and raw material costs. We have not considered likely tax benefits from the Pant
Nagar silver refinery; our tax rate assumption stands at 30% versus management guidance of 20%.
HZ is a strong play on volume growth, ramp-up of profitable silver refinery and firm zinc prices.
The stock trades at 5.3X FY2012E EV/EBITDA and 10.5X FY2012E EPS. We ascribe 6.5X to
FY2012E EBITDA with cash and cash equivalents contributing Rs48/share to end-FY2012E fair
value of Rs160 (Rs153 earlier). Maintain BUY
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