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Silver lining with a cloud; Maintain ‘HOLD’
HZL's Q4FY11 revenues grew by 27.2% YoY to Rs32.4bn on 7.1%
YoY volume growth amidst higher LME prices (zinc up 5% and
lead up 18% YoY). EBITDA rose 27.1% YoY to Rs19.7bn despite
higher stripping cost and energy prices. PAT at Rs17.7bn grew
by 43% YoY aided by higher treasury income and lower tax.
Volumes: Mined metal at 231kt grew 19% YoY on higher contribution
from Rampura Agucha and SK mines. Refined metal output increased
24% YoY to 210kt on contribution of 46kt from Dariba smelter, despite
a 12% decline in lead output. Refined metal sales of 211kt was
aided by 23kt of metal-in-concentrate sales. Realisation for lead
concentrate at USD6,830/t was high due to high silver content.
By-product gains: Silver and sulphuric acid revenues grew 98%
and 103% YoY respectively, mainly due to improved realisations.
Silver realisation at USD30.8/oz increased 92% YoY and 24% QoQ.
Cash: HZL has cash and equivalent of Rs150bn as of Q4FY11.
Exploration success: HZL has added gross 1.4mn tonnes of
contained zinc-lead metal to the R&R, taking total contained metal
R&R to 34.7mnt (~35yrs life). Silver R&R at 25kt has 50yrs life.
Expansion updates: 1.5mn tpa mill at SK Mine was commissioned
in Q4FY11 and operated at ~85% CU in Mar’11. Silver capacity is
expected to increase ~3x to 500t in FY12 (FY12 silver output
expected at 350-400t). The company has commissioned 48MW of
the 150MW wind power plant. However, 100ktpa of lead smelter at
Dariba continues to be delayed and is now expected in Q1FY12
(initially expected in Q2FY11).
VALUATIONS AND RECOMMENDATION
Although we like HZL’s highly cost-competitive operations (EBITDA
margin of 55%+), ~35yrs of mine life and rising silver volume amidst
strengthening prices, we are concerned about lack of growth projects
despite >USD3bn of treasury. Despite higher earning estimates to
factor in rising silver volume and realisation (pls ref pg4 for revised
est), we find the stock fairly valued at 5.8x FY12E EV/EBITDA.
Maintain ‘HOLD’ with a TP of Rs146 (5.5x FY12E EV/EBITDA). We
have introduced FY13 estimates in this update; however, we continue
to value the stock on FY12 estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Silver lining with a cloud; Maintain ‘HOLD’
HZL's Q4FY11 revenues grew by 27.2% YoY to Rs32.4bn on 7.1%
YoY volume growth amidst higher LME prices (zinc up 5% and
lead up 18% YoY). EBITDA rose 27.1% YoY to Rs19.7bn despite
higher stripping cost and energy prices. PAT at Rs17.7bn grew
by 43% YoY aided by higher treasury income and lower tax.
Volumes: Mined metal at 231kt grew 19% YoY on higher contribution
from Rampura Agucha and SK mines. Refined metal output increased
24% YoY to 210kt on contribution of 46kt from Dariba smelter, despite
a 12% decline in lead output. Refined metal sales of 211kt was
aided by 23kt of metal-in-concentrate sales. Realisation for lead
concentrate at USD6,830/t was high due to high silver content.
By-product gains: Silver and sulphuric acid revenues grew 98%
and 103% YoY respectively, mainly due to improved realisations.
Silver realisation at USD30.8/oz increased 92% YoY and 24% QoQ.
Cash: HZL has cash and equivalent of Rs150bn as of Q4FY11.
Exploration success: HZL has added gross 1.4mn tonnes of
contained zinc-lead metal to the R&R, taking total contained metal
R&R to 34.7mnt (~35yrs life). Silver R&R at 25kt has 50yrs life.
Expansion updates: 1.5mn tpa mill at SK Mine was commissioned
in Q4FY11 and operated at ~85% CU in Mar’11. Silver capacity is
expected to increase ~3x to 500t in FY12 (FY12 silver output
expected at 350-400t). The company has commissioned 48MW of
the 150MW wind power plant. However, 100ktpa of lead smelter at
Dariba continues to be delayed and is now expected in Q1FY12
(initially expected in Q2FY11).
VALUATIONS AND RECOMMENDATION
Although we like HZL’s highly cost-competitive operations (EBITDA
margin of 55%+), ~35yrs of mine life and rising silver volume amidst
strengthening prices, we are concerned about lack of growth projects
despite >USD3bn of treasury. Despite higher earning estimates to
factor in rising silver volume and realisation (pls ref pg4 for revised
est), we find the stock fairly valued at 5.8x FY12E EV/EBITDA.
Maintain ‘HOLD’ with a TP of Rs146 (5.5x FY12E EV/EBITDA). We
have introduced FY13 estimates in this update; however, we continue
to value the stock on FY12 estimates.
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