05 August 2011

Hindustan Zinc :: 1QFY12 Result Review by Angel Broking,

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For 1QFY2012, Hindustan Zinc’s (HZL) net revenue at `2,821cr was marginally
lower than our estimate of `2,941cr. However, net profit at `1,495cr was in-line
with our estimate of `1,532cr. We recommend Accumulate on the stock.
Strong performance continues in 1QFY2012: HZL’s net revenue increased by
44.6% yoy to `2,821cr on account of higher sales volume and realisation.
Despite the shutdown at Rampura Agucha mine during the quarter, zinc volumes
grew by 16.5% yoy to 192kt and lead sales volumes grew by 4.5% yoy to 15kt.
Silver sales volume increased by 14.2% yoy to 40,908kg and lead concentrate
sales stood at 10,086dmt. Average zinc, lead and silver realisation increased by
11.6%, 25.5% and 98.0% yoy, respectively. On the operating front, staff cost
declined by 14.0% yoy to `127cr, which led to EBITDA margin expanding by
406bp yoy to 56.4%. Thus, EBITDA grew by 55.8% yoy to `1,592cr. Further, other
income was higher by 124.3% yoy to `355cr, which resulted in net profit growing
by 67.8% yoy to `1,495cr despite depreciation increasing by 19.8% yoy to `135cr
and higher tax rate at 17.1%.
Outlook and valuation: Currently, the stock is trading at 5.9x FY2012E and 4.4x
FY2013E EV/EBITDA. We expect HZL to benefit from the expansion of zinc-lead
smelting capacity during FY2012–13. Furthermore, HZL’s expansion in silver-rich
Sindesar Khurd mine should result in robust bottom-line growth. HZL had a huge
cash balance of `15,720cr as of June 30, 2011 (`37 per share). We recommend
Accumulate on the stock with a target price of `156

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