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Metal prices downside limited
We believe downside for metal prices from the current levels would
be limited driven by a tight concentrate market and robust demand
from the galvanizing industry. Rising energy costs would further
provide support on the downside and would help stabilize metal
prices. Zinc demand-supply surplus of 0.21mn tons for 2010 was
quite lower than ILZSG’s earlier expectation of 0.42mn tons. We
expect the surplus to shrink further in 2011 and would be lower than
the 0.19mn tons estimated by the organization. We estimate
average zinc prices of US$2,250/ton in FY12 and FY13.
Metal production to surge 25% over FY11-13E
HZL’s expansion to 1mtpa was completed with the commissioning of
the lead smelter in Q1 FY12. We expect zinc utilization rate to
increase to 90% in FY12 from 80% in FY11, as issues with
availability of water to the smelters has eased off. This coupled with
the commissioning of the lead smelter will push volumes higher by
50% over FY10-13E. The company is also ahead of its expansion
plan at its Sindesar Khurd mine. Sindesar mine has a much higher
silver content (c188ppm over life of mines) and would lead to a jump
in the company’s silver production.
Higher by-product revenue to offset rising costs
We believe over the next two years HZL’s cost is bound to increase
due to higher strip ratios at some mines and rising coal costs. This
impact would be negated by a steady by-product prices and jump in
silver production. We expect silver volumes of 315 tons in FY12 and
443 tons in FY13, adding Rs15bn in FY12 and Rs22bn in FY13 to the
company’s topline. With silver being a by- product, it adds little to
costs and most of the revenue flows directly to the bottom line.
Valuations attractive; Recommend BUY
We expect HZL to witness earnings CAGR of 18.4% over FY10-13E
largely driven by higher zinc, lead and silver volumes along with firm
realisations. We believe strong cash flow generation over the next
two years would further fortify HZL’s balance sheet. Cash balance is
expected to increase from 157bn (30% of current market cap) at the
end of Q1 FY12 to 252bn by FY13E. At the CMP of Rs130, the stock
is trading attractively at 3.8x FY13E EV/EBIDTA and is lower than its
international peers. We recommend a BUY rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Metal prices downside limited
We believe downside for metal prices from the current levels would
be limited driven by a tight concentrate market and robust demand
from the galvanizing industry. Rising energy costs would further
provide support on the downside and would help stabilize metal
prices. Zinc demand-supply surplus of 0.21mn tons for 2010 was
quite lower than ILZSG’s earlier expectation of 0.42mn tons. We
expect the surplus to shrink further in 2011 and would be lower than
the 0.19mn tons estimated by the organization. We estimate
average zinc prices of US$2,250/ton in FY12 and FY13.
Metal production to surge 25% over FY11-13E
HZL’s expansion to 1mtpa was completed with the commissioning of
the lead smelter in Q1 FY12. We expect zinc utilization rate to
increase to 90% in FY12 from 80% in FY11, as issues with
availability of water to the smelters has eased off. This coupled with
the commissioning of the lead smelter will push volumes higher by
50% over FY10-13E. The company is also ahead of its expansion
plan at its Sindesar Khurd mine. Sindesar mine has a much higher
silver content (c188ppm over life of mines) and would lead to a jump
in the company’s silver production.
Higher by-product revenue to offset rising costs
We believe over the next two years HZL’s cost is bound to increase
due to higher strip ratios at some mines and rising coal costs. This
impact would be negated by a steady by-product prices and jump in
silver production. We expect silver volumes of 315 tons in FY12 and
443 tons in FY13, adding Rs15bn in FY12 and Rs22bn in FY13 to the
company’s topline. With silver being a by- product, it adds little to
costs and most of the revenue flows directly to the bottom line.
Valuations attractive; Recommend BUY
We expect HZL to witness earnings CAGR of 18.4% over FY10-13E
largely driven by higher zinc, lead and silver volumes along with firm
realisations. We believe strong cash flow generation over the next
two years would further fortify HZL’s balance sheet. Cash balance is
expected to increase from 157bn (30% of current market cap) at the
end of Q1 FY12 to 252bn by FY13E. At the CMP of Rs130, the stock
is trading attractively at 3.8x FY13E EV/EBIDTA and is lower than its
international peers. We recommend a BUY rating on the stock.
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