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TP : Rs173
Investment Rationale
§ World’s largest integrated zinc producer with unit cost of production in the first quartile
§ Reserve and Resource base of 313 million tonnes (almost 30 years mine life) and potential to increase further.
§ Projects commissioning in full swing of 1 lakh tpa lead smelter at Dariba
§ Silver business contribution to overall EBITDA to increase from 10% in FY11 to about 25% in FY13
§ Net cash balance of Rs 157 billion (~ Rs 39 per share) as on 30th June 2011 fetching ~10.25% pre-tax returns
§ Excellent organization with Government nominees on Board. Gives comfort on regulatory compliances
Valuations
§ Being the largest integrated zinc producer in the world with strong cash flows, low cost of production, operations
geographically well positioned and increasing contribution from the silver business it deserves a premium in
valuation multiple over peers
§ At the CMP of Rs 127, the stock is trading at 9.6x FY12 EPS and 8x FY13E EV/ EBITDA. Global zinc and lead
producers are currently trading at 4.4x CY12 EV/ EBITDA, while pure silver producers are trading at 13x CY12
EV/ EBITDA on an average basis. We continue to value the stock at 6.5x FY13E EV/ EBITDA. Maintain Buy with
a target price of Rs 173
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