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Hindustan Zinc (HZNC.BO)
Sell: Zinc Outlook Still Relatively Cautious
Sell maintained — HZL’s stock has fallen 6% in the past month, somewhat in line with
zinc LME prices, -8%. We expect zinc surplus in 2011 and 2012 and range-bound LME
prices over 6-12 months. We maintain our Sell rating based on our zinc outlook and full
valuations. There is further downside risk to FY13E PAT (14%) as HZL would be the
worst hit non-ferrous stock if the draft Mining Bill is passed in its current form (amount
equal to 100% royalty to be shared with locals).
Estimates cut — We reduce FY12E/FY13E PAT by 4/14%: 1) incorporating our new
global LME prices: zinc cut by 4/17% to $2,174/2,112/t; lead cut by 8/7% to
$2,395/2,281/t; 2) cutting our lead and silver volumes by 5% in FY12 based on current
trends. The PAT decline is partly offset by higher zinc volumes/other income and lower
tax rate. We lower our target price to Rs124 (from Rs136) based on Sep12E PE of 10x
(18-month avg). At our target price, HZL would trade at 5.6x EV/EBITDA.
Zinc outlook — Zinc prices have weakened sharply from end-July (though some lost
ground has been recovered) on sovereign debt concerns/global economic slowdown.
Zinc demand has slowed in 2011 and Citi feels zinc has the weakest near-term outlook
relative to other metals. Supply continues to grow and prices are at risk if Chinese
output picks up, especially with slower demand. We estimate 150-240kt surplus for
2011-13E. Longer term, a potential supply shortage looms, with a deficit in 2014-15E.
Capacity update — HZL’s zinc-lead capacity of 964ktpa will rise to 1.06mt (among the
largest globally) with the commissioning of its 100ktpa lead smelter. The silver-rich
Sindesar Khurd mine ramp-up will help exit FY12 with a silver production capacity of
500 tonnes. Wind power capacity is being enhanced by 150MW by 2HFY12 – taking
total wind power capacity to 273MW.
Sensitivity — A 5% change in zinc-lead prices would impact FY13E PAT by 6.6 %. A
5% change in the Rs/US$ rate would impact PAT by 7.9%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Zinc (HZNC.BO)
Sell: Zinc Outlook Still Relatively Cautious
Sell maintained — HZL’s stock has fallen 6% in the past month, somewhat in line with
zinc LME prices, -8%. We expect zinc surplus in 2011 and 2012 and range-bound LME
prices over 6-12 months. We maintain our Sell rating based on our zinc outlook and full
valuations. There is further downside risk to FY13E PAT (14%) as HZL would be the
worst hit non-ferrous stock if the draft Mining Bill is passed in its current form (amount
equal to 100% royalty to be shared with locals).
Estimates cut — We reduce FY12E/FY13E PAT by 4/14%: 1) incorporating our new
global LME prices: zinc cut by 4/17% to $2,174/2,112/t; lead cut by 8/7% to
$2,395/2,281/t; 2) cutting our lead and silver volumes by 5% in FY12 based on current
trends. The PAT decline is partly offset by higher zinc volumes/other income and lower
tax rate. We lower our target price to Rs124 (from Rs136) based on Sep12E PE of 10x
(18-month avg). At our target price, HZL would trade at 5.6x EV/EBITDA.
Zinc outlook — Zinc prices have weakened sharply from end-July (though some lost
ground has been recovered) on sovereign debt concerns/global economic slowdown.
Zinc demand has slowed in 2011 and Citi feels zinc has the weakest near-term outlook
relative to other metals. Supply continues to grow and prices are at risk if Chinese
output picks up, especially with slower demand. We estimate 150-240kt surplus for
2011-13E. Longer term, a potential supply shortage looms, with a deficit in 2014-15E.
Capacity update — HZL’s zinc-lead capacity of 964ktpa will rise to 1.06mt (among the
largest globally) with the commissioning of its 100ktpa lead smelter. The silver-rich
Sindesar Khurd mine ramp-up will help exit FY12 with a silver production capacity of
500 tonnes. Wind power capacity is being enhanced by 150MW by 2HFY12 – taking
total wind power capacity to 273MW.
Sensitivity — A 5% change in zinc-lead prices would impact FY13E PAT by 6.6 %. A
5% change in the Rs/US$ rate would impact PAT by 7.9%.
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