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Steep increase in dividend payout from zinc sub (HZ IN, not rated)
key positive: While the zinc sub delivered results broadly in line with
estimates, with EBITDA at Rs14.6bn vs. JPMe of Rs13.9bn, we believe
the biggest positive to come out of the results was the steep increase in
dividend payout. The ~65% STLT-owned sub, Hindustan Zinc, declared
an interim dividend of Rs1.5/share on H1 EPS of Rs6.72/share, implying
a payout of ~22% on H1 PAT. This translates into an inflow of Rs4.1bn
for STLT in H1. Payout ratio including the dividend tax stood at 7% and
10% in FY10/11.
The first tentative step toward addressing the key issue of
'fungability of cash from subs': One of the key investor pushbacks on
STLT has been the perceived lack of fungability of cash at its subs,
particularly the zinc sub, where net cash at the end of the Sept quarter
stood at Rs162bn (~$3.31bn). As we had highlighted in our recent Note
on STLT (Grade A zinc assets provide earnings support; market
discounting severe stress from ally/power investments) any move to
address the fungability of cash would be an important step.
Understandably, a large part of today's conference call of HZ was on
dividend payout policy going into the future. Management did not give
any numbers on expected payout ratios. Assuming that the 22% payout
ratio is maintained for both FY12-13 on our estimates would result in a
cash inflow for STLT of Rs8.7/9.7bn for the respective years. We have
argued that growth opportunities in zinc in India have peaked out, and
thus cash deployment inside India would be difficult. Given the steady
decline in FII holdings in STLT, we believe positive news flow such as
the above could likely lead to strong stock upmoves. The next big
timelines are in January, when the final hearing for bauxite would take
place at the Supreme Court.
Results update: The modestly higher EBITDA was primarily due to
lower CoP (CoP without royalty was down 3% q/q). Reported PAT for
the quarter was Rs13.4bn vs. JPMe at Rs13.3bn. Other income was 5%
higher than our estimates but the tax rate was also higher (19.2% vs. 17%
in 1QFY12) due to advance taxes paid in the quarter
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steep increase in dividend payout from zinc sub (HZ IN, not rated)
key positive: While the zinc sub delivered results broadly in line with
estimates, with EBITDA at Rs14.6bn vs. JPMe of Rs13.9bn, we believe
the biggest positive to come out of the results was the steep increase in
dividend payout. The ~65% STLT-owned sub, Hindustan Zinc, declared
an interim dividend of Rs1.5/share on H1 EPS of Rs6.72/share, implying
a payout of ~22% on H1 PAT. This translates into an inflow of Rs4.1bn
for STLT in H1. Payout ratio including the dividend tax stood at 7% and
10% in FY10/11.
The first tentative step toward addressing the key issue of
'fungability of cash from subs': One of the key investor pushbacks on
STLT has been the perceived lack of fungability of cash at its subs,
particularly the zinc sub, where net cash at the end of the Sept quarter
stood at Rs162bn (~$3.31bn). As we had highlighted in our recent Note
on STLT (Grade A zinc assets provide earnings support; market
discounting severe stress from ally/power investments) any move to
address the fungability of cash would be an important step.
Understandably, a large part of today's conference call of HZ was on
dividend payout policy going into the future. Management did not give
any numbers on expected payout ratios. Assuming that the 22% payout
ratio is maintained for both FY12-13 on our estimates would result in a
cash inflow for STLT of Rs8.7/9.7bn for the respective years. We have
argued that growth opportunities in zinc in India have peaked out, and
thus cash deployment inside India would be difficult. Given the steady
decline in FII holdings in STLT, we believe positive news flow such as
the above could likely lead to strong stock upmoves. The next big
timelines are in January, when the final hearing for bauxite would take
place at the Supreme Court.
Results update: The modestly higher EBITDA was primarily due to
lower CoP (CoP without royalty was down 3% q/q). Reported PAT for
the quarter was Rs13.4bn vs. JPMe at Rs13.3bn. Other income was 5%
higher than our estimates but the tax rate was also higher (19.2% vs. 17%
in 1QFY12) due to advance taxes paid in the quarter
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