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Hindustan Zinc (HZL) has suspended production at its Vizag zinc smelter
(56 ktpa) since mid February 2012 due to high smelting cost. Vizag
operations are unlikely to restart owing to the recent increase in rail
freight and unviable custom smelting at this old plant. The company
intends to install roasters at Dariba (to begin with) and other smelting
units, which will enhance their production by ~20kt each and also make
up for production loss at Vizag. We have reduced our FY13 and FY14 zinc
production estimates by ~3% each, leading to EPS cut of ~3% for both
FY13 and FY14. Maintain ‘BUY’ with revised target price of INR146/share.
Operations at Vizag suspended since mid Feb’12
HZL has suspended production at its Vizag zinc smelter (56ktpa) since mid Feb’12 due
to higher smelting cost (USD 700/t vs USD 500/t for the company). The recently
announced increase in railway freight by >20% has come in as a final nail in the coffin
for the closure of this unit. Capacity utilisation at this facility was already low at ~70%
in FY11 and ~53% in FY12. The company doesn’t intent to restart the smelter, as
custom smelting will not be profitable at this old plant.
Dariba unit to make up for Vizag production loss
HZL aims to make‐up for the loss of production at Vizag by installing new roaster at
Dariba which will enhance production of units by ~20kt. The company intends to install
similar roasters near each smelter, going forward.
Outlook and valuations: Positive; maintain ‘BUY/SO’
We have cut down our FY13 and FY14 zinc production estimates by ~3% each, reducing
our EPS estimates by ~3% for both FY13 and FY14. Hence, EPS of Sterlite Industries is
also estimated to be revised down by ~2% each for FY13 and FY14. We maintain
BUY/SO with revised TP INR146/share (INR150 earlier). The stock currently trades at
4.8x FY13E EV/EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Zinc (HZL) has suspended production at its Vizag zinc smelter
(56 ktpa) since mid February 2012 due to high smelting cost. Vizag
operations are unlikely to restart owing to the recent increase in rail
freight and unviable custom smelting at this old plant. The company
intends to install roasters at Dariba (to begin with) and other smelting
units, which will enhance their production by ~20kt each and also make
up for production loss at Vizag. We have reduced our FY13 and FY14 zinc
production estimates by ~3% each, leading to EPS cut of ~3% for both
FY13 and FY14. Maintain ‘BUY’ with revised target price of INR146/share.
Operations at Vizag suspended since mid Feb’12
HZL has suspended production at its Vizag zinc smelter (56ktpa) since mid Feb’12 due
to higher smelting cost (USD 700/t vs USD 500/t for the company). The recently
announced increase in railway freight by >20% has come in as a final nail in the coffin
for the closure of this unit. Capacity utilisation at this facility was already low at ~70%
in FY11 and ~53% in FY12. The company doesn’t intent to restart the smelter, as
custom smelting will not be profitable at this old plant.
Dariba unit to make up for Vizag production loss
HZL aims to make‐up for the loss of production at Vizag by installing new roaster at
Dariba which will enhance production of units by ~20kt. The company intends to install
similar roasters near each smelter, going forward.
Outlook and valuations: Positive; maintain ‘BUY/SO’
We have cut down our FY13 and FY14 zinc production estimates by ~3% each, reducing
our EPS estimates by ~3% for both FY13 and FY14. Hence, EPS of Sterlite Industries is
also estimated to be revised down by ~2% each for FY13 and FY14. We maintain
BUY/SO with revised TP INR146/share (INR150 earlier). The stock currently trades at
4.8x FY13E EV/EBITDA.
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