Hindustan Zinc reported Q4FY13 earnings ahead of our expectation on the back of
better-than-expected concentrated sales volumes. Given the strong likelihood of
Govt. stake sale at a much higher price and beaten down valuations (EV/EBITDA:3.6x
FY14E), we reiterate our “BUY” rating with TP of Rs150, EV/EBITDA of 4.5x FY15E.
! Strong concentrated sales leads the beat: Thanks to higher-than-expected
concentrated sales (61kt v/s PLe: 30kt), revenues grew ahead of our expectation
at Rs38.5bn (PLe: Rs37.3bn), up 22.6% QoQ (24.5% YoY). Higher concentrated
sales compensated lower-than-expected refined metal (215kt v/s PLe: 220kt)
and silver (107t v/s PLe: 119t) volumes. Led by higher concentrated sales,
EBITDA grew ahead of our expectation at Rs20.6bn (PLe: Rs19.4bn); up 46%
QoQ (27% YoY). Gap further widened on PAT level on account of lower tax rate
(9% v/s PLe: 13%). Adj. PAT grew ~39.5% QoQ (53.7% YoY) at Rs21.8bn (PLe:
Rs20.1bn).
! Key takeaways from earnings con‐call: 1) Zawar (capacity of 1.2mtpa) secured
all requisite approvals to resume production 2) Management guided 15%
growth in mined metal production in FY14 at 1m tonnes on the back of
increased production in Zawar, SK and Kayar mines 3) Integrated saleable silver
production (net of own consumption) is guided to grow 25% YoY at 360t. 4) Net
addition of 16m tonnes to Reserves and Resources (R&R) after depletion of
8.6m tonnes in FY13. Total R&R stood at 348m tonnes at the end of FY14 with a
mine life of 25+ years. 5) Cost of production guided to remain stable in FY14 6)
Tax rate is guided to be in mid-teens in FY14.
! Valuation and Outlook: We remain positive on the stock given the play on
attractive valuations and quality assets, coupled with strong likelihood of Govt’s
stake sale at a significant premium. We maintain our “BUY” rating with TP of
Rs150, EV/EBITDA of 4.5x FY15E.
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