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HZL's silver output ramp-up will begin over the next few quarters, marking its entry as a big
player in the precious metals business. At Rs14.9bn, its 1QFY12 earnings was in line with
our estimates. We raise our target price to Rs182 as we roll forward valuation to FY13. We
maintain our Buy rating on the stock.
1QFY12 EBITDA at 15.9bn (5.9% below RBS); net income in line at Rs14.9bn
Zinc production was 193kt (+17% yoy and flat qoq). Saleable lead production was 14.8kt
(+5% yoy and -8% qoq), while silver volumes were at 39.6t (+6% yoy and -7% qoq). An
unplanned shutdown at the Rampura Agucha mine affected production. Net revenue was
Rs28.4bn (+46% yoy and -11% qoq) vs our estimate of Rs29.9bn and EBITDA Rs15.9bn
(+59% yoy and -17% qoq) vs our estimate of Rs16.9bn. Due to higher-than-expected other
income of Rs3.5bn, net profit of Rs14.9bn was in line with our estimates. Also, the sale of
surplus lead concentrate of 10kt, including 17t of payable silver, drove earnings.
Zinc least preferred; lead to outperform zinc; treat silver with caution
Nick Moore, our Head of Commodity Strategy, in the latest commodities compendium Pump
up the volume, dated 16 March 2011, summarises RBS’s views on zinc, lead and silver as
follows: "Zinc – remains our least preferred base metal, and we expect it to underperform
over a 12-24 month view. Despite the weak fundamental outlook, we expect sustained
investor interest to support the zinc price in a US$2,000-2,500/t range in 2011/12. Further out
zinc fundamentals are likely to improve, with the price expected to exceed US$3,000/t in 2013F.
Lead – elevated stocks and a surplus market are likely to limit price upside for lead in 2011.
However, we expect supply deficits after 2011 to reduced reported stocks to a tight 1.5 weeks by
2014. This should help to drive the LME lead price to a peak of US$3,300t in 2H13. Silver – given
the sharp rally in prices, we are now cautious.”
Raise TP to Rs182 as we roll forward our valuation to FY13
The new 100kt lead smelter at Dariba, Rajasthan, will start production soon. This, and silver
volumes, in our view, will mainly drive earnings by a CAGR of 21.7% over the next three years.
We roll forward our valuations to FY13, introduce FY14 estimates and largely maintain our
FY12/13 estimates. We use an average peer multiple of 5x to value the zinc/lead business and
10x to value silver. We raise our TP from Rs167 to Rs182 and maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HZL's silver output ramp-up will begin over the next few quarters, marking its entry as a big
player in the precious metals business. At Rs14.9bn, its 1QFY12 earnings was in line with
our estimates. We raise our target price to Rs182 as we roll forward valuation to FY13. We
maintain our Buy rating on the stock.
1QFY12 EBITDA at 15.9bn (5.9% below RBS); net income in line at Rs14.9bn
Zinc production was 193kt (+17% yoy and flat qoq). Saleable lead production was 14.8kt
(+5% yoy and -8% qoq), while silver volumes were at 39.6t (+6% yoy and -7% qoq). An
unplanned shutdown at the Rampura Agucha mine affected production. Net revenue was
Rs28.4bn (+46% yoy and -11% qoq) vs our estimate of Rs29.9bn and EBITDA Rs15.9bn
(+59% yoy and -17% qoq) vs our estimate of Rs16.9bn. Due to higher-than-expected other
income of Rs3.5bn, net profit of Rs14.9bn was in line with our estimates. Also, the sale of
surplus lead concentrate of 10kt, including 17t of payable silver, drove earnings.
Zinc least preferred; lead to outperform zinc; treat silver with caution
Nick Moore, our Head of Commodity Strategy, in the latest commodities compendium Pump
up the volume, dated 16 March 2011, summarises RBS’s views on zinc, lead and silver as
follows: "Zinc – remains our least preferred base metal, and we expect it to underperform
over a 12-24 month view. Despite the weak fundamental outlook, we expect sustained
investor interest to support the zinc price in a US$2,000-2,500/t range in 2011/12. Further out
zinc fundamentals are likely to improve, with the price expected to exceed US$3,000/t in 2013F.
Lead – elevated stocks and a surplus market are likely to limit price upside for lead in 2011.
However, we expect supply deficits after 2011 to reduced reported stocks to a tight 1.5 weeks by
2014. This should help to drive the LME lead price to a peak of US$3,300t in 2H13. Silver – given
the sharp rally in prices, we are now cautious.”
Raise TP to Rs182 as we roll forward our valuation to FY13
The new 100kt lead smelter at Dariba, Rajasthan, will start production soon. This, and silver
volumes, in our view, will mainly drive earnings by a CAGR of 21.7% over the next three years.
We roll forward our valuations to FY13, introduce FY14 estimates and largely maintain our
FY12/13 estimates. We use an average peer multiple of 5x to value the zinc/lead business and
10x to value silver. We raise our TP from Rs167 to Rs182 and maintain Buy.
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