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Stock Data

Sector Metals

Face Value (Rs.) 10.00

52 wk. High/Low (Rs.) 1328.00/900.00

Volume (2 wk. Avg.) 15000

BSE Code 500188

Market Cap (Rs.mn.) 504543.07

Financials (Rs. in mn.) FY10

FY11E FY12E

Net Sales 81389.20 91562.85 106212.91

EBIDTA 53922.80 57998.00 66874.31

PAT 40414.10 43108.11 49730.85

EPS 95.65 102.02 117.70

P/E 12.48 11.70 10.15

Hindustan Zinc Ltd

BUY

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SYNOPSIS

HZL is India’s leading integrated producer of zinc & lead and is among the world’s leading integrated producers. It has a metal production capacity of 964,000 tonnes per annum with its smelter operations situated in Chanderiya, Debari and Visakhapatnam.

The company has started metal production

from its Hydro-Zinc Smelter situated at Dariba Smelting Complex, Dariba - Rajasthan.

As at 31 March 2010, the Company had

cash and cash equivalents of around Rs. 11,900Crore.

The company's total reserves and

resources at 31st March, 2010 were at 298.6 million tonnes containing 34.1 million tonne of zinc-lead metal.

The board of directors has recommended a

dividend of 60% i.e. Rs 6.00 per equity share of Rs.10.00 for the current year.

1 Year Comparative Graph

Hindustan Zinc BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.1194.10 Rs.1338.00

Share Holding Pattern

December 21st, 2010

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Table of Content

Content Page No.

1. Peer Group Comparison 03

2. Investment Highlights 03

3. Company profile 05

4. Financials 06

5. Charts & Graph 08

6. Outlook and Conclusion 10

7. Industry Overview 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Hindustan Zinc Ltd 1194.10 504543.07 95.65 12.48 2.78 60.00

Sterlite Industries (India) 176.40 592986.50 3.96 44.55 2.67 187.50

Hindustan copper 327.45 302962.60 2.43 134.75 27.00

0.00 *As on 21/12/2010

Investment Highlights

Results Updates (Q2 FY11) (Standalone)

For the Second quarter, the top line of the company increased 21%YoY and stood at Rs.22010.40mn against Rs.18183.20mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.9487.20mn from Rs.9349.50mn of the corresponding period of the previous year i.e. an increase of 1%YoY.

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EPS of the company for the quarter stood at Rs.22.45 for equity share of Rs.10.00 each.

Expenditure for the quarter stood at Rs.10969.40mn, which is around 48% higher than the corresponding period of the previous year. Employees cost of the company for the quarter accounts for 5% of the sales of the company and stood at Rs.1154.90mn from Rs.1037.30mn of the corresponding period of the previous year i.e., an increase of 11%YoY. Manufacturing Expenses decreased 55%YoY to Rs.2059.20mn from Rs.4553.90mn and accounts for 9% of the revenue of the company for the quarter.

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OPM and NPM for the quarter stood at 59% and 43% respectively from 68% and 51% respectively of the same period of the last year.

Company Profile Hindustan Zinc (HZL) was incorporated in January 1966. HZL is India’s leading integrated producer of zinc & lead and is among the world’s leading integrated producers. It has a metal production capacity of 964,000 tonnes per annum with its smelter operations situated in Chanderiya, Debari and Visakhapatnam. HZL has lead-zinc mines in Rampura Agucha, Sindesar Khurd, Rajpura Dariba and Zawar. HZL has around 7,000 employees. The company is a subsidiary of the NYSE listed, Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining major, Vedanta Resources plc. Business Activities It manufacturers three qualities of zinc -- special high grade zinc used in construction, infrastructure, household appliances etc; high grade zinc and prime western zinc. HZL manufactures 99.99% pure lead used in lead acid battery, ceramic glazes, electrodes, etc. It manufactures silver used in photographic material, conducter, jewellery, etc. The mineral major produces cadmium, whose purity ranges from 99.95-99.99%. It is used in Ni-Cd batteries, stablizers, coating and alloys. HZL also manufactures sulphuric acid used in fertilizers, dyes, textiles, sugar refining, etc.

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Financials Results 12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 58220.60 81389.20 91562.85 106212.91

Other Income 7894.40 6002.50 6722.80 7395.08

Total Income 66115.00 87391.70 98285.65 113607.99

Expenditure -29461.20 -33468.90 -40287.65 -46733.68

Operating Profit 36653.80 53922.80 57998.00 66874.31

Interest -218.70 -439.20 -332.59 -365.84

Gross Profit 36435.10 53483.60 57665.41 66508.46

Depreciation -2852.70 -3342.50 -4445.53 -5112.35

Profit Before Tax 33582.40 50141.10 53219.89 61396.11

Tax -6306.30 -9727.00 -10111.78 -11665.26

Net Profit 27276.10 40414.10 43108.11 49730.85

Equity Capital 4225.30 4225.30 4225.30 4225.30

Reserves 31501.40 177014.40 220122.51 269853.36

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 422.53 422.53 422.53 422.53

EPS 64.55 95.65 102.02 117.70

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10 E

Description 3m 3m 3m 3m

Net Sales 25448.90 19733.70 22010.40 24211.44

Other income 1344.60 1584.40 1840.30 1987.52

Total Income 26793.50 21318.10 23850.70 26198.96

Expenditure -9967.10 -9515.80 -10969.40 -10653.03

Operating Profit 16826.40 11802.30 12881.30 15545.93

Interest -276.80 -65.50 5.10 5.61

Gross Profit 16549.60 11736.80 12886.40 15551.54

Depreciation -1006.40 -1122.70 -1158.40 -1216.32

Profit Before Tax 15543.20 10614.10 11728.00 14335.22

Tax -3153.30 -1704.90 -2240.80 -2680.69

Net Profit 12389.90 8909.20 9487.20 11654.53

Equity Capital 4225.30 4225.30 4225.30 4225.30

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 422.53 422.53 422.53 422.53

EPS 29.32 21.09 22.45 27.58

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Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 63% 66% 63% 63%

PAT % 47% 50% 47% 47%

P/E ratio (x) 18.50 12.48 11.70 10.15

ROE - % 79% 22% 19% 18%

ROCE - % 98% 28% 24% 22%

EV/EBIDITA (x) 13.01 9.36 8.70 7.54

Price/Book Value 3.99 2.78 2.25 1.84 A-Actual E-Expected Charts:

Net sales & PAT

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P/E Ratio (x)

P/BV (X)

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EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.1194.10, the stock is trading at 11.70 x and 10.15 x for FY11E and FY12E respectively.

On the basis of EV/EBDITA, the stock trades at 8.70 x for FY11E and 7.54 x for

FY12E.

Price to book value of the company is expected to be at 2.25 x for FY11E and 1.84 x for FY12E respectively.

EPS of the company is expected to be at Rs.102.02 and Rs.117.70 for the earnings

of FY11E and FY12E respectively.

The company’s net sales and net profit are expected to grow at a CAGR of 22% and 22% over FY09 to FY12E.

We recommend ‘BUY’ in this particular scrip with a target price of Rs.1338.00 for

Medium to Long term investment.

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Industry Overview Metal industries are the indispensable part of an economy; they form the backbone of industrial development of any country. In India the industrial development began with the setting up of Tata Iron and Steel Company (TISCO) at Jamshedpur in 1907. It started its production in 1912. Then came up Burnpur and Bhadrawati Steel Plants in 1919 and 1923 respectively. It was, however, only after the Independence that the steel industry gas been able to find its feet. Barring the Jamshedpur plant of the Tatas, all are in public sector and looked after by the Steel Authority of India Ltd. (SAIL). Bhilai and Bokaro plants were set up with the Soviet collaboration. Durgapur and Rourkela came up with British and German technology know-how respectively. Iron and steel industry is by nature a heavy industry. Proximity to raw materials and access to efficient transportation network are crucial to this industry. The Chhotanagpur plateau bordering West Bengal, Bihar, Orissa and Madhya Pradesh, therefore has been the natural core of this industry. Besides, iron and steel industry, heavy engineering and machine tools industries are the main dealers of metals. These industries have witnessed a phenomenal growth and produce a whole range of capital goods and consumer durables. The capital goods required for textile industry, fertilizer plants, power projects, cements, steel and petro-chemical plants, mining, construction and agricultural machineries such as equipment for irrigation projects, diesel engines, pumps and tractors, transport vehicles, etc. are being produced indigenously. The Heavy Engineering Corporation Ltd., set up at Ranchi in 1958 fabricates huge machines required for the iron and steel industry. Locomotives are manufactured by three units, viz. Locomotive Works, Chittaranjan (West Bengal), Diesel Locomotive Works, Varanasi (Uttar Pradesh), and Tata Engineering and Locomotive Co. Ltd. (TELCO), Jamshedpur. The Hindustan Machine Tools Ltd. (HMT) is a major manufacturer of a wide range of machines and tools. It has its units in Banglore, Pinjore (Haryana), Kalamassery (Kerala), and Hyderabad. The HMT also produces a wide range of watches. The Bharat Heavy Electricals Ltd. (BHEL) is a public sector undertaking which produces power generation equipments. Its manufacturing plants are located at Bhopal, Tiruchirapalli, Hyderabad, Haridwar, Ranipet, Banglore and Jagdishpur (Uttar Pradesh). The Hindustan Aeronautics Ltd., Banglore has acquired capability of manufacturing aircrafys of different types.It has its manufacturing units at Banglore, Kanpur, Nasik, Koraput, Hyderabad, and Lucknow. Vishakhapatnam, Mumbai, Calcutta and Kochi are the major center of ship-building industry.

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