hindustan zinc result updated

8/2/2019 Hindustan Zinc Result Updated

1/11

Please refer to important disclosures at the end of this report 1

Particulars (` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq)Net sales 3,094 3,197 (3.2) 2,747 12.6EBITDA 1,659 1,969 (15.7) 1,402 18.3

EBITDA margin (%) .6 61.6 (794)bp 51.1 258bp

Adjusted PAT 1,421 1,771 (19.8) 1,280 11.0Source: Company, Angel Research

Hindustan Zincs (HZL) 4QFY2012 results were slightly ahead of our

expectations. Net sales decreased by 3.2% yoy and EBITDA margin slipped by

794bp yoy, mainly due to lower realizations of zinc and lead. We recommendAccumulate on the stock.Top line decreases by 3.2% yoy: For 4QFY2012, HZLs net sales decreased by3.2% yoy to `3,094cr (slightly above our estimate of `2,919cr) mainly on

account of a decline in realizations of zinc and lead.

Lower realizations and higher costs dent EBITDA margin: Cost of production ofzinc increased by 17.0% yoy to`41,693/tonne during the quarter. Hence, HZLs

EBITDA margin contracted by 794bp yoy to 53.6% and EBITDA decreased by

15.7% yoy to `1,659cr. Other income was higher by 26.0% yoy to`381cr. Thus,

adjusted PAT decreased by 19.8% yoy to`1,421cr.

Expansion projects remain on track: HZLs underground mine development workat Rampura Agucha mine and greenfield Kayar mine development are on

schedule. The company expects production to increase to 2mn tonnes at its

Sindesar Khurd mine. The company also expects overall silver production to

increase to 350 tonnes in FY2013.

Outlook and valuation: Despite a decline in zinc prices over the past one year,we expect HZLs net profit to grow by 12.3% and 11.9% yoy in FY2012 and

FY2013, respectively, on the back of higher sales volumes of lead and silver.

At the CMP, the stock is trading at inexpensive valuation of 4.5x and 3.3x

FY2013E and FY2014 EV/EBITDA, respectively. Hence, we recommendAccumulate on the stock with a target price of `139.Key financialsY/E March (` cr) FY2011 FY2012E FY2013E FY2014ENet sales 9,912 11,255 13,043 14,222% chg 23.6 13.5 15.9 9.0

Net profit 4,922 5,569 6,257 6,999% chg 21.8 13.2 12.3 11.9

EPS (`) 11.6 13.1 14.8 16.6EBITDA margin (%) 55.3 52.6 51.8 52.8

P/E (x) 10.9 9.6 8.5 7.6

P/BV (x) 2.4 2.0 1.7 1.4

RoE (%) 24.1 22.4 21.2 19.9RoCE (%) 24.2 21.3 20.5 19.5

EV/Sales (x) 3.9 3.1 2.4 1.7

EV/EBITDA (x) 7.0 5.8 4.5 3.3

Source: Company, Angel Research

ACCUMULATECMP `126

Target Price `139

Investment Period 12 months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 64.9

MF / Banks / Indian Fls 1.8

FII / NRIs / OCBs 1.4

Indian Public / Others 32.0

Abs. (%) 3m 1yr 3yr

Sensex 6.4 (10.1) 59.4

Hindustan Zinc 2.8 (14.5) 153.1

HZ@IN

2

17,504

5,332

HZNC.BO

53,260

1.1

155/107

112,879

Base Metals

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Bhavesh ChauhanTel: 022- 39357800 Ext: 6821

[email protected]

Hindustan ZincPerformance Highlights

4QFY2012 Result Update | Base Metals

April 19, 2012


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Hindustan Zinc | 4QFY2012 Result Update

April 19, 2012 2

Exhibit 1:4QFY2012 performance

(` cr) 4QFY12 4QFY11 yoy % 3QFY12 qoq %Net sales 3,094 3,197 (3.2) 2,747 12.6Mining and mfg. expenses 973 771 26.3 986 (1.2)% of Net sales 31.5 24.1 35.9

Mining royalty 229 251 (8.7) 201 14.3

% of Net sales 7.4 7.9 7.3

Staff cost 144 134 7.7 134 8.1

% of Net sales 4.7 4.2 4.9

Admin and selling 129 113 14.3 65 99.6

% of Net sales 4.2 3.5 2.4

Total expenditure 1,476 1,269 16.3 1,385 6.6% of Net sales 47.7 39.7 50.4

Operating income 41.5 40.3 2.9 40.0 3.6

EBITDA 1,659 1,969 (15.7) 1,402 18.3% margin 53.6 61.6 51.1

Interest 2 13 9 (72.4)

Depreciation 167 127 31.5 159 5.0

Other income 381 302 26.0 382 (0.2)

Exceptional items 8 - 6

Profit before tax 1,862 2,131 (12.6) 1,610 15.7% of Net sales 60.2 66.6 58.6

Provision for tax 449 359 25.0 336 33.6

% of PBT 24.1 16.9 20.9

Profit after tax 1,413 1,771 (20.2) 1,274 10.9% of Net sales 45.7 55.4 46.4Adjusted net profit 1,421 1,771 (19.8) 1,280 11.0


Exhibit 2:4QFY2012 Actual vs. Angel estimates

(` cr) Actual Estimates chg (%)Net sales 3,094 2,919 6.0

EBITDA 1,659 1,472 12.7

EBITDA margin (%) 53.6 50.5 318bp

Adj. PAT 1,421 1,335 6.5


Lower realizations lead to a decline in top line

For 4QFY2012, HZLs net sales decreased by 3.2% yoy to`3,094cr (slightly above

our estimate of `2,919cr) mainly on account of a decline in realizations of zinc

and lead. Average LME spot zinc prices were lower by 15.3% yoy to

US$2,028/tonne during 4QFY2012. Zinc and lead production volumes

(combined) declined by 2.0% yoy to 223kt, while silver production grew by 77.0%

yoy to 88kt during the quarter.


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April 19, 2012 3

Exhibit 3:Net sales decreased by 3.2% yoy


EBITDA margin contracts by 794bp yoy

Cost of production of zinc increased by 17.0% yoy to `41,693/tonne during the

quarter. Hence, HZLs EBITDA margin contracted by 794bp yoy to 53.6% and

EBITDA decreased by 15.7% yoy to `1,659cr. Other income was higher by 26.0%

yoy to `381cr. Thus, net profit decreased by 20.2% yoy to `1,413cr. Excluding

exceptional items (`8cr in 4QFY2012 and nil in 4QFY2011), adjusted net profit

declined by 19.8% yoy to`1,421cr (above our estimate of`1,335cr).

Exhibit 4:EBITDA and EBITDA margin trend


Exhibit 5:Net profit and net profit margin trend


Expansion projects

HZLs underground mine development work at Rampura Agucha mine and

greenfield Kayar mine development are on schedule. The company expects

production to increase to 2mn tonnes at its Sindesar Khurd mine. The company

also expects overall silver production to increase to 350 tonnes in FY2013.

Moreover, given the cash-rich balance sheet, HZL is actively exploring greenfield

projects through 20 prospecting licenses and four mining lease projects across

different states.

(10)

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4QFY09 2QFY10 4QFY10 2QFY11 4QFY11 2QFY12 4QFY12

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Net sales yoy growth - RHS

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Net profit (LHS) Net profit margins (RHS)


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April 19, 2012 4

Investment arguments

Mining in Kayar could be the next phase of growth

Since the expansion at Sindesur Khurd is complete, HZL has commenced work at

its underground Kayar mine, which has 11mn tonnes of high-grade reserves

(10-12% zinc content). The company aims to mine 1mn tonnes per year, once it is

fully operational. Moreover, given the cash-rich balance sheet, HZL is actively

exploring greenfield projects through 20 prospecting licenses and four mining

lease projects across different states.

Current zinc prices near marginal cost of production

At current levels of ~US$2,000/tonne, zinc prices stand near the marginal cost of

production for several zinc producers. Hence, we believe probability of a further

decline in zinc prices from these levels remains lower. Further, over the next 3-5years, several zinc mines are expected to be exhausted; hence, production is likely

to suffer. This should support zinc prices over the medium term in our view.


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April 19, 2012 5

Valuation

Despite the decline in zinc prices, we expect HZLs net profit to grow by 12.3% and

11.9% yoy in FY2012 and FY2013, respectively, on the back of higher sales

volumes of lead and silver. Furthermore, the companys balance sheet remains

strong with cash and equivalents at `17,948cr as of March 31, 2012 (34% of

HZLs current market cap).

At the CMP, the stock is trading at inexpensive valuation of 4.5x and 3.3x FY2013E

and FY2014 EV/EBITDA, respectively. Hence, we recommend Accumulate on thestock with a target price of `139.Exhibit 6:Key assumptions

LME prices (US$/tonne) FY2013E FY2014EZinc 2,120 2,150

Lead 2,176 2,206

Silver (`/kg) 50,000 50,000

Sales volume (tonnes)Zinc metal 830,655 872,188

Lead metal 141,855 159,587

Silver 320,000 430,000

Source: Angel Research

Exhibit 7:EPS Angel forecast vs. consensus

Year (%) Angel forecast Bloomberg consensus Variation (%)FY2013E 14.8 14.7 0.7

FY2014E 16.6 16.4 1.0

Source: Bloomberg, Angel Research

Exhibit 8:EV/EBITDA band


0

10,000

20,000

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40,000

50,000

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70,000

Apr-04

Oct-04

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Apr-07

Oct-07

Apr-08

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Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

(

`cr)

2x 4x 6x 8x 10x


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April 19, 2012 6

Exhibit 9:P/E band


Exhibit 10:P/BV band


Exhibit 11:Recommendation summary

Company CMP Target Price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)(`) (`) (` cr) (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E

Hindalco 128 136 Accum. 24,534 6 8.5 7.4 0.7 0.7 5.4 5.1 8.7 9.2 6.7 7.2Nalco 59 51 Reduce 15,270 (13) 23.4 16.9 1.3 1.2 10.9 8.4 5.6 7.4 3.2 5.6

Sterlite 110 137 Buy 36,990 25 6.1 6.1 0.7 0.6 2.9 2.5 12.5 11.9 11.3 10.8

HZL 126 139 Accum. 53,260 9.9 8.5 7.6 1.7 1.4 4.5 3.3 21.2 19.9 20.5 19.5Source: Company, Angel Research

0

50

100

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250

Jan-04

Aug-04

Mar-05

Oct-05

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Dec-06

Jul-07

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(`)

2.0x 6.0x 10.0x 14.0x

0

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(`)

0.5x 2.0x 3.5x 5.0x


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April 19, 2012 7

Profit & loss statement

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 5,680 8,017 9,912 11,255 13,043 14,222Other operating income - 122 127 150 173 199Total operating income 5,680 8,139 10,039 11,405 13,215 14,421% chg (27.9) 43.3 23.3 13.6 15.9 9.1

Total expenditure 2,946 3,347 4,431 5,336 6,287 6,713

Net raw materials 1,906 1,961 2,759 3,543 4,108 4,366

Other Mfg. costs 364 613 803 838 1,056 1,152

Personnel 365 457 511 535 639 683

Other 311 316 358 421 483 512

EBITDA 2,734 4,792 5,608 6,069 6,929 7,708% chg (49.2) 75.3 17.0 8.2 14.2 11.2

% EBITDA margin 48.1 58.3 55.3 52.6 51.8 52.8

Depreciation 285 334 475 611 691 683

EBIT 2,449 4,458 5,133 5,459 6,237 7,025% chg (52.5) 82.0 15.1 6.3 14.3 12.6

(% of Net sales) 43.1 55.6 51.8 48.5 47.8 49.4

Interest & other charges 22 44 18 14 13 14

Other income 931 600 866 1,543 1,696 1,849

(% of PBT) 27.7 12.0 14.5 22.1 21.4 20.9

Share in profit of associates - - - - - 1.0

Recurring PBT 3,358 5,014 5,981 6,988 7,920 8,860% chg (43.9) 49.3 19.3 16.8 13.3 11.9

Extraordinary inc/(expense) - - 21.2 43.1 - -

PBT (reported) 3,358 5,014 5,960 6,945 7,920 8,860Tax 631 973 1,059 1,419 1,663 1,861

(% of PBT) 18.8 19.4 17.8 20.4 21.0 21.0

PAT (reported) 2,728 4,041 4,900 5,526 6,257 6,999Adj. net income 2,728 4,041 4,922 5,569 6,257 6,999% chg (38.0) 48.2 21.8 13.2 12.3 11.9

(% of Net sales) 48.0 49.7 49.0 48.8 47.3 48.5

Basic EPS (`) 6.5 9.6 11.6 13.1 14.8 16.6Fully Diluted EPS (`) 6.5 9.6 11.6 13.1 14.8 16.6% chg (38.0) 48.2 21.3 12.8 13.2 11.9


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April 19, 2012 8

Balance sheet

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014ESOURCES OF FUNDSEquity share capital 423 423 845 845 845 845Reserves & surplus 13,935 17,701 21,688 26,028 31,296 37,307

Shareholders funds 14,358 18,124 22,533 26,873 32,141 38,152Total loans 9 60 0.4 0.4 0.4 0.4

Deferred tax liability 559 711 945 945 945 945

Total liabilities 14,925 18,896 23,478 27,818 33,086 39,097APPLICATION OF FUNDSGross block 5,856 8,241 9,802 11,802 14,002 15,002

Less: Acc. depreciation 1,751 2,077 2,548 3,159 3,850 4,533

Net Block 4,105 6,164 7,254 8,644 10,152 10,470Capital work-in-Progress 1,108 1,113 875 575 275 25

Investments 6,929 10,949 9,335 9,335 9,335 9,335

Current assets 3,784 1,995 7,589 11,644 15,610 21,600Cash 2,719 928 5,633 9,495 13,258 19,149

Loans & advances 313 457 752 752 752 752

Other 751 611 1,204 1,397 1,600 1,699

Current liabilities 1,001 1,326 1,575 2,380 2,286 2,333Net current assets 2,783 669 6,014 9,264 13,324 19,267Total assets 14,925 18,896 23,478 27,818 33,086 39,097Note: Cash and Bank balance include fixed deposits


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April 19, 2012 9

Cash flow statement

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EProfit before tax 3,358 5,014 5,960 6,945 7,920 8,860

Depreciation 286 335 475 611 691 683Change in working capital 296 173 (239) 612 (296) (52)

Less: Other income (777) (563) (835) - - -

Direct taxes paid 521 785 1,116 1,419 1,663 1,861

Cash flow from operations 2,642 4,173 4,244 6,749 6,652 7,630(Inc.)/ Dec. in net fixed assets (1,374) (2,247) (1,446) (1,700) (1,900) (750)

(Inc.)/ Dec. in investments (443) (3,922) 1,870 - - -

(Inc.)/ Dec. in loans and adv. 71 (96) 28 - - -

Other income (1,602) 2,288 (4,082) - - -

Cash flow from investing (3,348) (3,977) (3,631) (1,700) (1,900) (750)Inc./(Dec.) in loans 8 43 (60) - - -

Dividend paid 124 198 296 1,186 989 989

Others 22 33 8 - - -

Cash flow from financing (137) (187) (363) (1,186) (989) (989)Inc./(Dec.) in cash (844) 8 250 3,862 3,763 5,891

Opening cash bal. 3,563 919 5,383 5,633 9,495 13,258Closing cash bal. 2,719 928 5,633 9,495 13,258 19,149


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April 19, 2012 10

Key ratios

Y/E March FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EValuation ratio (x)P/E (on FDEPS) 19.5 13.2 10.9 9.6 8.5 7.6P/CEPS 17.7 12.2 9.9 8.6 7.7 6.9

P/BV 3.7 2.9 2.4 2.0 1.7 1.4

Dividend yield (%) 3.2 4.8 0.6 1.9 1.6 1.6

EV/Sales 7.7 5.2 3.9 3.1 2.4 1.7

EV/EBITDA 16.0 8.9 7.0 5.8 4.5 3.3

EV/Total assets 2.9 2.2 1.6 1.2 0.9 0.6

Per share data (`)EPS (Basic) 6.5 9.6 11.6 13.1 14.8 16.6

EPS (fully diluted) 6.5 9.6 11.6 13.1 14.8 16.6

Cash EPS 7.1 10.4 12.8 14.6 16.4 18.2

DPS 4.0 6.0 0.7 2.4 2.0 2.0

Book value 34.0 42.9 53.3 63.6 76.1 90.3

DuPont analysisEBIT margin 43.1 55.6 51.8 48.5 47.8 49.4

Tax retention ratio (%) 81.2 80.6 82.2 79.6 79.0 79.0

Asset turnover (x) 1.1 1.3 1.3 1.3 1.4 1.4

RoIC (Post-tax) 40.2 59.3 55.0 50.3 51.3 53.3

Cost of debt (post tax) - - - - - -

Leverage (x) - - - - - -

Operating RoE 40.2 59.3 55.0 50.3 51.3 53.3

Returns (%)RoCE (Pre-tax) 18.0 26.4 24.2 21.3 20.5 19.5

Angel RoIC (pre-tax) 58.9 88.5 75.8 68.0 67.0 67.5

RoE 20.8 24.9 24.1 22.4 21.2 19.9

Turnover ratios (x)Asset turnover (gross block) 1.0 1.1 1.1 1.0 1.0 1.0

Inventory (days) 68 49 63 63 63 63

Receivables (days) 11 7 8 8 8 8

Payables (days) 46 52 39 40 40 40

WC cycle (days) 30 11 11 17 18 18

Solvency ratios (x)Net debt to equity (0.7) (0.7) (0.7) (0.7) (0.7) (0.7)

Net debt to EBITDA (3.5) (2.5) (2.7) (3.1) (3.3) (3.7)

Interest coverage 111.9 101.5 280.8 391.3 478.2 494.0


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April 19, 2012 11

Disclosure of Interest Statement Hindustan Zinc

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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hindustan zinc result updated

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