Result Update: Hindustan Zinc Ltd - REDUCE - TP Rs.285 - Kotak

- Hindustan Zinc's (HZ) reported in-line numbers with PAT of Rs18.76bn, up 80.9% YoY (down 38.6% QoQ), backed by the strong realisation across the products and higher volumes. EBITDA during the quarter grew 110.8% YoY to Rs23.84 bn (down 36.4% QoQ) and margin during the quarter stood at 47.6%, which was below estimates on account of higher costs. Sequential decline in operating performance was on account of lower realisation and increase in zinc cost of production. Though mine transition is progressing well, we expect volume growth to be constrained for the next few quarters, as shaft sinking works will be mostly completed in FY19.

- The strong fundamentals of zinc compared to other base metals and increase in silver volume from higher SK mine production will be the earnings driver for the company. Besides this, HZ's cost leadership will ensure healthy free cash flow generation in the coming years as well. Higher than expected deficit during Jan-May 2017 (178KT) and sharp fall in inventory levels, bodes well for zinc prices. The stock has rallied ~16% since our last update on 29th May, at CMP, the stock is trading at 6.4x FY19E EV/EBITDA, which in our view is fairly valued. Hence, we recommend REDUCE(earlier Accumulate) on Hindustan Zinc, with a revised target price of Rs285 (earlier Rs265), valuing it at 6.5x FY19E EBITDA (earlier 6x).

Shares of HINDUSTAN ZINC LTD. was last trading in BSE at Rs.279.15 as compared to the previous close of Rs. 281.05. The total number of shares traded during the day was 218939 in over 2432 trades.

The stock hit an intraday high of Rs. 286 and intraday low of 277.75. The net turnover during the day was Rs. 61352440.

Source : Equity Bulls

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