Buy Hindustan Zinc - Q4 FY 2011 Result Update - Motilal Oswal

HIND ZINC 4QFY11: Above est; Mined metal up 4% QoQ; Silver drives earnings; Maintain Buy

Net Sales increased 23.1% QoQ to Rs32.4b driven by higher silver(up 25% QoQ at Rs49,196/t) and lead concentrate realization(up 113% QoQ to Rs309,243/t).

Production of refined zinc grew 8.5% QoQ to 193ktons; while lead and silver production increased by 29% and 31% QoQ.

Current zinc and lead inventory at 51k tons and 14k tons. Average zinc and lead LME increased 3% and 7% QoQ respectively which further boosted revenues.

EBITDA increased 31% QoQ to Rs19.7b. The net zinc metal cost without royalty increased 5% YoY to US$784/ton.

Cash and equivalents increased by Rs19b to Rs150b; Rs93b are invested in debt mutual fund and Rs56b in fixed deposits.

We remain positive on the stock due to strong volume growth of zinc metal and sharper growth in lead and silver production over next few years. Stock trades at FY13E EV/EBITDA of 5.7x and P/E of 10.7x, assuming zinc and lead prices of US$2,200/ton. At present, zinc prices are trading at ~US$2337/ton. For every US$100 change in LME, the EPS upside is ~ 5%. Maintain Buy.

Source : Equity Bulls

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