Hindustan Zinc Ltd: Back to its Core - Annual Report Analysis

India Infoline News Service | Mumbai |

HZL’s mined metal output was impacted in H1 FY13 due to the process of transforming its largest mine, Rampura Agucha, from open cast to underground.

CMP Rs98, Target Rs130, Upside 32.6%  

HZL in its FY13 annual report has chalked out plans for its next phase of expansion. HZL’s growth in the near term would come from raising its mined metal output from the current capacity of 0.87mtpa to 1.2mtpa over the next six years. The company continues to remain focussed on increasing in reserves and resources, thereby keeping the mine life above 25 years at current capacity. HZL has guided for 1mn tons of mined metal production for FY14 on the back of higher contribution from Zawar mines. The company has managed to receive all the approvals for the operations of Zawar and expects it to increase production from 0.2mtpa to 1.2mtpa in FY14. Costs are expected to improve as coal costs decrease and mined metal output increases. HZL continues to be our top bet amongst the non-ferrous companies. We maintain our BUY recommendation on the stock with a revised 9-month price target of Rs130.


Mined metal output to jump in FY14E

HZL’s mined metal output was impacted in H1 FY13 due to the process of transforming its largest mine, Rampura Agucha, from open cast to underground. Output in H1 FY13 was lower by 5.3% yoy and was in line with the management guidance of weak output in the first half. However, it managed to ramp up its output in H2 FY13 by 14.1% yoy, offsetting the decline in volumes in the first half. The management has now guided for mined metal output to increase from 0.87mn tons in FY13 to 1mtpa in FY14 on the back of higher contribution from Zawar and Sindesar Khurd mines. We believe that the guidance given by the management is aggressive and expect output to jump to 0.92mn tons in FY14 and 0.95mn tons in FY15.


Cash costs to decline marginally in FY14E

HZL’s cost of production in Rupee terms was higher by 13.7% yoy in FY13 due to purchase of external concentrate, increase in diesel prices and lower strip ratio. We believe that costs would decline in FY14 on account of increase in captive mined metal, lower coal costs and improvement in strip ratios. Power costs per ton declined in FY13 and are expected to decline further in FY14 due to lower international coal prices. Raw material cost too is expected to decline 25% yoy due to lower external purchase of concentrate.


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Revenues
114,384
126,998
136,486
146,576
yoy growth (%)
13.9
11.0
7.5
7.4
Operating profit
61,026
64,816
68,690
75,780
OPM (%)
53.4
51.0
50.3
51.7
Pre-exceptional PAT
56,023
69,170
71,865
79,170
Reported PAT
55,592
68,995
71,865
79,170
yoy growth (%)
13.1
24.1
4.2
10.2
EPS (Rs)
13.3
16.4
17.0
18.7
P/E (x)
7.4
6.0
5.8
5.2
EV/EBITDA (x)
3.8
3.1
2.0
1.2
RoE (%)
22.7
23.4
20.5
19.4
RoCE (%)
27.3
25.6
23.1
22.0
Source: Company, India Infoline Research
BSE 290.00 [0.65] ([0.22]%)
NSE 288.80 [1.60] ([0.55]%)

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