Report on Hindustan Zinc
Institutional Research
Hindustan Zinc Ltd.
Silver takes the “Lead”…
Kunal Motishaw +91 22 663 99138
VIOLET ARCH Securities Pvt. Ltd. (Erstwhile Alchemy Share & Stock Brokers Pvt. Ltd.)
kunal.motishaw@violetarch.com
VIOLET ARCH Research
Index
Scenario Analysis Key Assumptions Sensitivity Analysis SWOT Analysis Investment Arguments Key Risks and Concerns Valuation Comparative Valuation Key Investment Argument Comprehensive List of Risks and Concerns Background Zinc Outlook Key Financial Analysis Quarterly Update Financial Summary 4 4 6 8 9 11 12 14 15 23 25 26 27 29 30
Hindustan Zinc Ltd - Company Report
2
VIOLET ARCH Securities Pvt. Ltd. (Erstwhile Alchemy Share & Stock Brokers Pvt. Ltd.)
COMPANY REPORT
Equity Research l Metal
VIOLET ARCH Research
16 May, 2012
Hindustan Zinc Ltd.
Silver takes the “Lead”…
We initiate coverage on Hindustan Zinc Limited (HZL) with an Overweight rating. Going forward, lead and silver will continue their upward volume trend as zinc volumes remain flat due to the Vizag smelter shutdown. A ramp-up of the same will maintain the earnings momentum, albeit at a slower pace. Despite global economic turmoil, zinc consumption grew by 15.2% in CY10 and a further 7.9% in CY11. Going forward we expect zinc consumption to grow by around 5% in CY12E and 5.2% in CY13E. Hence, we expect prices of the metal to remain largely firm, which will also be supported by high marginal costs of production globally. However, with almost 100% exposure to commodity prices, further upside seems capped, unless the commodity cycle improves or a renewal in volume expansion happens. At the CMP, the stock trades at a fairly attractive valuation of 8.5x FY13E price/earnings and 4.5x EV/EBITDA. Further, net of cash P/E currently stands at only 5x FY13E.
Absolute Rating Target Price Upside
Overweight Rs 140
19%
Stock data
CMP Reuters Code Bloomberg Code Equity Shares o/s (mn) Market Cap (Rs mn) Market Cap (USD mn) 3m Avg
Hindustan Zinc Ltd.
Silver takes the “Lead”…
Kunal Motishaw +91 22 663 99138
VIOLET ARCH Securities Pvt. Ltd. (Erstwhile Alchemy Share & Stock Brokers Pvt. Ltd.)
kunal.motishaw@violetarch.com
VIOLET ARCH Research
Index
Scenario Analysis Key Assumptions Sensitivity Analysis SWOT Analysis Investment Arguments Key Risks and Concerns Valuation Comparative Valuation Key Investment Argument Comprehensive List of Risks and Concerns Background Zinc Outlook Key Financial Analysis Quarterly Update Financial Summary 4 4 6 8 9 11 12 14 15 23 25 26 27 29 30
Hindustan Zinc Ltd - Company Report
2
VIOLET ARCH Securities Pvt. Ltd. (Erstwhile Alchemy Share & Stock Brokers Pvt. Ltd.)
COMPANY REPORT
Equity Research l Metal
VIOLET ARCH Research
16 May, 2012
Hindustan Zinc Ltd.
Silver takes the “Lead”…
We initiate coverage on Hindustan Zinc Limited (HZL) with an Overweight rating. Going forward, lead and silver will continue their upward volume trend as zinc volumes remain flat due to the Vizag smelter shutdown. A ramp-up of the same will maintain the earnings momentum, albeit at a slower pace. Despite global economic turmoil, zinc consumption grew by 15.2% in CY10 and a further 7.9% in CY11. Going forward we expect zinc consumption to grow by around 5% in CY12E and 5.2% in CY13E. Hence, we expect prices of the metal to remain largely firm, which will also be supported by high marginal costs of production globally. However, with almost 100% exposure to commodity prices, further upside seems capped, unless the commodity cycle improves or a renewal in volume expansion happens. At the CMP, the stock trades at a fairly attractive valuation of 8.5x FY13E price/earnings and 4.5x EV/EBITDA. Further, net of cash P/E currently stands at only 5x FY13E.
Absolute Rating Target Price Upside
Overweight Rs 140
19%
Stock data
CMP Reuters Code Bloomberg Code Equity Shares o/s (mn) Market Cap (Rs mn) Market Cap (USD mn) 3m Avg