Hindustan Zinc Ltd. share price target

Dismal quarter; LME prices take centre stage Hindustan Zinc Limited (HZL) reported weak EBITDA, which fell 35% yoy and 12% qoq to Rs13.1bn, marginally higher than our estimate of Rs 12.8bn. EBITDA decline was largely due to fall in zinc production which was down 29% yoy and 25% qoq to 154,000 tonnes due to lower output from Rampura Agucha Mine. EBITDA was aided by higher Lead volumes (up 6% yoy and 9% qoq) and silver volumes of 122 tonnes (up 65% yoy and 5% qoq). This was on account of change in mining mix due to increased contribution from SK (Sindesar Khurd) and Kayad mines, resulting in lower average grades. While...

Transitory decline in mine production; targets 1.2mt in 3 years HZL 4QFY16 EBITDA at INR13.1b (-34% YoY) was ahead of our estimate of INR12.2b on higher lead and silver production. Reported PAT of INR21.5b (+7% YoY) includes net...

Hindustan Zinc is likely to benefit from the zinc (Zn) industrys improving fundamentals. Despite the current weakness, Zn is expected to head into a structural deficit as large sources of supply go offline. HZLs silver volumes will improve as Sindesar Khurd (SK) ramps up to fill the gap created by Rampura Agucha (RA), which is moving from opencast operations to underground.

For 3QFY2016, Hindustan Zinc (HZL) reported a 11% yoy decline in revenue to Rs3,385cr, in line with estimates, led by a 17% decline in zinc revenues as higher volumes and rupee depreciation benefits were offset by lower realizations on account of a decline in LME prices and zinc premiums. Mined metal production declined 13% yoy to 2,40,000MT. EBITDA for the quarter was also in line with expectation at Rs1,478cr, declining 29% yoy, led by lower LME prices and Rs84cr contribution towards the District Mineral Foundation (DMF). While depreciation and finance expenses came in line with our expectations, lower tax rate resulted in the net profit coming in 9% ahead of expectations at Rs1,811cr. Management has maintained its guidance of a ~16% increase in refined metal production volume for FY2016, despite a weaker mine plan in 4QFY2016. Management also indicated that the expansion projects remain on track, which should help drive volumes. Outlook and valuation: We expect zinc prices to continue to decline going forward led by global headwinds. We have however retained our volume estimates, led by the healthy growth during the quarter. We reduce our FY2016 and FY2017 estimates in view of the higher than expected fall in realizations...

8 Reviewing its expansions at Zawar and Rajpura Dariba mines due to prevailing low prices.However,thiswillbeoffsetbyhigheroutputfromSKandKayarmines. 9 Expectspremiumstoimprovedrivenbysupplyshortagesaftermajormineclosures...

While we maintain our volume assumption of 903,500 tonnes and 942,000 tonnes of Zinc-lead production in FY16E/FY17E, we introduce our FY18E estimates and assume volumes of 949,800 tonnes. Further, we lower our LME Zinc price assumption to US$1,775 and US$1,800/tonne for FY16E/FY17E and assume prices at US$1,900/ tonne for FY18E. We have factored in an exchange rate of Rs65/$ for FY16E/FY17E and FY18E. We believe that the company's mine volume ramp-up is on track, which will result in higher volumes in the coming years. Also, we estimate the zinc market to be in deficit over the next 2-3 years, which will result in higher zinc prices going...

9 Operating profit (Rs 21.6bn, +7% vs. estimate) and other income (Rs 8.7bn, +34% vs. estimate)ledtohighernetprofits(Rs22.8bn,+5%vs.estimate) 8 Highertaxrate(20%vs.ourestimateof12.5%)partlyoffsetthebenefits...

from H2FY16, significantly driving profitability. Higher DMF rate (after the revised MMDR bill)couldbeashorttermearningsdampener.However,wefactorthisintoourestimates (assumed 100% DMF rate against the company's 50% provision). We retain our FY16 EPS...

Hindustan Zinc reported better than estimated operational performance (adjusted to one off employee cost) however lower other income and higher tax impacted net profits. The companyhasguidedforastrongintegratedrefinedmetalproductionaidedbyconcentrate...