Hindustan Zinc Ltd. share price target

HZ's mine production ramp-up to 1.2mtpa (v/s 907kt in FY17) is on schedule. The production run-rate is likely to be achieved in any one of the quarters during FY19 itself. This makes us more comfortable on our estimates of 1.05mt for FY19 and 1.16mt for FY20. There is a possibility of some upside in FY19. As the mix of silver-rich ore increases, silver production will increase at a faster rate. With the commissioning of Fumers and ramp-up at SK mine, HZ expects silver production to increase to 700-800t and ultimately to 1,000t. HZ has strong focus on enhancing Reserves and Resources (R&R). Exploration activities are intensifying further, encouraged by the findings so far. HZ is strengthening its exploration team with the best in the world. Exploratory drilling is likely to increase from 70km in FY17 to 200km in FY19. R&R has increased from 146mt in FY04 to 404mt in FY17 and the plan is to increase it to 550mt. Strong focus on enhancing resources has ensured mine life of more than 30 years at any time despite 10-fold increase in production in 12-13 years.

Q3FY18 EBITDA at Rs 32.4 bn, up 17% YoY, was in line with our estimate of Rs 32.2 bn and consensus estimate of Rs 33.3 bn. The YoY improvement in performance was led primarily by (1) higher LME prices and (2) strong silver volumes.

Maintain NEUTRAL, with a TP of Rs 318 (7.0x Dec-19 EV/EBITDA). Hindustan Zinc (HZL) delivered an EBITDA marginally lower than estimates at Rs 32.4bn (16.3/7.3% YoY/QoQ vs est Rs 34.1bn). The difference in EBITDA was driven by higher Zn cost of production (CoP) (USD1022/t, 18.7/3.9% YoY/QoQ), offset by higher zinc prices (28.4/9.1% YoY/QoQ).

Hindustan Zinc Ltd Q3FY18 results comment Revenue rose by 11.55% to Rs. 5922.0 Cr in Q3FY18 when compared to the previous quarter.

Hindustan Zinc reported a subdued set of Q3FY18 numbers. EBITDA came in lower than estimates on account of increased cost of production (CoP). Zinc metal cost of production per tonne before royalty (COP) during the quarter increased 14% YoY, 4% QoQ to...

Mine metal production increased 10% QoQ (-13% YoY, strong base) to240kt. Zinc production rose 7% QoQ (-18% YoY) to 194kt, while lead production increased 21% QoQ/18% YoY to 46kt. Silver production growth was slower at 4% QoQ to 132t on WIP build-up. Reported CoP (ex-royalty) increased, on expected lines, by USD38/t QoQ toUSD1,022/t due to higher coke and coal cost, and grade mix. CoP is guided at USD950-975/t for FY18, implying some moderation in 4Q,driven by better grade and coal linkage. RAM underground and SK mines crossed their rated output of 2mt/4.5mtduring the quarter. Production through shafts at both the mines is on track to start from 3QFY19. Civil work at the Fumer project is 70% complete, with the project on track for commissioning by mid-FY19.

Q2FY18 EBITDA at Rs 29.2 bn, up 41% YoY, was in line with our estimate of Rs 29.4 bn and consensus estimate of Rs 29.9 bn.

Hindustan Zinc (HZL) has delivered a decent performance in 2QFY18 aided by higher base metal prices. Its revenue surged by 52% YoY (+16% QoQ) to Rs53bn (vs. our estimate of Rs53.6bn), while EBITDA grew by 46% YoY (+27% QoQ) to Rs30.2bn (vs. our estimate of Rs29.6bn). Mined metal production rose by 14% YoY (-6% QoQ) to 219,000 tonne due to lower ore treatment. Inline with our estimate of 192,000 tonne, Zinc volume rose by 29% YoY (-1% QoQ), while Lead volume rose by 23% YoY (+9% QoQ) to 38,000 tonne. Notably, despite LME zinc prices (+31% YoY and +14% QoQ), its EBITDA registered relatively limited growth owing to higher input cost mainly coal and met coke. Adjusted PAT grew by 18.5% YoY (+20.1% QoQ) to Rs 22.54bn (vs. our estimate Rs22.6bn) owing to higher tax outgo and lesser other income. Going forward,...