Post on 05-Apr-2018
8/2/2019 Hindustan Zinc Result Updated
1/11
Please refer to important disclosures at the end of this report 1
Particulars (` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq)Net sales 3,094 3,197 (3.2) 2,747 12.6EBITDA 1,659 1,969 (15.7) 1,402 18.3
EBITDA margin (%) .6 61.6 (794)bp 51.1 258bp
Adjusted PAT 1,421 1,771 (19.8) 1,280 11.0Source: Company, Angel Research
Hindustan Zincs (HZL) 4QFY2012 results were slightly ahead of our
expectations. Net sales decreased by 3.2% yoy and EBITDA margin slipped by
794bp yoy, mainly due to lower realizations of zinc and lead. We recommendAccumulate on the stock.Top line decreases by 3.2% yoy: For 4QFY2012, HZLs net sales decreased by3.2% yoy to `3,094cr (slightly above our estimate of `2,919cr) mainly on
account of a decline in realizations of zinc and lead.
Lower realizations and higher costs dent EBITDA margin: Cost of production ofzinc increased by 17.0% yoy to`41,693/tonne during the quarter. Hence, HZLs
EBITDA margin contracted by 794bp yoy to 53.6% and EBITDA decreased by
15.7% yoy to `1,659cr. Other income was higher by 26.0% yoy to`381cr. Thus,
adjusted PAT decreased by 19.8% yoy to`1,421cr.
Expansion projects remain on track: HZLs underground mine development workat Rampura Agucha mine and greenfield Kayar mine development are on
schedule. The company expects production to increase to 2mn tonnes at its
Sindesar Khurd mine. The company also expects overall silver production to
increase to 350 tonnes in FY2013.
Outlook and valuation: Despite a decline in zinc prices over the past one year,we expect HZLs net profit to grow by 12.3% and 11.9% yoy in FY2012 and
FY2013, respectively, on the back of higher sales volumes of lead and silver.
At the CMP, the stock is trading at inexpensive valuation of 4.5x and 3.3x
FY2013E and FY2014 EV/EBITDA, respectively. Hence, we recommendAccumulate on the stock with a target price of `139.Key financialsY/E March (` cr) FY2011 FY2012E FY2013E FY2014ENet sales 9,912 11,255 13,043 14,222% chg 23.6 13.5 15.9 9.0
Net profit 4,922 5,569 6,257 6,999% chg 21.8 13.2 12.3 11.9
EPS (`) 11.6 13.1 14.8 16.6EBITDA margin (%) 55.3 52.6 51.8 52.8
P/E (x) 10.9 9.6 8.5 7.6
P/BV (x) 2.4 2.0 1.7 1.4
RoE (%) 24.1 22.4 21.2 19.9RoCE (%) 24.2 21.3 20.5 19.5
EV/Sales (x) 3.9 3.1 2.4 1.7
EV/EBITDA (x) 7.0 5.8 4.5 3.3
Source: Company, Angel Research
ACCUMULATECMP `126
Target Price `139
Investment Period 12 months
Stock Info
Sector
Bloomberg Code
Shareholding Pattern (%)
Promoters 64.9
MF / Banks / Indian Fls 1.8
FII / NRIs / OCBs 1.4
Indian Public / Others 32.0
Abs. (%) 3m 1yr 3yr
Sensex 6.4 (10.1) 59.4
Hindustan Zinc 2.8 (14.5) 153.1
HZ@IN
2
17,504
5,332
HZNC.BO
53,260
1.1
155/107
112,879
Base Metals
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Bhavesh ChauhanTel: 022- 39357800 Ext: 6821
Bhaveshu.chauhan@angelbroking.com
Hindustan ZincPerformance Highlights
4QFY2012 Result Update | Base Metals
April 19, 2012
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Exhibit 1:4QFY2012 performance
(` cr) 4QFY12 4QFY11 yoy % 3QFY12 qoq %Net sales 3,094 3,197 (3.2) 2,747 12.6Mining and mfg. expenses 973 771 26.3 986 (1.2)% of Net sales 31.5 24.1 35.9
Mining royalty 229 251 (8.7) 201 14.3
% of Net sales 7.4 7.9 7.3
Staff cost 144 134 7.7 134 8.1
% of Net sales 4.7 4.2 4.9
Admin and selling 129 113 14.3 65 99.6
% of Net sales 4.2 3.5 2.4
Total expenditure 1,476 1,269 16.3 1,385 6.6% of Net sales 47.7 39.7 50.4
Operating income 41.5 40.3 2.9 40.0 3.6
EBITDA 1,659 1,969 (15.7) 1,402 18.3% margin 53.6 61.6 51.1
Interest 2 13 9 (72.4)
Depreciation 167 127 31.5 159 5.0
Other income 381 302 26.0 382 (0.2)
Exceptional items 8 - 6
Profit before tax 1,862 2,131 (12.6) 1,610 15.7% of Net sales 60.2 66.6 58.6
Provision for tax 449 359 25.0 336 33.6
% of PBT 24.1 16.9 20.9
Profit after tax 1,413 1,771 (20.2) 1,274 10.9% of Net sales 45.7 55.4 46.4Adjusted net profit 1,421 1,771 (19.8) 1,280 11.0
Source: Company, Angel Research
Exhibit 2:4QFY2012 Actual vs. Angel estimates
(` cr) Actual Estimates chg (%)Net sales 3,094 2,919 6.0
EBITDA 1,659 1,472 12.7
EBITDA margin (%) 53.6 50.5 318bp
Adj. PAT 1,421 1,335 6.5
Source: Company, Angel Research
Lower realizations lead to a decline in top line
For 4QFY2012, HZLs net sales decreased by 3.2% yoy to`3,094cr (slightly above
our estimate of `2,919cr) mainly on account of a decline in realizations of zinc
and lead. Average LME spot zinc prices were lower by 15.3% yoy to
US$2,028/tonne during 4QFY2012. Zinc and lead production volumes
(combined) declined by 2.0% yoy to 223kt, while silver production grew by 77.0%
yoy to 88kt during the quarter.
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Exhibit 3:Net sales decreased by 3.2% yoy
Source: Company, Angel Research
EBITDA margin contracts by 794bp yoy
Cost of production of zinc increased by 17.0% yoy to `41,693/tonne during the
quarter. Hence, HZLs EBITDA margin contracted by 794bp yoy to 53.6% and
EBITDA decreased by 15.7% yoy to `1,659cr. Other income was higher by 26.0%
yoy to `381cr. Thus, net profit decreased by 20.2% yoy to `1,413cr. Excluding
exceptional items (`8cr in 4QFY2012 and nil in 4QFY2011), adjusted net profit
declined by 19.8% yoy to`1,421cr (above our estimate of`1,335cr).
Exhibit 4:EBITDA and EBITDA margin trend
Source: Company, Angel Research
Exhibit 5:Net profit and net profit margin trend
Source: Company, Angel Research
Expansion projects
HZLs underground mine development work at Rampura Agucha mine and
greenfield Kayar mine development are on schedule. The company expects
production to increase to 2mn tonnes at its Sindesar Khurd mine. The company
also expects overall silver production to increase to 350 tonnes in FY2013.
Moreover, given the cash-rich balance sheet, HZL is actively exploring greenfield
projects through 20 prospecting licenses and four mining lease projects across
different states.
(10)
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4QFY09 2QFY10 4QFY10 2QFY11 4QFY11 2QFY12 4QFY12
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Net profit (LHS) Net profit margins (RHS)
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Investment arguments
Mining in Kayar could be the next phase of growth
Since the expansion at Sindesur Khurd is complete, HZL has commenced work at
its underground Kayar mine, which has 11mn tonnes of high-grade reserves
(10-12% zinc content). The company aims to mine 1mn tonnes per year, once it is
fully operational. Moreover, given the cash-rich balance sheet, HZL is actively
exploring greenfield projects through 20 prospecting licenses and four mining
lease projects across different states.
Current zinc prices near marginal cost of production
At current levels of ~US$2,000/tonne, zinc prices stand near the marginal cost of
production for several zinc producers. Hence, we believe probability of a further
decline in zinc prices from these levels remains lower. Further, over the next 3-5years, several zinc mines are expected to be exhausted; hence, production is likely
to suffer. This should support zinc prices over the medium term in our view.
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Valuation
Despite the decline in zinc prices, we expect HZLs net profit to grow by 12.3% and
11.9% yoy in FY2012 and FY2013, respectively, on the back of higher sales
volumes of lead and silver. Furthermore, the companys balance sheet remains
strong with cash and equivalents at `17,948cr as of March 31, 2012 (34% of
HZLs current market cap).
At the CMP, the stock is trading at inexpensive valuation of 4.5x and 3.3x FY2013E
and FY2014 EV/EBITDA, respectively. Hence, we recommend Accumulate on thestock with a target price of `139.Exhibit 6:Key assumptions
LME prices (US$/tonne) FY2013E FY2014EZinc 2,120 2,150
Lead 2,176 2,206
Silver (`/kg) 50,000 50,000
Sales volume (tonnes)Zinc metal 830,655 872,188
Lead metal 141,855 159,587
Silver 320,000 430,000
Source: Angel Research
Exhibit 7:EPS Angel forecast vs. consensus
Year (%) Angel forecast Bloomberg consensus Variation (%)FY2013E 14.8 14.7 0.7
FY2014E 16.6 16.4 1.0
Source: Bloomberg, Angel Research
Exhibit 8:EV/EBITDA band
Source: Bloomberg, Angel Research
0
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20,000
30,000
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50,000
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Apr-04
Oct-04
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`cr)
2x 4x 6x 8x 10x
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Exhibit 9:P/E band
Source: Bloomberg, Angel Research
Exhibit 10:P/BV band
Source: Bloomberg, Angel Research
Exhibit 11:Recommendation summary
Company CMP Target Price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)(`) (`) (` cr) (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E
Hindalco 128 136 Accum. 24,534 6 8.5 7.4 0.7 0.7 5.4 5.1 8.7 9.2 6.7 7.2Nalco 59 51 Reduce 15,270 (13) 23.4 16.9 1.3 1.2 10.9 8.4 5.6 7.4 3.2 5.6
Sterlite 110 137 Buy 36,990 25 6.1 6.1 0.7 0.6 2.9 2.5 12.5 11.9 11.3 10.8
HZL 126 139 Accum. 53,260 9.9 8.5 7.6 1.7 1.4 4.5 3.3 21.2 19.9 20.5 19.5Source: Company, Angel Research
0
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0.5x 2.0x 3.5x 5.0x
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Profit & loss statement
Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 5,680 8,017 9,912 11,255 13,043 14,222Other operating income - 122 127 150 173 199Total operating income 5,680 8,139 10,039 11,405 13,215 14,421% chg (27.9) 43.3 23.3 13.6 15.9 9.1
Total expenditure 2,946 3,347 4,431 5,336 6,287 6,713
Net raw materials 1,906 1,961 2,759 3,543 4,108 4,366
Other Mfg. costs 364 613 803 838 1,056 1,152
Personnel 365 457 511 535 639 683
Other 311 316 358 421 483 512
EBITDA 2,734 4,792 5,608 6,069 6,929 7,708% chg (49.2) 75.3 17.0 8.2 14.2 11.2
% EBITDA margin 48.1 58.3 55.3 52.6 51.8 52.8
Depreciation 285 334 475 611 691 683
EBIT 2,449 4,458 5,133 5,459 6,237 7,025% chg (52.5) 82.0 15.1 6.3 14.3 12.6
(% of Net sales) 43.1 55.6 51.8 48.5 47.8 49.4
Interest & other charges 22 44 18 14 13 14
Other income 931 600 866 1,543 1,696 1,849
(% of PBT) 27.7 12.0 14.5 22.1 21.4 20.9
Share in profit of associates - - - - - 1.0
Recurring PBT 3,358 5,014 5,981 6,988 7,920 8,860% chg (43.9) 49.3 19.3 16.8 13.3 11.9
Extraordinary inc/(expense) - - 21.2 43.1 - -
PBT (reported) 3,358 5,014 5,960 6,945 7,920 8,860Tax 631 973 1,059 1,419 1,663 1,861
(% of PBT) 18.8 19.4 17.8 20.4 21.0 21.0
PAT (reported) 2,728 4,041 4,900 5,526 6,257 6,999Adj. net income 2,728 4,041 4,922 5,569 6,257 6,999% chg (38.0) 48.2 21.8 13.2 12.3 11.9
(% of Net sales) 48.0 49.7 49.0 48.8 47.3 48.5
Basic EPS (`) 6.5 9.6 11.6 13.1 14.8 16.6Fully Diluted EPS (`) 6.5 9.6 11.6 13.1 14.8 16.6% chg (38.0) 48.2 21.3 12.8 13.2 11.9
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Balance sheet
Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014ESOURCES OF FUNDSEquity share capital 423 423 845 845 845 845Reserves & surplus 13,935 17,701 21,688 26,028 31,296 37,307
Shareholders funds 14,358 18,124 22,533 26,873 32,141 38,152Total loans 9 60 0.4 0.4 0.4 0.4
Deferred tax liability 559 711 945 945 945 945
Total liabilities 14,925 18,896 23,478 27,818 33,086 39,097APPLICATION OF FUNDSGross block 5,856 8,241 9,802 11,802 14,002 15,002
Less: Acc. depreciation 1,751 2,077 2,548 3,159 3,850 4,533
Net Block 4,105 6,164 7,254 8,644 10,152 10,470Capital work-in-Progress 1,108 1,113 875 575 275 25
Investments 6,929 10,949 9,335 9,335 9,335 9,335
Current assets 3,784 1,995 7,589 11,644 15,610 21,600Cash 2,719 928 5,633 9,495 13,258 19,149
Loans & advances 313 457 752 752 752 752
Other 751 611 1,204 1,397 1,600 1,699
Current liabilities 1,001 1,326 1,575 2,380 2,286 2,333Net current assets 2,783 669 6,014 9,264 13,324 19,267Total assets 14,925 18,896 23,478 27,818 33,086 39,097Note: Cash and Bank balance include fixed deposits
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Cash flow statement
Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EProfit before tax 3,358 5,014 5,960 6,945 7,920 8,860
Depreciation 286 335 475 611 691 683Change in working capital 296 173 (239) 612 (296) (52)
Less: Other income (777) (563) (835) - - -
Direct taxes paid 521 785 1,116 1,419 1,663 1,861
Cash flow from operations 2,642 4,173 4,244 6,749 6,652 7,630(Inc.)/ Dec. in net fixed assets (1,374) (2,247) (1,446) (1,700) (1,900) (750)
(Inc.)/ Dec. in investments (443) (3,922) 1,870 - - -
(Inc.)/ Dec. in loans and adv. 71 (96) 28 - - -
Other income (1,602) 2,288 (4,082) - - -
Cash flow from investing (3,348) (3,977) (3,631) (1,700) (1,900) (750)Inc./(Dec.) in loans 8 43 (60) - - -
Dividend paid 124 198 296 1,186 989 989
Others 22 33 8 - - -
Cash flow from financing (137) (187) (363) (1,186) (989) (989)Inc./(Dec.) in cash (844) 8 250 3,862 3,763 5,891
Opening cash bal. 3,563 919 5,383 5,633 9,495 13,258Closing cash bal. 2,719 928 5,633 9,495 13,258 19,149
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Key ratios
Y/E March FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EValuation ratio (x)P/E (on FDEPS) 19.5 13.2 10.9 9.6 8.5 7.6P/CEPS 17.7 12.2 9.9 8.6 7.7 6.9
P/BV 3.7 2.9 2.4 2.0 1.7 1.4
Dividend yield (%) 3.2 4.8 0.6 1.9 1.6 1.6
EV/Sales 7.7 5.2 3.9 3.1 2.4 1.7
EV/EBITDA 16.0 8.9 7.0 5.8 4.5 3.3
EV/Total assets 2.9 2.2 1.6 1.2 0.9 0.6
Per share data (`)EPS (Basic) 6.5 9.6 11.6 13.1 14.8 16.6
EPS (fully diluted) 6.5 9.6 11.6 13.1 14.8 16.6
Cash EPS 7.1 10.4 12.8 14.6 16.4 18.2
DPS 4.0 6.0 0.7 2.4 2.0 2.0
Book value 34.0 42.9 53.3 63.6 76.1 90.3
DuPont analysisEBIT margin 43.1 55.6 51.8 48.5 47.8 49.4
Tax retention ratio (%) 81.2 80.6 82.2 79.6 79.0 79.0
Asset turnover (x) 1.1 1.3 1.3 1.3 1.4 1.4
RoIC (Post-tax) 40.2 59.3 55.0 50.3 51.3 53.3
Cost of debt (post tax) - - - - - -
Leverage (x) - - - - - -
Operating RoE 40.2 59.3 55.0 50.3 51.3 53.3
Returns (%)RoCE (Pre-tax) 18.0 26.4 24.2 21.3 20.5 19.5
Angel RoIC (pre-tax) 58.9 88.5 75.8 68.0 67.0 67.5
RoE 20.8 24.9 24.1 22.4 21.2 19.9
Turnover ratios (x)Asset turnover (gross block) 1.0 1.1 1.1 1.0 1.0 1.0
Inventory (days) 68 49 63 63 63 63
Receivables (days) 11 7 8 8 8 8
Payables (days) 46 52 39 40 40 40
WC cycle (days) 30 11 11 17 18 18
Solvency ratios (x)Net debt to equity (0.7) (0.7) (0.7) (0.7) (0.7) (0.7)
Net debt to EBITDA (3.5) (2.5) (2.7) (3.1) (3.3) (3.7)
Interest coverage 111.9 101.5 280.8 391.3 478.2 494.0
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Disclosure of Interest Statement Hindustan Zinc
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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