Company Update Hindustan Zinc Net income soars… Recommendation : Marketperformer Hindustan Zinc’s revenue grew by 97.87 percent to Rs. 2544.89 CMP : Rs 1223 Target : Rs 1360 crore, as a result of increased output and better realizations. Upside Potential : 11.2% Refined zinc and lead production increased by 1.0 percent YoY, while silver production was up by 8.5 percent in the comparable Sector : Metals period. However, bulk of the growth came through increased metal price realizations. The cost of metal production increased Bloomberg code : HZ.IN due to higher coal costs and employee costs; apart from an Reuters Code : HZNC.BO increase in stripping ratio, which means higher waste per tonne of ore mined. EBITDA margin improved 989 basis points YoY; while AT A GLANCE declining by 203 basis points sequentially. Interest expenses Issued Equity Capital (Cr. Shrs) : 42.25 increased four-fold to Rs.27.68 crores. Overall, net income grew by Mkt. Cap (Rs. in Crs) : 51675 124.67 percent to Rs. 1238.99 crores. Major Shareholders Promoters (%) : 64.92% Free Float (%) : 35.08% War Chest … Avg. Daily Vol. (‘000) : 64.34 Hindustan Zinc is a cash-rich company with hardly any debt. It has a Rs. 11,900 crore war chest to spend and is eyeing acquisitions in India and abroad. When worked out; the Background: Hindustan Zinc Limited companyʹs cash balance is equivalent to Rs. 281 per share, which (Hind Zinc) is a subsidiary of Sterlite Industries India Ltd, part of the Vedanta could be used by the management to exploit inorganic growth Group. The company’s product opportunities or enhance dividend payout to shareholders. portfolio covers zinc, lead, silver, cadmium and sulphuric acid. Hind Zinc Expansion on track … is the only integrated zinc manufacturer In the previous quarter, Hindustan zinc commissioned a 0.21 in India with current zinc smelting MTPA zinc smelter a full three months in advance. Construction capacity of around 6,70,000 TPA and activity is at full swing for the 0.1 MTPA lead smelter and the 160 lead smelting capacity of 85,000. It has MW captive power plant at Dariba. It is scheduled for completion a domestic market share of 61% in zinc by Q2FY11. The Sindesar Khurd mine project is also on schedule and 11% in lead. for commissioning from the current quarter. Also, the companyʹs ore production capacity was expanded from 3.45 MTPA to 7.4 MTPA currently. Hindustan zinc is planning to enhance this further to 10 MTPA to match the expansion of the smelters. Post ANALYST Rohith Thomas Mathew +91 44 3000 7361 completion of these projects, Hindustan Zinc would be the email@example.com world’s largest integrated zinc-lead producer with a total smelting capacity of 1 million tonne. Net Div FY March Net Yield EV/EBITDA (Rs Crore) Turnover EBITDA PBT Profit EPS (Rs) BVPS (Rs) PE (X) (%) (X) ROE (%) FY10A 8138.90 4792.00 5014.11 4041.41 95.65 430.65 12.79 0.41% 8.84 22% FY11E 10824.74 6711.34 7176.80 5597.90 132.34 557.99 9.24 0.41% 5.93 24% FY12E 11365.97 6,933.24 7,387.88 5,762.55 136.23 689.22 8.98 0.41% 5.36 20% Result Summary & Comments Q4FY10 Particulars Q4 Q3 (in Rs. Crs) FY10 Q4FY09 YoY FY10 QoQ Comments Net Sales 2544.89 1288.93 97.44% 2249.14 13.15% Higher price realizations Expenses 996.71 707.62 40.85% 863.04 15.49% EBITDA 1548.18 581.31 166.33% 1386.10 11.69% Depreciation 100.64 75.03 34.13% 81.72 23.15% Other income 134.46 194.22 -30.77% 131.87 1.96% interest 27.68 4.86 469.55% 7.66 261.36% PBT 1554.32 695.64 123.44% 1428.59 8.80% Tax 315.33 144.17 118.72% 279.94 12.64% EOI 0.00 0.00 0.00 PAT 1238.99 551.47 124.67% 1148.65 7.86% EBITDA Margin slips on higher margin 60.83% 45.10% 61.63% stripping ratio Tax rate 20.29% 20.72% 19.60% Net profit margin 48.69% 42.79% 51.07% Outlook The economic meltdown in late 2008 led to base metal production cuts across the globe. As supply subsided, prices of non-ferrous metals began to firm up. Zinc prices have more than doubled since then. The zinc and lead surplus in the global market is expected to shrink further in 2010 and we believe a recovering global economy could support prices going forward. We like Hindustan Zinc for its high quality of mines, cost leadership due to integrated business model, ongoing expansion projects and a strong balance sheet. HZL could benefit from firm zinc prices, strong volume growth and increased silver production. We continue to rate Hindustan Zinc a MARKETPERFORMER for an upgraded price target of Rs.1360. DBS Cholamandalam Securites Limited Member: BSE, NSE, MSE Regd. Office: Dare House, 2 (Old # 234) N.S.C. Bose Road, Chennai – 600 001. 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