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MOSL: HINDUSTAN ZINC (Neutral)-Earnings outlook remains strong, but priced in

HINDUSTAN ZINC: Earnings outlook remains strong, but priced in; Maintain Neutral

(HZ IN, Mkt Cap USD18.6b, CMP INR327, TP INR300, 8% Downside, Neutral)

 

• Hindustan Zinc (HZ)'s 1QFY22 results were impacted by lower production, weighed by the second COVID wave and higher CoP, partly offset by higher metal prices. While EBITDA declined 8% QoQ to INR35.6b, a higher tax rate of 34% (due to the income mix change and lapse of tax incentives) led to 15% decline in adj PAT to INR21.2b.
• We cut our FY22E/FY23E EPS estimate by 6%/9%, primarily factoring in the higher tax rate. We expect a 9% CAGR in HZ volumes over FY21-23E, which would drive a 21% EBITDA CAGR. However, we belaieve this growth is factored into the current valuation; therefore, we assign a Neutral

 Lower volumes and higher CoP lead to 8% QoQ decline in EBITDA

• Revenue / EBITDA / Adj PAT stood at INR65.3b/INR35.6b/INR21.2b (-6%/-8%/-15% QoQ), in line with our estimate.
• Mined metal production declined 23% QoQ to 221kt (-12% v/s est) on lower ore production at mines - due to the lack of operator availability (amid the second COVID wave). Integrated metal production, however, declined just 8% QoQ to 236kt (in line with est.) as the company utilized brought-forward metal concentrate inventory. As a result, zinc/lead sales declined 6%/21% QoQ to 187kt/49kt. Silver sales declined 21% QoQ to 160t.
• Reported Zinc CoP increased 13% QoQ to USD1,070/t on higher input costs, such as coal and diesel, and lower production levels.