MOSL: HINDUSTAN ZINC (Downgrade to Sell)-Operating perf. was a feast on best of volumes and LME
Hindustan Zinc: Operating perf. was a feast on best of volumes and LME; Downgrading to Sell due to rich valuations
(HZ IN, Mkt Cap USD18.5b, CMP INR283, TP INR235, 17% Downside, Downgrade to Sell)
Strong 4QFY17 numbers driven by LME and feast phase of mining
HZ's 4QFY17 EBITDA was up 35% QoQ/187% YoY to INR37b (beat of 5%), led by best-ever production (feast phase of mining hence not sustainable), concentrate sale and strong LME. Adj. PAT grew 32% QoQ/42% YoY to INR30.5b, as higher operating profit was partly offset by lower other income (-35% YoY to ~INR5b) and higher depreciation (+176% YoY to ~INR5b).
Reported CoP (ex-royalty) was down 8% QoQ to USD794/t on higher volumes, partly offset by higher coal and input commodity cost.
Guidance: Metal volumes to increase 5%, but lower than estimates
CoP would be marginally higher on input costs in FY18E. Refined zinc & lead production is expected to be at ~950kt, and silver at ~500t in FY18E.
The ramp-up at RA and SK mines is progressing well. Mine capacity will increase to 1.2mt by FY20E, in line with earlier guidance.
Reserves and resources (R&R) increased by net 14.5mt to 404mt during FY17, comprising of 36.1mt Zn-Pb and 132m Oz of silver (>25 years mine life).
Hindustan Zinc is engaged in the operation of mining, smelting and refining zinc and lead as their principal products and; silver and cadnium as by products. Co.'s resources and reserves total 365.1 tonnes throughout India. Co. also implements several projects to reduce energy and water consumption through wind power farms. The zinc, lead and silver metals are sold throughout India as well as the Middle East and Asia.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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