MOSL: HINDUSTAN ZINC (Neutral)-Getting more aggressive on volume growth-Expect special dividend again
Hindustan Zinc: Getting more aggressive on volume growth; Expect special dividend again; maintain Neutral
(HZ IN, Mkt Cap USD19.9b, CMP INR304, TP INR342, 13% Upside, Neutral)
We met the management of Hindustan Zinc (HZ). Key highlights:
- 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.
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.
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