Hindustan Zinc : BSE ID : 500188 NSE ID : HINDZINC Reco Price Rs. 604.75
Hindustan Zinc Ltd (HZL) is set to become the world’s largest integrated zinc-lead producer by FY11E. We expect volumes to witness 23.1% CAGR over the period FY09-11. While the volume growth in FY10E would be achieved by the recent de-bottlenecking process, in FY11E it would come from the expansion of production capacity to 1mtpa (by mid-2010).Upgrading zinc and lead price estimates:
Zinc prices during the month rose to a high of $ 1,700/ton, levels last seen trading in September ’08. Zinc prices have been moving higher since it formed a base around the $ 1,000-1,100/ton levels at the start of the year. The stronger than expected resilience shown by the Chinese economy, implementation of huge production cuts and buying by the Chinese Strategic Reserve Bureau (SRB) led to a surge in imports. China imported 0.4mn tons of zinc metal YTD, higher than that imported in the full year of 2008. With the zinc market remaining in depression much longer than most of the other base metals, production cuts (< 1mn tons) have been quite steep.
Zinc prices at eight month high, up ~38% YTD:
We believe that prices would stay higher than the bottom formed on account of an increase in demand from the steel industry. Idle capacities globally will continue to remain an overhang and keep a check on prices. We upgrade our zinc price estimate to $ 1,300 for FY10E and $ 1,500 for FY11E.
Markets are moving towards a balanced state due to huge production cuts implemented in the past six months.
Volumes to witness 21.4% CAGR over FY09-11E:
Hindustan Zinc Ltd (HZL) is set to become the world’s largest integrated zinc-lead producer by FY11E. We expect volumes to witness 23.1% CAGR over the period FY09-11. While the volume growth in FY10E would be achieved by the recent de-bottlenecking process, in FY11E it would come from the expansion of production capacity to 1mtpa (by mid-2010). On our revised metal price assumption, we upgrade HZL’s topline by 17.2% in FY10E and 17.1% in FY11E.
Financials:
| Y/e 31 Mar (Rs m) | FY08A | FY09E | FY10E | FY11E |
| Revenues | 78778 | 58220 | 60318 | 78772 |
| yoy growth (%) | -8 | -26.1 | 3.6 | 30.6 |
| Operating Profit | 53784 | 28759 | 30119 | 41347 |
| OPM (%) | 68.3 | 49.4 | 49.9 | 52.5 |
| Reported PAT | 43961 | 27273 | 26809 | 34185 |
| yoy growth (%) | -1 | -38 | -1.7 | 27.5 |
| EPS (Rs) | 104 | 64.5 | 63.4 | 80.9 |
| P/E (x) | 5.8 | 9.4 | 9.5 | 7.5 |
(Source: India Infoline )
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