ICICI Direct has given Hold recommendation for Hindustan Zinc with a target price of Rs. 340 in its research report issued on Apr 29, 2021

ICICI Direct’s research report on Hindustan Zinc

Hindustan Zinc (HZL) reported a healthy Q4FY21 performance, primarily on account of higher-than-expected sales volume. For the quarter, zinc sales volumes came in at ~198000 tonnes (up 14% YoY, 9% QoQ, higher than our estimate: 191813 tonnes), lead sales volume came in at ~62000 tonnes (up 29% YoY, 17% QoQ, higher than our estimate: 54575 tonnes) while silver sales volume came in at ~203000 kg (up 41% YoY, 11% QoQ, higher than our estimate: 187500 kg). Topline came in at Rs 6947 crore (up 58% YoY, 15% QoQ), higher than our estimate of Rs 6435 crore. EBITDA came in at Rs 3875 crore (up 97% YoY, 19% QoQ), higher than our estimate of Rs 3594 crore. EBITDA margin came in at 55.8%, in line with our estimate (EBITDA margin of 54.2% in Q3FY21, 44.7% in Q4FY20). HZL’s zinc cost of production (CoP) before royalty during quarter was at US$945/tonne per tonne (Rs 68969/tonne), down 5%YoY both in rupee, US dollar terms and flat QoQ (down 1% in rupee terms). Ensuing PAT for Q4FY21 was at Rs 2481 crore (up 13% QoQ, 85% YoY), higher than our estimate of Rs 2353 crore.

Outlook

We value the stock at 7x FY23E EV/EBITDA (upward revised from 6x earlier) and arrive at a target price of Rs 340 (earlier target price of Rs 290), maintaining our HOLD rating on the stock.