Motilal Oswal has given Neutral recommendation for Hindustan Zinc with a target price of Rs. 370 in its research report issued on Apr 23, 2022

Motilal Oswal’s research report on Hindustan Zinc

Revenue stood in line at INR88b (up 27% YoY and 10% QoQ) in 4QFY22, led by higher LME prices, but was partly offset by flat lead prices. EBITDA stood in line at INR50b (up 28% YoY and 14% QoQ). Power and fuel costs stood at INR8b, up 10% QoQ, led by higher coal prices. Other expenses rose 11% QoQ to INR19b, but was partly offset by inventory accumulation. PAT grew 18% YoY and 8% QoQ to INR29b, marginally below our estimate of INR30b due to lower than estimated other income and higher taxes, which includes taxes for the prior period also. Other income was lower as the benefit of falling interest rates in the previous quarters is behind us. Revenue/EBITDA/PAT stood at INR294b/INR162b/INR97b in FY22, up 30%/ 39%/22% YoY. The growth was driven entirely by 34%/22% YoY growth in LME zinc/lead prices as metal sales volumes remained flat YoY. Total metal sales volumes were a paltry 2% higher YoY (at 993kt) in FY22, despite 6% higher zinc sales at 793kt. The same was offset by 9% lower lead sales at 200kt. The management said FY21 had higher lead sales volumes due to higher concentrate availability, which has now normalized.

Outlook

The stock is trading at 6.5xour FY23 EV/EBITDA estimates. The probability of zinc prices correcting from current levels is higher than an up move as the energy and inventory situation normalizes globally. Despite a 37% rise in zinc prices and raising our TP to INR370 per share (from INR325 earlier), we maintain our Neutral rating, an upside of 8% from current levels.

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