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For 3QFY2016, Hindustan Zinc (HZL) reported a 11% yoy decline in revenue to Rs3,385cr, in line with estimates, led by a 17% decline in zinc revenues as higher volumes and rupee depreciation benefits were offset by lower realizations on account of a decline in LME prices and zinc premiums. Mined metal production declined 13% yoy to 2,40,000MT. EBITDA for the quarter was also in line with expectation at Rs1,478cr, declining 29% yoy, led by lower LME prices and Rs84cr contribution towards the District Mineral Foundation (DMF). While depreciation and finance expenses came in line with our expectations, lower tax rate resulted in the net profit coming in 9% ahead of expectations at Rs1,811cr. Management has maintained its guidance of a ~16% increase in refined metal production volume for FY2016, despite a weaker mine plan in 4QFY2016. Management also indicated that the expansion projects remain on track, which should help drive volumes. Outlook and valuation: We expect zinc prices to continue to decline going forward led by global headwinds. We have however retained our volume estimates, led by the healthy growth during the quarter. We reduce our FY2016 and FY2017 estimates in view of the higher than expected fall in realizations and fall in zinc premiums. The stock is currently trading at 4.2x FY2017E EV/EBITDA. We value the stock at 6x FY2017E EV/EBITDA and arrive at a target price of Rs170. We retain our Accumulate rating on the stock.Download Full Report
|Investment Period||12 Months|
|MCAP BSE (Rs in Cr)||107,492.12|
|MCAP NSE (Rs in Cr)||107,597.75|
|Div Yield (%)||10.93|
Shareholding Pattern (%)
|Public & Others||31.0|