HindustanZinc

October20,2011

Hindustan Zinc (HZ) reported better-than-expected results for the quarter on the
back of lower than expected increase in energy costs and higher revenues in silver
biz. We remain positive on the stock given its strong earnings profile (RoE>22%),
attractive valuations and robust free cash flows. Managements move to high
dividend pay-out policy would augur well for stocks performance.

Kamlesh Bagmar
kamleshbagmar@plindia.com
+91-22-66322237

Rating
Price
Target Price
Implied Upside
Sensex

Tradingdata
Market Cap. (Rs bn)
Shares o/s (m)
3M Avg. Daily value (Rs m)

64.92%
1.31%
1.76%
32.01%

StockPerformance
(%)
1M
Absolute
(7.6)
Relative
(9.6)

6M
(15.8)
(5.1)

12M
(1.9)
12.6

Price Performance (RIC: HZNC.BO, BB: HZ IN)

Oct-11

Aug-11

Jun-11

Apr-11

Feb-11

(Rs)
160
140
120
100
80
60
40
20
0
Dec-10

Earningsreviseddownwardsby10%/5%FY12/FY13: We have revised our EPS

estimates down by 10% for FY12 to Rs14.4 on account of 6% cut in our forecast
for LME zinc to US$2070 and 23% lower sliver volumes (249 v/s 324 tonnes
earlier) while, FY13 EPS is revised down by 5% to Rs16.1 on the backdrop of 5%
cut in our LME zinc forecast to US$2100 and 8% lower silver volumes.

Key concall highlights: 1) Management to adopt aggressive dividend policy

benchmarked to profits and high cash reserves against its earlier progressive
dividend policy 2) Management expects utilisation at recently commissioned
100ktpa lead smelter to operate at 80-85% during Q4FY12 3) Silver reach SK
mines would achieve its rated capacity of 2mtpa by the end of FY12 4) Focussing
on next round of growth projects 5)Management expects zinc to bounce back
to US$2200 mark.

513.0
4,225.3
160.3

Majorshareholders
Promoters
Foreign
Domestic Inst.
Public & Other

Oct-10

Lowercostsandhigherrevenuesinsilverbizledtooutperformance: Driven by
higher-than-expected revenues in silver biz (Rs2.4bn v/s PLe: Rs2.1bn), HZ
reported revenues above our estimates at Rs25.9bn (PLe: Rs25.6bn); up 20%
YoY (down 8% QoQ). Aided with lower-than-expected outside concentrate
purchases and energy costs, EBITDA grew ahead of our expectation at Rs14.2bn
(PLe: Rs13.5bn); up 31% YoY (down 9% QoQ). PAT, adjusted for exceptional
items, grew by 41% YoY (down 9% QoQ) to Rs13.6bn (PLe: Rs13.3bn).

Accumulate
Rs121
Rs147
21.5%
17,085

(PricesasonOctober19,2011)

Source:Bloomberg

Keyfinancials(Y/eMarch)
Revenues (Rs m)
Growth(%)
EBITDA (Rs m)
PAT (Rs m)
EPS (Rs)
Growth(%)
Net DPS (Rs)

2010
80,170
41.1
46,701
40,414
9.6
48.2
0.6

2011
99,121
23.6
54,859
49,005
11.6
21.3
1.0

2012E
115,597
16.6
63,656
60,745
14.4
24.0
2.5

2013E
126,297
9.3
71,114
68,070
16.1
12.1
3.0

2010
58.3
24.9
25.0
6.3
10.8
12.7
2.8
0.5

2011
55.3
24.1
24.1
4.6
8.3
10.5
2.3
0.8

2012E
55.1
24.3
24.4
3.6
6.5
8.4
1.9
2.1

2013E
56.3
22.7
22.7
2.7
4.8
7.5
1.6
2.5

Source:CompanyData;PLResearch
Profitability&Valuation
EBITDAmargin(%)
RoE(%)
RoCE(%)
EV / sales (x)
EV / EBITDA (x)
PE (x)
P / BV (x)
Netdividendyield(%)
Source:CompanyData;PLResearch

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report

Q2FY12ResultUpdate

Mutedforshortterm;attractiveonmediumtolong

Hindustan Zinc

Exhibit1:

Q2FY12ResultOverview(Rsm)

Y/eMarch

Q2FY12

Q2FY11

YoYgr.(%)

Q1FY12

H1FY12

H1FY11

YoYgr.(%)

25,935

21,629

19.9

28,214

54,148

41,137

31.6

Raw material consumed

(387)

201

NA

1,317

930

(222)

NA

(1.5)

0.9

4.7

1.7

0.5

2,648

2,272

16.6

2,366

5,013

4,236

18.3

NetSales
%ofNetSales

Stores and spares consumed

%ofNetSales

Power and fuel

%ofNetSales

Mining Royalty Rates

%ofNetSales

Other manufacturing expenses

%ofNetSales

10.2

10.5

8.4

9.3

10.3

2,924

2,607

12.2

2,953

5,877

4,858

21.0

11.3

12.1

10.5

10.9

11.8

2,147

1,777

20.8

1,936

4,082

3,328

22.7

8.3

8.2

6.9

7.5

8.1

2,287

2,059

11.0

1,900

4,187

3,968

5.5

8.8

9.5

6.7

7.7

9.6

1,290

1,155

11.7

1,274

2,565

2,637

(2.8)

5.0

5.3

4.5

4.7

6.4

Selling, general and administrative

812

687

18.1

802

1,614

1,437

12.3

3.1

3.2

2.8

3.0

3.5

Employee Cost

%ofNetSales
%ofNetSales

Total Expenditure

11,720

10,758

8.9

12,548

24,268

20,242

19.9

14,215

10,871

30.8

15,666

29,881

20,894

43.0

54.8

50.3

55.5

55.2

50.8

Depreciation

1,455

1,158

25.6

1,345

2,801

2,281

22.8

Other income

4,301

2,222

93.6

3,811

8,112

4,001

102.8

17,061

11,935

43.0

18,131

35,192

22,614

55.6

EBITDA

Margin(%)

EBIT
Interest

120

(5)

(2,459)

65

185

60

206.6

16,940

11,940

41.9

18,066

35,007

22,554

55.2

(239)

(212)

(44)

(283)

(212)

16,702

11,728

42.4

18,022

34,724

22,342

55.4

3,255

2,241

45.3

3,073

6,328

3,946

60.4

19.5

19.1

17.1

18.2

17.7

ReportedPAT

13,447

9,487

41.7

14,949

28,396

18,396

54.4

AdjustedPAT

13,639

9,658

41.2

14,986

28,627

18,571

54.2

PBT
Extraordinary income/(expense)
PBT(AfterEO)
Tax

%PBT

Source:CompanyData,PLResearch

October 20, 2011

Hindustan Zinc

Exhibit2:

OperatingMetrics

Y/eMarch

Q2FY12

Q2FY11

YoYgr.(%)

Q1FY12

H1FY12

H1FY11

YoYgr.(%)

- Mined metal (Zinc+Lead)-tonnes

209,676

204,836 2.4

188,403

398,079

386,766 2.9

- Refined metal (Zinc+Lead)-tonnes

200,473

190,760 5.1

207,781

408,254

369,423 10.5

- Sulphuric acid-tonnes

317,245

312,070 1.7

324,589

641,833

576,799 11.3

42,081

35,341 19.1

39,586

81,667

72,517 12.6

184,161

175,309 5.0

191,571

375,731

339,755 10.6

Productionvolume

- Silver (kgs)
Salesvolume
- Refined Zinc
- Refined Lead

14,686

14,458 1.6

14,712

29,397

28,533 3.0

- Sulphuric acid

312,682

300,029 4.2

318,769

631,451

563,394 12.1

41,454

36,879 12.4

40,908

82,362

72,709 13.3

- Refined Zinc

108,122

100,643 7.4

107,647

107,880

99,291 8.6

- Refined Lead

120,019

105,134 14.2

127,207

123,616

103,965 18.9

- Silver (kgs)
Realisation(Rs/unit)

- Sulphuric acid
- Silver (kgs)

3,013

1,945 54.9

3,061

3,037

2,253 34.8

57,746

29,373 96.6

55,758

56,759

28,773 97.3

Source:CompanyData,PLResearch

October 20, 2011

Hindustan Zinc

ValuationsandOutlook
On the back of strong earnings quality, attractive valuations and robust cash flows,
we continue to remain positive on the stock. HZ is expected to generate free cash
flow of Rs42bn and Rs56bn in FY12 and FY13, respectively, with front-loaded
expansions. At CMP, stock trades at P/E of 8.4x and 7.5x FY12E and FY13E,
respectively, while on EV/EBITDA, it quotes at 5.0x and 3.5x FY12E and FY13E,
respectively with RoE in range of 23-24%. We maintain our Accumulate rating on
the stock with TP of Rs147, at an EV / EBITDA multiple of 5x FY13E.

Earningsreviseddownwardsby10%/5%FY12/FY13
We revised our EPS estimates down by 10% for FY12 to Rs14.4 on account of 6% cut
in our forecast for LME zinc to US$2070 and 23% lower sliver volumes (249 tonnes
v/s 324 tonnes earlier) while, FY13 EPS is revised down by 5% to Rs16.1 on the
backdrop of 5% cut in our LME zinc forecast to US$2100 and 8% lower silver
volumes.
Exhibit3:

ChangeinEstimates
FY12

FY13

Earlier

Postrevision

%Change

Earlier

Postrevision

%Change

2,200

2,070

(5.9)

2,200

2,100

(4.6)

46

47

2.2

46

47

2.2

Silver volumes (kg)

324,230

248,820

(23.3)

447,475

410,354

(8.3)

Revenue (Rs m)

123,006

115,597

(6.0)

131,076

126,297

(3.6)

EBITDA (Rs m)

70,633

63,656

(9.9)

75,638

71,114

(6.0)

PAT (Rs m)

67,231

60,781

(9.6)

71,802

68,070

(5.2)

15.9

14.4

(9.6)

17.0

16.1

(5.2)

LME zinc (US$)

Rs/US$

EPS (Rs)
Source:PLResearch

Exhibit4: EPSSensitivity(FY13E)
LMEZinc($)
Rs/US$

16.1

1,800

1,900

2,100

2,200

2,300

45

13.2

13.9

15.2

15.9

16.5

46

13.6

14.3

15.7

16.3

17.0

47

14.0

14.7

16.1

16.8

17.5

48

14.4

15.1

16.6

17.3

18.0

49

14.8

15.6

17.0

17.8

18.5

Source:PLResearch

October 20, 2011

Hindustan Zinc
IncomeStatement(Rsm)
Y/eMarch
2010
NetRevenue
Raw Material Expenses
Gross Profit
Employee Cost
Other Expenses
EBITDA
Depr. & Amortization
Net Interest
Other Income
ProfitbeforeTax
Total Tax
ProfitafterTax
Ex-Od items / Min. Int.
Adj.PAT
Avg.SharesO/S(m)
EPS(Rs.)

CashFlowAbstract(Rsm)
Y/eMarch
C/F from Operations
C/F from Investing
C/F from Financing
Inc. / Dec. in Cash
Opening Cash
Closing Cash
FCFF
FCFE

KeyFinancialMetrics
Y/eMarch
Growth
Revenue (%)
EBITDA (%)
PAT (%)
EPS (%)

80,170

80,170
4,574
28,895
46,701
3,343
439
7,222
50,141
9,727
40,414

40,414
4,225.3
9.6

115,597

115,597
5,417
46,524
63,656
5,792
231
16,446
74,079
13,334
60,745

60,745
4,225.3
14.4

126,297

126,297
6,096
49,087
71,114
6,204
253
19,380
84,037
15,967
68,070

68,070
4,225.3
16.1

2013E

40,772
(38,796)
(1,874)
102
27,192
27,275
23,124
23,642

42,719
(36,564)
(3,633)
2,522
9,275
11,779
31,741
31,141

51,825
6,003
(12,508)
45,320
56,329
101,649
48,103
48,103

59,077
16,030
(5,163)
69,944
101,649
171,592
83,836
83,836

2010

2011

2012E

2013E

41.1
70.8
48.2
48.2

23.6
17.5
21.3
21.3

16.6
16.0
24.0
24.0

9.3
11.7
12.1
12.1

55.1
52.5
24.4
24.3

56.3
53.9
22.7
22.7

(0.4)

(0.5)

8.4
1.9
6.5
3.6

7.5
1.6
4.8
2.7

18.0
22.2
5.0
79.2

19.0
23.1
5.3
123.2

58.3
50.4
25.0
24.9

55.3
49.4
24.1
24.1

(0.2)

12.7
2.8
10.8
6.3

EarningsQuality
Eff. Tax Rate
19.4
Other Inc / PBT
14.4
Eff. Depr. Rate (%)
4.1
FCFE / PAT
58.5
Source:CompanyData,PLResearch.

October 20, 2011

99,121

99,121
5,108
39,155
54,859
4,747
194
9,678
59,596
10,591
49,005

49,005
4,225.3
11.6

2012E

Valuation
PER (x)
P / B (x)
EV / EBITDA (x)
EV / Sales (x)

2013E

2011

BalanceSheet
Net Debt : Equity
Net Wrkng Cap. (days)

2012E

2010

Profitability
EBITDA Margin (%)
PAT Margin (%)
RoCE (%)
RoE (%)

2011

BalanceSheetAbstract(Rsm)
Y/eMarch
2010

2011

2012E

2013E

181,240
605
7,112
188,957
72,771

109,492
6,695
9,275
10,677
13,258

188,957

225,332
4
9,447
234,783
81,294

93,346
60,143
56,329
19,560
15,747

234,783

273,800
4
10,188
283,991
84,739

93,346
105,906
101,649
21,300
17,043

283,991

327,137
4
11,028
338,169
80,635

93,346
164,188
171,592
20,079
27,483

338,169

QuarterlyFinancials(Rsm)
Y/eMarch
Q3FY11

Q4FY11

Q1FY12

Q2FY12

31,970
19,282
60.3
1,271
133
3,428
21,307
3,594
17,713
17,713

28,214
15,666
55.5
1,345
65
3,811
18,022
3,073
14,993
14,993

25,935
14,215
54.8
1,455
120
4,301
16,702
3,255
13,686
13,686

Shareholder's Funds
Total Debt
Other Liabilities
TotalLiabilities
Net Fixed Assets
Goodwill
Investments
Net Current Assets
Cash&Equivalents
OtherCurrentAssets
CurrentLiabilities
Other Assets
TotalAssets

NetRevenue
EBITDA
%ofrevenue
Depr. & Amortization
Net Interest
Other Income
ProfitbeforeTax
Total Tax
ProfitafterTax
Adj.PAT

26,015
14,786
56.8
1,195
1
2,358
15,947
3,051
12,896
12,896

KeyOperatingMetrics
Y/eMarch
Mined Zinc metal prod-MIC tns
Mined Lead metal prod-MIC tns
Total Mines metal-MIC tns
Refined Zinc Vol. (tonnes)
Refined Lead Vol. (tonnes)
Total Refined metal-tns
Concentrate sales vol (tonnes)
Silver Sales Vol. (kg)
Zinc (US$)-LME / tonne
Lead(US$)-LME / tonne
Silver (Rs / Kg)
Cost per tonne of Mined metal (Zn+Pb)
Source:CompanyData,PLResearch.

2010

2011

2012E

2013E

682,772
85,847
768,619
577,685
64,391
642,076
254,418
139,130
1,936
1,986
24,724
43,544

752,120
87,920
840,040
712,603
57,229
769,832
104,414
146,558
2,186
2,245
37,090
52,691

833,627
111,905
945,532
791,946
91,756
883,702
25,019
248,820
2,070
2,250
38,199
54,933

832,743
138,756
971,499
791,106
137,377
928,483
(9,382)
410,354
2,100
2,150
51,087
56,802

10.5
2.3
8.3
4.6

17.8
16.5
4.8
63.5

Hindustan Zinc

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
RatingDistributionofResearchCoverage

70%

59.2%

60%

%ofTotalCoverage

50%
40%
30%

21.1%

18.4%

20%
10%

1.4%

0%
Buy

Accumulate

Reduce

PLsRecommendationNomenclature

Sell

BUY

Over 15% Outperformance to Sensex over 12-months

Accumulate

Outperformance to Sensex over 12-months

Reduce

Underperformance to Sensex over 12-months

Sell

Over 15% underperformance to Sensex over 12-months

TradingBuy

Over 10% absolute upside in 1-month

TradingSell

Over 10% absolute decline in 1-month

NotRated(NR)

No specific call on the stock

UnderReview(UR)

Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or
engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
ForClients/RecipientsinUnitedStatesofAmerica:
All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational
purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by
all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to
Gerard Visci at DAP at 212.850.8888.

October 20, 2011