Q1 FY 2011 Update Sector: Metals & Mining BSE Sensex: 18,131 BUY CMP Rs 993 TP Rs 1,170. Hindustan Zinc

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1 Q1 FY 2011 Update Sector: Metals & Mining BSE Sensex: 18,131 Hindustan Zinc Ltd BUY CMP Rs 993 TP Rs 1,170 Q1 FY 2011 Update HZL s Q1FY11 revenue increased 29% YoY to Rs19.7bn, driven by 36% YoY rise in LME zinc price and higher byproduct revenue, even though metal sales declined 6% YoY. EBITDA at Rs10.2bn grew 31% YoY and PAT rose 24% YoY to Rs8.9bn. Strong balance sheet: HZL has cash and eq. of Rs123bn. Refined metal production grew 15% YoY to 180kt, aided by 33kt output from newly commissioned 210ktpa zinc smelter at Rajpura Dariba. However, output from existing operations declined 6% YoY due to a temporary shortage of water. Yet, total metal sales volume declined 6% YoY to 179kt, due to absence of metalinconcentrate sales (36kt in Q1FY10), as the mined metal output at Rampura Agucha mine was impacted by lower grades, repair and maintenance. Byproduct revenue soars 62% YoY to Rs2bn, mainly driven by higher realization for sulphuric acid (up 6x YoY) and higher realization and sales volume of silver. Capex update: 100ktpa lead smelter, 2 nd unit of 80MW CPP (1 st unit of 80MW synchronized in Jun 10) and 1mntpa mine development are on schedule for commencement by Q2FY11. Update on AngloAmerican zinc assets: We have not considered the impact of the USD1.3bn acquisition on HZL s financials, as we await clarification on the same. OUTLOOK LME Zinc prices have declined by >20% since Apr 10, underperforming copper and aluminium. We believe that zinc prices have limited downside and could inch up in Q3FY11, driven by sequential improvement in profitability of steel (~50% of global zinc demand). We have assumed average LME zinc price of USD2,000 & USD2,100 for FY11 & FY12 respectively. VALUATIONS AND RECOMMENDATION We believe that at 3.5x FY12E EV/EBITDA, the stock is attractively valued, given volume CAGR of 10% over FY10FY12E, highly costcompetitive operations (EBITDA margin 50%+), >30 years of mining life and strong balance sheet. We recommend BUY on the stock with a target price of Rs1,170 valuing the company at 5.5x FY12 EV/EBITDA giving an upside of 17.8% from CMP of Rs993.. KEY FINANCIALS FY08 FY09 FY10 FY11E FY12E Net Sales 78,778 56,803 80,170 92, ,607 YoY Gr.(%) (8.0) (27.9) Op. Profit 54,613 28,299 47,781 53,363 62,886 Op. Marg.(%) Adj. Net Profit 39,489 25,537 39,287 45,697 55,486 YoY Gr.(%) (8.4) (35.3) KEYRATIO Dil. EPS (Rs) ROCE (%) RoE (%) PER (x) EV/ Net Sales (x) EV /EBDITA (x) Bikash Bhalotia Harleen Babber harleen.babber@pinc.co.in Dipti Vijaywargi dipti.vijaywargi@pinc.co.in July 2010 QUARTERLY SNAPSHOT (Rs mn) Quarter Ended Dec 09 Mar 10 Jun10 Net sales 22,491 25,449 19,734 YoY Gr.(%) Op.Profit 13,861 15,482 10,218 OPM(%) Adj.Net Profit 11,487 12,390 8,909 YoY Gr. (%) STOCK DATA Market cap Rs421.3bn Book Value per share Rs429 Shares O/S (F.V. Rs10) 423 Free Float 35.1% Avg Trade Value (6 months) Rs209mn 52 week High/Low Rs1325/658 Bloomberg Code HZ IN Reuters Code HZNC.BO PERFORMANCE (%) 1M 3M 12M Absolute 3.2 (20.2) 44.2 Relative 0.0 (22.4) 26.3 RELATIVE PERFORMANCE 1,600 1, Hindustan Zinc Sensex 100 Jul09 Oct09 Jan10 Apr10 Jul10 PINC Research reports are also available on Reuters, Thomson Publishers and BLOOMBERG PINV <GO> 1

2 Hindustan Zinc Ltd. Exhibit 1 Q1FY11 Financial Performance Rs mn Q1FY11 Q1FY10 YoY (%) Q4FY10 QoQ (%) FY11E FY10 YoY (%) Net Sales 19,734 15, ,449 (22.5) 93,741 81, Net Raw Material 5,701 5, , ,028 19, (% of Net Sales) Employee Costs 1, , ,580 4, (% of Net Sales) Royalty cost 1, ,906 (18.6) 7,124 6, (% of Net Sales) Other expenses ,046.8 (25.4) 3,647 3, (% of Net Sales) Total Expenditure 9,516 7, ,967 (4.5) 40,379 33, Operating Profits 10,218 7, ,482 (34.0) 53,363 47, EBITDA Margin (%) Interest (76.3) Depreciation 1, , ,148 3, Other Income 1,584 1,802 (12.1) 1, ,314 4, Profit before Tax 10,614 8, ,543 (31.7) 57,121 49, (% of Net Sales) Total Tax 1,705 1, ,153 (45.9) 11,424 9, Effective tax rate (%) Profit after Tax Adjusted 8,909 7, ,390 (28.1) 45,697 39, NPM (%) Profit after Tax Reported 8,909 7, ,390 (28.1) 45,697 40, EPS (Rs) (28.1) Source: PINC Research, Company Note: Our FY11 financial estimates do not include the impact of acquisition of AngloAmerican Zinc assets by HZL

3 Hindustan Zinc Ltd. Exhibit 2 Production volume (tonnes) Exhibit 3 Sales volume (tonnes) 200, , ,000 50, , , ,000 50,000 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Source: Company, PINC Research Zinc(Refined) Lead(Refined) Source: Company, PINC Research Zinc Lead Lead Concentrate Exhibit 4 LME Zinc and Lead prices Exhibit 5 LME Zinc, Aluminium and copper prices 2,600 2,000 2,400 2,100 8,500 7,000 1,400 1,800 5, Jan09 Apr09 Jul09 Oct09 Jan10 Apr10 Jul10 1,500 Apr10 Apr10 May10 May10 Jun10 Jul10 4,000 Zinc Lead Zinc Aluminium Copper Source: Bloomberg, PINC Research Source: Bloomberg, PINC Research Exhibit 6 Silver sales volume & Realisations 50,000 40,000 30,000 20,000 10,000 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 30,000 25,000 20,000 15,000 10,000 5,000 Sales Volumes (tonnes) LHS Realisation (Rs/kg) RHS Source: PINC Research, Company

4 ch Hindustan Zinc Ltd. Income Statement FY08 FY09 FY10 FY11E FY12E Net sales 78,778 56,803 80,170 92, ,607 Growth (%) (8.0) (27.9) Operating Profit 54,613 28,299 47,781 53,363 62,886 Other operating income EBITDA 54,613 28,299 47,781 53,363 62,886 Growth (%) (15.5) (48.2) Depreciation 2,220 2,853 3,343 4,148 4,298 Other Income 4,028 6,940 4,985 8,314 11,176 EBIT 56,420 32,386 49,423 57,529 69,764 Interest Paid PBT (before E/o items) 56,179 32,168 49,016 57,121 69,357 Tax Provision 16,690 6,631 9,729 11,424 13,871 E/o (loss)/income 4,475 1,739 1,127 Net Profit 43,964 27,276 40,414 45,697 55,486 Adjusted Net Profit 39,489 25,537 39,287 45,697 55,486 Growth (%) (8.4) (35.3) Diluted EPS (Rs) Diluted EPS Growth (%) (8.4) (35.3) Year Ended March (Figures in Rs mn) Cash Flow Statement FY08 FY09 FY10E FY11E FY12E Pretax profit 56,179 32,168 49,016 57,121 69,357 Depreciation 2,220 2,853 3,343 4,148 4,298 Total Tax Paid (15,451) (5,500) (8,311) (11,424) (13,871) Chg in working capital 841 3,125 2,240 (636) 1,003 Other operating activities (2,731) (7,259) (4,348) (7,906) (10,769) Cash flow from oper (a) 41,058 25,386 41,939 41,303 50,017 Capital Expenditure (15,125) (13,166) (23,897) (16,000) (5,000) Chg in investments Other investing activities 8,503 8,680 6,112 8,314 11,176 Cash flow from inv.(b) (6,622) (4,487) (17,785) (7,686) 6,176 Free cash flow (a+b) 34,436 20,899 24,154 33,616 56,193 Equity raised/(repaid) Debt raised/(repaid) Change in minority interest Dividend (incl. Tax) (2,472) (1,236) (1,977) (2,956) (3,695) Other financing activities (242) (219) (408) (408) (408) Cash flow from fin (c) (2,714) (1,372) (1,867) (3,364) (4,103) Net chg in cash (a+b+c) 31,722 19,528 22,286 30,252 52,090 Balance Sheet FY08 FY09 FY10E FY11E FY12E == Key Ratios FY08 FY09 FY10E FY11E FY12E Equity Share Capital 4,225 4,225 4,225 4,225 4,225 Reserves & surplus 114, , , , ,067 Shareholders' funds 118, , , , ,292 Minorities interests Total Debt Capital Employed 118, , , , ,897 Net fixed assets 41,626 52,133 72,771 84,623 85,325 Cash & Cash Eq. 76,952 96, , , ,110 Net Other current assets 4, (2,581) (2,684) (4,426) Investments Net Deferred tax Assets (4,597) (5,589) (7,112) (7,112) (7,112) Total Assets 118, , , , ,897 OPM (%) Net Margin (%) Yield (%) Net debt/equity (x) (0.6) (0.7) (0.7) (0.7) (0.7) Working Capital Days RoCE (%) RoE (%) EV/Net Sales (x) EV/EBITDA (x) PER (x) PCE (x) Price/BV (x) P/E Band EV/EBIDTA 1,600 1,600 9x 1, x 10x 8x 6x 1, x 5x 3x 400 4x 400 1x Jul06 Jul07 Jul08 Jul09 Jul10 Jul06 Jul07 Jul08 Jul09 Jul10

5 RESEARCH T E A M EQUITY DESK Sadanand Raje Head Institutional Sales sadanand.raje@pinc.co.in Technical Analyst RESEARCH Vineet Hetamasaria, CFA Auto, Cement vineet.hetamasaria@pinc.co.in Nikhil Deshpande Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in Vinod Nair Construction, Power, Capital Goods vinod.nair@pinc.co.in Ankit Babel Capital Goods ankit.b@pinc.co.in Hitul Gutka Power hitul.gutka@pinc.co.in Subramaniam Yadav Construction subramaniam.yadav@pinc.co.in Madhura Joshi Power madhura.joshi@pinc.co.in Satish Mishra Fertiliser, Engineering satish.mishra@pinc.co.in Rohit Kumar Anand IT Services rohit.anand@pinc.co.in Karan Taurani IT Services karan.taurani@pinc.co.in Bikash Bhalotia Metals, Mining Harleen Babber Metals, Mining harleen.babber@pinc.co.in Dipti Vijaywargi Metals, Mining Chirag Dagli Pharma, FMCG, Fertiliser chirag.dagli@pinc.co.in Naveen Trivedi Pharma, FMCG naveent@pinc.co.in SALES Anil Chaurasia Equities anil.chaurasia@pinc.co.in Gagan Borana Equities gagan.borana@pinc.co.in Shailesh Kadam Derivatives shaileshk@pinc.co.in Ganesh Gokhale Derivatives ganeshg@pinc.co.in DEALING Rajeev Gupta Head Sales Trading rajeev.gupta@pinc.co.in Amar Margaje amar.margaje@pinc.co.in Ashok Savla ashok.savla@pinc.co.in Raju Bhavsar rajub@pinc.co.in Manoj Parmar manojp@pinc.co.in Hasmukh D. Prajapati hasmukhp@pinc.co.in Pratiksha Shah pratikshas@pinc.co.in Sajjid Lala sajjid.lala@pinc.co.in DIRECTORS Gaurang Gandhi gaurangg@pinc.co.in Hemang Gandhi hemangg@pinc.co.in Ketan Gandhi ketang@pinc.co.in COMPLIANCE Rakesh Bhatia Head Compliance rakeshb@pinc.co.in

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