BUY CMP (Rs) 111.90 Target Price (Rs) 125.00 HINDUSTAN ZINC LIMITED Result Update: Q4 FY13 June 20 th, 2013 ISIN: INE267A01025 Stock Data Sector Metals BSE Code 500188 Face Value 2.00 52wk. High / Low (Rs.) 146.80/106.90 Volume (2wk. Avg ) 48000.00 Market Cap ( Rs in mn ) 472811.07 Annual Estimated Results (A*: Actual / E*: Estimated) Years FY13A FY14E FY15E Net Sales 126998.40 139698.24 150874.10 EBITDA 84962.60 94285.58 102507.36 Net Profit 68994.80 77342.89 83329.73 EPS 16.33 18.30 19.72 P/E 6.85 6.11 5.67 Shareholding Pattern (%) 1 Year Comparative Graph SYNOPSIS Hindustan is one of the leading Silver producers globally. It has mining, smelting and power operations in multiple locations throughout India. During the quarter ended, the company posted standalone Net Profit is increased by 53.29% to Rs.21658.10 million. Hindustan Zinc Mined metal production was 260kt in Q4 and 870kt in FY 2012-13, as compared with 223kt and 830kt in the corresponding prior periods. Hindustan Zinc Lead production in Q4 was 32kt up 2% and Refined Silver production in Q4 was 100 tonnes up 120%, as compared with the corresponding prior quarter. Hindustan Zinc has recommended final dividend of Rs. 1.50 per share for the year 2012-2013. BSE SENSEX HINDUSTAN ZINC LTD Hindustan Zinc mined metal production is projected to increase by 15% to 1.0 mtpa and Silver production from is projected to be about 360 tonnes in FY 2014. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 15% over 2012 to 2015E respectively. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Hindustan Zinc LTD 111.90 472811.07 16.33 6.85 1.46 155.00 National Aluminum Ltd 30.00 77317.20 2.30 13.04 0.66 25.00 Parekh Aluminex Ltd 45.65 590.70 0.00 0.00 0.13 40.00 Alicon Castalloy Ltd 60.05 660.60 19.31 3.11 0.64 40.00
Investment Highlights STANDALONE Results updates- Q4 FY13, Hindustan Zinc Ltd is a flagship company of Hindustan Group, is among the top leading metal industry in India, reported its financial results for the quarter an year ended 31 st March, 2013. During the quarter witness a healthy increase in overall sales & net profit on an account of performance in metal production, higher sales volumes, lower coal prices, improved price realizations for Silver, rupee depreciation, higher investment income & enhanced operational efficiencies. Months Mar-13 Mar-12 % Change Net Sales 39086.50 31350.00 24.68 PAT 21658.10 14128.40 53.29 EPS 5.13 3.34 53.29 EBITDA 25102.60 20316.70 23.56 The company s net profit jumps to Rs.21658.10 million against Rs.14128.40 million in the corresponding quarter ending of previous year, an increase of 53.29%. Revenue for the quarter rose 24.68% to Rs.39086.50 million from Rs.31350.00 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.5.13 a share during the quarter, registering 53.29% increase over previous year period. Profit before interest, depreciation and tax is Rs.25102.60 millions as against Rs.20316.70 millions in the corresponding period of the previous year. Expenditure : During the quarter Power & Fuel Cost shows a decline of 14% than the Corresponding period of the last year. Total expenditure in Q4 FY13 was at Rs. 19145.60 million as against Rs. 18612.20 million in Q4 FY12. Cost of Material Consumed was at Rs. 1182.10 millions against Rs. 832.00 millions in the corresponding period of the previous year. Other Expenditure was at Rs. 2041.90 million and Other Mining & Manufacturing Expenses was Rs. 3351.40 million, Mining Royalty expenses at Rs. 2439.50 millions in Q4 FY13 are the primarily attributable to growth of expenditure.
Segment Revenue Latest Updates Hindustan Zinc Ltd has recommended final dividend @75% (Rs. 1.50 per share) for the year 2012-2013, the total dividend for the year 2012-13 is 155% i.e. is Rs. 3.10 per share. Expansion Projects During the year, Hindustan Zinc has approved the next phase of growth plan, which will increase its mined metal production capacity to 1.2 mtpa. Rampura Agucha underground mine and Kayad mine produced development ore in the second half of FY 2013 and will start commercial production in FY 2014. The projects will be completed in six years and benefit of growth projects will start flowing in from third year, even as projects will continue till FY18-19. Annual capital expenditures for these projects will average USD 250 million a year over next six years. Q4 Operational Performance Mined metal production was 260kt in Q4 and 870kt in FY 2012-13, as compared with 223kt and 830kt in the corresponding prior periods. Refined Lead production in Q4 was 32kt up 2% and Refined Silver production in Q4 was 100 tonnes up 120%, as compared with the corresponding prior quarter.
Integrated production of refined Zinc was down 4% in Q4 and 12% in FY 2012-13 from a year ago. The y- o-y decline in Zinc metal production was mainly on account of lower MIC production in the first half in comparison to that in second half. Company Profile Hindustan Zinc (HZL) was incorporated in January 1966. Hindustan Zinc is a Vedanta Group company in Zinc, Lead and Silver business. HZL is India s leading integrated producer of zinc & lead and is among the world s leading integrated producers. It has a metal production capacity of 10, 64,000 tonnes per annum(879,000 tonnes of zinc and 185,000 tonnes of lead). HZL has around 7,000 employees. The company is a subsidiary of the NYSE listed, Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining major, Vedanta Resources plc. The Company has four mines and four smelting operations: mines are situated at Rampura Agucha (largest zinc producing mine in the world), Sindesar Khurd, Rajpura Dariba and Zawar in the State of Rajasthan; while the smelters are located at Chanderiya, Debari and Dariba in the State of Rajasthan and Vizag in the State of Andhra Pradesh. Business Activities HZL core business comprises of mining and smelting of zinc and lead along with captive power generation. It manufacturers three qualities of zinc -- special high grade zinc used in construction, infrastructure, household appliances etc; high grade zinc and prime western zinc. HZL manufactures 99.99% pure lead used in lead acid battery, ceramic glazes, electrodes, etc. It manufactures silver used in photographic material, conducter, jewellery, etc. The mineral major produces cadmium, whose purity ranges from 99.95-99.99%. It is used in Ni-Cd batteries, stablizers, coating and alloys. HZL also manufactures sulphuric acid used in fertilizers, dyes, textiles, sugar refining, etc. The world's largest integrated Zinc-Lead producer; and one of the lowest cost producers in the world. Hindustan is also one of the leading Silver producers globally. It has mining, smelting and power operations in multiple locations throughout India. The principal products are: refined Zinc metal and refined Lead metal. In addition to recover Silver, Cadmium and Sulphuric acid. HZL also own 474 MW of coal based thermal captive power plants in Rajasthan to support its metallurgical operations. It also has 123.2 MW of wind energy in Gujarat and Karnataka, which is sold to the respective State grids. An addition of 150 MW in existing wind power capacity will increase power generation capacity to 273 MW.
Accolates IMC Ramakrishna Bajaj National Quality Award 'Performance Excellence Trophy' (RBNQA 2011) in the year 2012. Products India's largest and the world's second largest integrated zinc-lead producer; and also one of the lowest cost zinclead producers in the world. We have mining, smelting and power operations in multiple locations throughout India ZINC o Galvanizing o Zinc Oxide o Die Casting o Alloys o Rolled Zinc Lead o SLI ( Starting Lighting Ignition) batteries o Industrial batteries Silver o Silverware o Jewellery o Silver plating o Photography o Dentol alloys Cadmium Projects Ramped-up Sindesar Khurd mine to 2.0 mtpa capacity Commissioned the 100 ktpa Lead smelter at Dariba, increasing the Lead production capacity to 185 ktpa Commissioned new Silver refinery, increasing the Silver refining capacity to 500 tpa Commissioned 102MW expansion in wind power, increasing total wind power generation capacity to around 274MW Commenced underground mine development work at Rampura Agucha mine and greenfield Kayar mine
Plants
Financial Highlight STANDALONE Balance sheet as at March31st, 2012-2015E (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) FY12A FY13A FY14E FY15E SOURCES OF FUNDS Shareholder's Funds Share Capital 8450.60 8450.60 8450.60 8450.60 Reserves and Surplus 260362.00 314306.80 370882.02 426514.33 1. Sub Total - Net worth 268812.60 322757.40 379332.62 434964.93 Non Current Liabilities Deferred Tax Liabilities 11088.10 12798.60 13822.49 14513.61 Other Long Term Liabilities 171.50 282.30 352.88 409.34 2. Sub Total - Non Current Liabilities 11259.60 13080.90 14175.36 14922.95 Current Liabilities Short Term Borrowings 3.90 3.90 4.10 4.30 Trade Payables 4102.90 4842.00 5423.04 5856.88 Other Current Liabilities 5631.50 5721.20 5835.62 5952.34 Short Term Provisions 5039.40 8248.70 10393.36 11848.43 3. Sub Total - Current Liabilities 14777.70 18815.80 21656.12 23661.95 Total Liabilities (1+2+3) 294849.90 354654.10 415164.11 473549.83 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 84657.20 84736.90 91515.85 97006.80 Intangible assets 471.00 100.50 110.55 116.08 Capital Work in Progress 4449.60 10818.50 13631.31 15948.63 a) Sub Total - Fixed Assets 89577.80 95655.90 105257.71 113071.51 b) Non-current investments 25.90 27.00 28.35 29.77 c) Long Term loans and advances 8758.00 18982.90 25247.26 31306.60 d) Other non-current assets 146.10 2391.90 3229.07 4068.62 1. Sub Total - Non Current Assets 98507.80 117057.70 133762.38 148476.50 Current Assets Current Investment 126922.60 145371.80 164851.62 183606.49 Inventories 7979.4 11110.90 14413.17 17439.94 Trade receivables 3324.50 4028.70 4673.29 5234.09 Cash and Bank Balances 52553.20 69421.00 87748.14 107052.74 Short-terms loans & advances 2334.30 3733.20 5077.15 6498.75 Other current assets 3228.10 3930.80 4638.34 5241.33 2. Sub Total - Current Assets 196342.10 237596.40 281401.72 325073.33 Total Assets (1+2) 294849.90 354654.10 415164.11 473549.83
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 114053.10 126998.40 139698.24 150874.10 Other Income 15428.30 20321.50 22760.08 24580.89 Total Income 129481.40 147319.90 162458.32 175454.99 Expenditure -53789.80-62357.30-68172.74-72947.63 Operating Profit 75691.60 84962.60 94285.58 102507.36 Interest -139.50-291.00-261.90-275.00 Gross profit 75552.10 84671.60 94023.68 102232.36 Depreciation -6106.70-6470.40-6729.22-6998.38 Profit Before Tax 69445.40 78201.20 87294.46 95233.98 Tax -14185.00-9206.40-9951.57-11904.25 Net Profit 55260.40 68994.80 77342.89 83329.73 Equity capital 8450.60 8450.60 8450.60 8450.60 Reserves 260362.00 314306.80 370882.02 426514.33 Face value 2.00 2.00 2.00 2.00 EPS 13.08 16.33 18.30 19.72 Quarterly Profit & Loss Statement for the period of 30 th September, 2012 to 30 th June, 2013E Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13E Description 3m 3m 3m 3m Net sales 28654.60 31780.20 39086.50 36350.45 Other income 5397.60 5062.70 4118.20 4612.38 Total Income 34052.20 36842.90 43204.70 40962.83 Expenditure -14223.60-16840.10-18102.10-17157.41 Operating profit 19828.60 20002.80 25102.60 23805.42 Interest 20.90-74.80-108.30-92.06 Gross profit 19849.50 19928.00 24994.30 23713.36 Depreciation -1745.70-1772.10-1218.80-1255.36 Profit Before Tax 18103.80 18155.90 23775.50 22458.00 Tax -2705.90-2030.50-2117.40-2380.55 Net Profit 15397.90 16125.40 21658.10 20077.45 Equity capital 8450.60 8450.60 8450.60 8450.60 Face value 2.00 2.00 2.00 2.00 EPS 3.64 3.82 5.13 4.75
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 13.08 16.33 18.30 19.72 EBITDA Margin (%) 66.37% 66.90% 67.49% 67.94% PBT Margin (%) 60.89% 61.58% 62.49% 63.12% PAT Margin (%) 48.45% 54.33% 55.36% 55.23% P/E Ratio (x) 8.56 6.85 6.11 5.67 ROE (%) 20.56% 21.38% 20.39% 19.16% ROCE (%) 30.43% 28.33% 26.63% 25.18% EV/EBITDA 5.55 4.75 4.08 3.57 Book Value (Rs.) 63.62 76.39 89.78 102.94 P/BV 1.76 1.46 1.25 1.09 Charts
Outlook and Conclusion At the current market price of Rs.111.90, the stock P/E ratio is at 6.11 x FY14E and 5.67 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.18.30 and Rs.19.72 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 15% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 4.08 x for FY14E and 3.57 x for FY15E. Price to Book Value of the stock is expected to be at 1.25 x and 1.09 x respectively for FY14E and FY15E. The Company s mined metal production is projected to increase by 15% to 1.0 mtpa and Silver production from is projected to be about 360 tonnes in FY 2014. We recommend BUY in this particular scrip with a target price of Rs.125.00 for Medium to Long term investment. Industry Overview ZINC Focus on India, being a large growing market and an underexplored territory for base metals. We supply more than 80% of India s demand for Zinc, which is essential for galvanising the country s infrastructure and construction industries. Our newly added Lead capacity will serve the nascent but expanding automobiles and industrial segments. In addition, our enhanced Silver production will reduce the country s dependence on imports. While we continue to explore for new mineral reserves to fulfill our nation s future needs, our strong cash reserves of USD 3.5 billion gives us a war-chest to look at acquiring strategic raw material reserves in India and overseas to supplement our growing requirements. The Zinc consumption growth is mainly driven by the developing countries on the path of rapid urbanisation and increased demand for galvanized sheets. In the future, demand from the emerging countries is expected to offset the deceleration of demand in Europe and western countries. Global Zinc demand is expected to grow at a modest 5% in 2012 and a similar growth is anticipated in 2013, increasing the global Zinc consumption to just short of 14Mt by the end of 2013.
Strong long term outlook for developing countries Developing countries will continue to outpace the rest of the world, as urbanisation and infrastructure development continue to drive the growth. The automotive industry, offers plenty of potential for Zinc demand growth on account of low but growing vehicle density in the developing nations. Furthermore, sustained market development including significant increase in the usage of coated steel in developing countries will open up new markets. The growth in China, although forecast to be slow, will still remain strong by historical global standards and further bolster asian growth prospects. This along with the growth in the other developing economies as a whole will result in developing world Zinc consumption growing by 6.9% p.a. over the period 2012-2015.India, being a high growth-high demand market, has one of the lowest per capita consumption of Zinc and thus the demand market outlook Zinc Global Zinc demand-supply balance likely to be in deficit in future 2011 global market 12,782 Kt Mine Production 12,608 KtConsumption5.5% Production growth 7.9% Consumption growth 12potential holds promise. Notwithstanding the global economic slowdown, the industry succeeded in sustaining its positive growth momentum on the strong fundamentals of domestic demand and expanding Continuous Galvanising sector. Moreover, the Government s incentive plans to boost economic growth in various industries will further drive Zinc demand. The Government s investment in infrastructure is proposed to be doubled in the Twelfth Five-Year plan (2012-2017) to usd1.0 trillion. Zinc demand growth will therefore benefit from coated steel consumption growth in view of incessant urbanisation and forecast double digit growth in automobiles, taking it to over 8.4% in 2012 and thereon upholding the demand growth momentum to around 6-7% annual rate in long run. HZL has an 82% market share in India and is well positioned to benefit from this growth. Support for higher Zinc Price in future Zinc price is projected to be in a secular uptrend and rise gradually over the next couple of years, before breaking out in 2014. The market is presently in a slight surplus with refined metal production higher than consumption. However, this trend to projected to reverse starting 2014 and severe mine output shortfall are foreseen in 2015. This switch from surplus to deficit is due to robust demand growth and supply shortfall resulting from mine closures and lack of quality mine additions. An estimated 1.2 Million tonnes of current mine production will see closures by 2016, which is almost 10% of current Zinc demand. Further supporting the higher price outlook for Zinc is the rising cost of production due to rising input costs, increasing mine depths and higher capital costs of new mining projects due to infrastructural, environmental and financial bottlenecks.
Lead While growth in Lead metal demand will be strong in 2012, its supply will play a pivotal role in the arket. Leads major demand driver is the replacement battery market, which at present accounts for around 45% of the global enduse consumption. The ongoing growth of the automobile industry will further push the Lead market growth. In 2011, the Indian Lead market experienced a growth of 4.3%, as the refined Lead consumption in the country increased to 0.46 Million tonnes. The demand from the battery sector contributes to around 90% of the Indian Lead market. Following the global trend, the Indian Lead market outlook looks upbeat with continued growth foreseen in the automobile industry. India, along with the other BrIC countries, has become a sought after manufacturing hub for major OEMs. The replacement battery market is growing too as the number of vehicles on the road are increasing every year. rapid growth in telecommunication and the power deficiency in the country have also resulted in an increased need of industrial and inverter batteries. For the coming years, the Lead market is expected to be strong keeping in line with the growth in demand and the current supply demand gap from primary source within the country. With the expected automobile and infrastructure growth, the Indian Lead demand is projected to grow and sustain the 6%-7% in the coming years.we have increased our Lead production capacity to 185,000 tonnes with the successful start up of the new smelter at dariba and plan to sell most of our Lead production in India. Silver Mine production rose by 4% and supply side supported by higher scrap supply increased by 9% this year. The demand by fabrication has seen a growth of 4% this year due to consistent demand in industrial uses and robust growth in investment, partially offset by a decline in jewellery and Silverware demand on account of high prices. Due to the higher investment demand and steady industrial growth, Silver demand is expected to further rise in next year. Indian demand for Silver increased by 12% to 3,550 tonnes in FY 2012, as compared to the previous year. Indian Silver demand is expected to grow on the back of prospective growth in industrial segments with Silver becoming a preferred investment asset along with gold Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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