ICICI Direct recommended hold rating on Hindustan Zinc with a target price of Rs 250 in its research report dated July 22, 2019.
ICICI Direct's research report on Hindustan Zinc
Hindustan Zinc reported a steady Q1FY20 performance wherein topline, EBITDA and PAT came in higher than our estimate. For the quarter, better-than-expected sales volume of the zinc vertical aided the overall performance. Zinc sales volume came in at ~167500 tonnes (our estimate: 165000 tonnes), lead sales volume came in at ~47500 tonnes (our estimate: 50000 tonnes) while silver sales volume came in at ~155000 kg (our estimate: 154000 kg). The topline came in at Rs 4987 crore (higher than our estimate of Rs 4714.8 crore). EBITDA came in at Rs 2477 crore (higher than our estimate of Rs 2237.7 crore). The EBITDA margin came in at 49.7% (our estimate: 47.5%). Other income for the period was at Rs 429 crore (up 45% YoY, marginally lower than our estimate of Rs 438 crore). Ensuing PAT came in at Rs 1765 crore (higher than our estimate of Rs 1657.3 crore).
Outlook
Currently HZL is under capacity expansion phase wherein its smelter debottlenecking to 1.2 million tonnes per annum (MTPA) is in progress, of which expansion to 1.13 MTPA will be completed in Q2FY20. This provides healthy revenue visibility in the longer run horizon. Going forward, during FY19-21E, we expect total operating income, EBITDA and PAT to grow at a CAGR of 5.6%, 8.6% and 7%, respectively. We value the stock on 6.0x FY21E EV/EBITDA and arrive at a target price of Rs 250. We maintain our HOLD rating on the stock.
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