ICICI Direct is bullish on Hindustan Zinc has recommended buy rating on the stock with a target price of Rs 200 in its research report dated May 22, 2020.
ICICI Direct's research report on Hindustan Zinc
Hindustan Zinc reported a steady set of Q4FY20 numbers wherein topline, EBITDA and PAT came in broadly in line with our estimates. For the quarter, zinc sales volumes came in at ~173000 tonnes (higher than our estimate of 168201 tonnes), lead sales volume came in at ~48000 tonnes (higher than our estimate of 43938 tonnes) while silver sales volume came in at ~144000 kg (lower than our estimate of 160000 kg). Topline came in at Rs 4391 crore in line with our estimate of Rs 4315 crore. EBITDA came in at Rs 1964 crore, in line with our estimate of Rs 1963 crore. EBITDA margin came in at 44.7% (our estimate of 45.5%). HZL’s cost of production (CoP) before royalty during the quarter was US$977 (Rs 72220)/tonne, up 4% YoY in US$ terms (7% in rupee terms) and down 7% sequentially (6% in rupee terms). During the quarter, HZL reported PAT of Rs 1339 crore (our estimate: Rs 1295 crore).
Outlook
In the current scenario, swift ramp up in mines and smelters capacity utilisation levels augur well for the company. Going forward, the management has guided for 5-10% reduction in CoP in FY21, which would aid blended EBITDA margins in a scenario of muted base metal prices. We value the stock at 5x FY22E EV/EBITDA and arrive at a target price of Rs 200.
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