Prabhudas Lilladher recommended accumulate rating on Hindustan Zinc with a target price of Rs 200 in its research report dated July 22, 2020.
Prabhudas Lilladher's research report on Hindustan Zinc
Hindustan Zinc (HZ) reported earnings in line with ours/consensus estimates. HZ missed its guidance on volumes and ore grade over past couple of years due to delay in commissioning of shafts and weaker than assessed ore grade. As the new shafts at both Rampura Agucha (RA) and Sindesar Khurd (SK) mines commenced hauling of ore, we expect significant improvement in quality of operations with better visibility on production and lower costs. In last five years since FY15, ore grade has fallen by ~30% to 7.5% due to fall in grade and share of RA mines. However, we do not expect negative surprise on grade front with likely range of 7.0-7.5% on the back of stabilisation of RA mines’ output. Zinc prices registered strong recovery in last couple of month with ~9% rise to US$2,170/t on the back of revival in Chinese demand and production cuts.
Outlook
We factor in Zinc at US$2,050/US$2085 in FY21e/FY22e as we expect ease in prices because of sharp run-up and cooling off in China’s pent-up demand. In the backdrop of better outlook and attractive valuations, we reiterate Accumulate rating with TP of Rs200, EV/EBITDA of 5.0x FY22e.
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