Hold Hindustan Zinc; target of Rs 230: ICICI Direct

ICICI Direct's research report on Hindustan Zinc

Hindustan Zinc reported a mixed performance for Q2FY21. The topline came in line with our estimate while EBITDA and PAT were lower than our estimate. For the quarter, zinc sales volumes came in at ~181000 tonnes (up 8% YoY, 11% QoQ, marginally lower than our estimate: 185419 tonnes), lead sales volume came in at ~57000 tonnes (up 30% YoY, 27% QoQ, lower than our estimate: 60125 tonnes) while silver sales volume came in at ~203000 kg (up 50% YoY, 39% QoQ, higher than our estimate: 195000 kg). Topline came in at Rs 5660 crore (up 25% YoY, 42% QoQ), in line with our estimate of Rs 5668 crore. EBITDA came in at Rs 2952 crore (up 39% YoY, 87% QoQ), lower than our estimate of Rs 3031 crore. EBITDA margin came in at 52.2%, marginally lower than our estimate of 53.5%. Ensuing PAT was at Rs 1940 crore (up 43% QoQ but down 7% YoY). HZL has announced an interim dividend of Rs 21.3/equity share with a record date of October 28, 2020.

Outlook

There was healthy traction in both zinc and Lead prices on the LME. During Q2FY21, average zinc prices on the LME were at US$2335/tonne (up 19% QoQ) while lead prices for Q2FY21 were at US$1873/tonne (up 12% QoQ). The uptick in both zinc and lead prices augurs well for the company. We model EBITDA margin of 50.7% in FY21E and 53.8% in FY22E. We value the stock at 6x FY22E EV/EBITDA and arrive at a target price of Rs 230, with a HOLD recommendation on the stock.

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