20 October 2020
2QFY21 Results Update | Sector: Metals
Hindustan Zinc
Neutral
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
CMP: INR223
High interim dividend a positive
HZ IN
4,225
942 / 12.7
259 / 122
0/0/0
233
TP: INR215 (-4%)
Slower volume ramp-up limits upside
Hindustan Zinc (HZ)’s 2QFY21 result was strong, as expected, led by higher
silver volumes and prices. Silver EBIT was the highest ever at INR10.8b
(+117% YoY; +103% QoQ), contributing 46% to overall EBIT (the second
highest ever).
HZ declared interim dividend of INR21.3/sh, amounting to INR90b (~50% of
net cash balance) and implying a dividend yield of ~10%.
Financials & valuations (INR b)
Y/E March
2020 2021E 2022E
Volume ramp-up, however, has been lagging guidance. Moreover, the
Sales
186
207
248
pledging of shareholding by promoter Vedanta Ltd is an additional overhang
EBITDA
88.5 101.0 127.9
on the stock. Maintain
Neutral.
NP
Adj. EPS (INR)
EPS Gr (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV
EV/EBITDA (x)
Div. Yield (%)
68.1
16.1
-14.5
95.4
18.4
23.2
0.0
13.8
2.3
8.2
0.0
70.0
16.6
2.9
74.2
19.5
24.0
273.7
13.5
3.0
8.0
17.0
90.5
21.4
29.3
77.6
28.2
30.4
100.8
10.4
2.9
6.3
8.1
EBITDA grows 39% YoY, primarily on higher profitability in silver
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20
64.9
32.2
1.0
1.9
Jun-20
64.9
32.2
1.0
1.9
Sep-19
64.9
32.2
1.3
1.6
FII Includes depository receipts
Revenue increased 25% YoY (42% QoQ) to INR56.6b (est. INR58.7b), primarily
due to higher silver volumes (203t; +51% YoY), coupled with higher silver
prices (+42% YoY). Refined metal volumes also grew 12% YoY to 237kt – zinc
by 181kt (+8% YoY) and lead by 57kt (+30% YoY).
EBITDA grew 39% YoY (and 87% QoQ) to INR29.5b on strong revenue growth
as well as lower cost, but was 3% below our estimate due to lower-than-
expected volumes.
Reported CoP declined USD34/t QoQ to USD919/t on account of cost
reduction initiatives, coupled with lower coal, metcoke, and cement prices.
Other income stood at INR3.9b, down 43% QoQ (34% YoY) (our est. INR3.5b).
Silver contributed 22% to revenues (v/s 13% in 2QFY20) and 46% to EBIT (v/s
32% in 2QFY20). Silver EBIT at INR10.8b was the highest ever.
PBT at INR26.6b was up 26% YoY (58% QoQ). PAT at INR19.4b was down 7%
YoY (est. INR21.3b) due to lower tax rate in the base quarter.
Net cash balance stood at INR178.3b (v/s INR154.8b in 1QFY21).
In 1HFY21, EBITDA/PAT for HZ was down 1%/15% YoY to INR45.3b/INR33.0b.
Our implied EBITDA/PAT estimate for 2HFY21 stands 31%/25% YoY higher at
INR55.7b/INR37.0b.
1HFY21 cash flows – OCF post working capital was flat YoY at INR34.5b
(INR34.9b in 1HFY20). But, lower capex at INR11.5b (v/s INR17.1b in 1HFY21)
led to higher FCF of INR23b (v/s INR18b in 1HFY20).
Volume guidance unchanged; CoP to remain <USD1,000/t in FY21
Management informed that zinc demand in India has recovered to pre-COVID
levels and global demand is also recovering gradually, led by China.
Management expects the current strength in LME zinc price to be supported
by lower mined metal supply, prolonged delays in new capacities, and lower
zinc inventory, coupled with strong demand in China.
Mined metal and finished metal production is guided to be in the range of
925–950kt for FY21 (438kt in 1HFY21), much lower than the earlier guided
ramp-up. HZ, however, has guided to achieve a run-rate of 1.2mtpa by the
exit of FY21.
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.