21 April 2014
4QFY14 Results Update | Sector:
Metals
Hindustan Zinc
BSE SENSEX
22,765
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,818
HZ IN
4,225.3
142/94
4/-10/0
CMP: INR132
TP: INR161
Buy
EBITDA in line; negative operating leverage affected costs
Hindustan Zinc (HZ) 4QFY14 adjusted PAT increased 9% QoQ to INR18.8b, above
estimates, due to higher other income. EBITDA declined 4% QoQ on lower volumes
and negative impact of operating leverage on costs.
Net sales increased 6% QoQ driven by realization. The premiums over LME were
stronger than estimate. Although integrated lead production increased 16% QoQ,
zinc and silver integrated production declined 3% and 22% respectively.
EBITDA declined 4% QoQ to INR17.5b due to 7% jump in cost of production (CoP)
to INR55,467/t. Inflation in mining costs due to diesel prices, mine development
and lower production are key reasons behind the increase in costs. Higher-than-
expected costs were mostly offset by higher-than-expected revenue premiums.
Other income was boosted by MTM gains. Total dividend is up 13% YoY to
INR3.5/share for FY14. Cash and equivalent increased by INR40b YoY to
INR255.4b.
HZ has issued FY15 guidance of USD250m capex on expected lines but volumes are
expected to increase only marginally. We are expecting mine production to
increase by 2.5% YoY to 899kt in FY15, which remains unchanged.
Although mine production did not ramp up as per initial plan during FY14, the
production will ramp up during FY15 and full benefit will be seen in FY16.
Earnings are expected to grow 7% to INR17.5/share helped by better prices and
higher volumes. Stock trades at FY15E EV/EBITDA of 3.4x and P/BV of 1.3x. In view
of positive price outlook, valuations are attractive. Maintain
Buy.
M.Cap. (INR b) / (USD b) 558.6/9.2
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA
( )
2014 2015E 2016E
136.4
69.7
68.9
16.3
-0.4
19.7
22.0
8.1
1.5
4.3
140.8
73.8
73.8
17.5
7.2
18.2
20.6
7.6
1.3
3.4
147.8
75.9
72.3
17.1
-2.1
15.7
19.0
7.7
1.1
2.6
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

Hindustan Zinc
Lead production improved
QoQ, but zinc and silver
production declined
Refined metal production (integrated basis only)
240
210
180
150
120
Refined Zinc
Refined Lead
Silver (RHS)
120
95
70
45
20
Source: MOSL, Company
Zinc, lead realization
improved QoQ on better
premiums and LME
Realization
160,000
120,000
80,000
40,000
0
Refined Zinc
Refined Lead
Silver (RHS)
60,000
50,000
40,000
30,000
20,000
Source: Company, MOSL
Mine production (kt) has been sliding
Cost of production (000 INR/t)* is on rise during FY14
Source: company
*excluding royalty
Source: company
21 April 2014
2

Hindustan Zinc
Hindustan Zinc: an investment profile
Company description
Hindustan Zinc (Bloomberg: HZ) is a fully integrated zinc
producer, with one of the best mining assets in the
world. It has steadily increased its reserves and
production through regular investment in exploration
activities and addition of smelting capacity. HZ's captive
mines of zinc and lead ore are located in the state of
Rajasthan, with total R&R of 365.1mt as at March 2014,
containing ~35.2mt zinc-lead metal & 28,804tonne
silver. Its captive mines and thermal power plants give
the company significant cost advantage, making it one
of the lowest cost producers of zinc in the world. SSLT
has 64.9% stake in HZ, while 29.5% is owned by the
Government of India.
Key investment risks
Unexpected fall in LME zinc prices would adversely
impact earnings.
Recent developments
Final dividend of INR1.9/share i.e. total dividend of
INR3.5 or 175% announced on 21
st
April, 2014.
R&R increased by Gross 26.1mt, prior to depletion
of 9.3mt.
Valuation and view
Stock trades at attractive FY15E of 3.1x EV/EBITDA.
Key investment arguments
Sector view
Zinc is our preferred base metal because of favorable
demand outlook and constraints in supply growth due
to shortage of large scale low cost mines in the world.
As per industry estimates, about 1.2mtpa of capacity
will be closed by 2016. According to IZLSG, global
supply of zinc and lead will lag behind demand in 2014.
The global metal deficit will widen. The prices are likely
to remain buoyant.
HZ is the world's largest integrated zinc-lead
producer, with a total smelting capacity of 1.064m
tons.
HZ is spending USD1.5b over the next six years to
increase annual mining output to 1.2m tons. This
will further boost volume growth, going forward.
HZ's cost of production (CoP) is among the lowest in
the world due to its fully-integrated operations and
large resource base. It has a huge R&R base with 25
years of mine life.
Comparative valuations
P/E (x)
FY15E
FY16E
P/BV (x)
FY15E
FY16E
EV/Sales (x) FY15E
FY16E
EV/EBITDA (x) FY15E
FY16E
HZL
7.6
7.7
1.3
1.1
1.8
1.3
3.4
2.6
Nalco
12.5
13.7
0.8
0.8
0.5
0.5
3.6
3.7
Hindalco
11.2
12.3
1.3
1.2
0.8
0.7
7.3
6.4
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
17.5
17.1
Consensus
Forecast
17.5
18.2
Variation
(%)
0.1
-5.8
Target price and recommendation
Current
Price (INR)
130
Target
Price (INR)
161
Upside
(%)
22.0
Reco.
Buy
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
Mar-14
94.5
1.8
2.1
1.7
Dec-13
94.5
1.9
2.1
1.6
Mar-13
94.5
2.0
1.5
2.0
Stock performance (1-year)
21 April 2014
3

Hindustan Zinc
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2013
127.0
11.4
64.8
51.0
6.5
58.3
0.3
20.3
-0.2
78.2
9.2
11.8
69.0
69.1
24.4
0.0
69.1
2014
136.4
7.4
69.7
51.1
7.8
61.8
0.5
18.2
0.0
79.5
10.7
13.4
68.9
68.9
-0.4
0.0
68.9
(INR Billion)
2015E
140.8
3.3
73.8
52.4
7.4
66.4
0.8
20.2
0.0
85.8
12.0
14.0
73.8
73.8
7.2
0.0
73.8
2016E
147.8
4.9
75.9
51.4
7.8
68.1
0.8
22.5
0.0
89.8
17.5
19.5
72.3
72.3
-2.1
0.0
72.3
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
16.4
17.9
76.4
3.1
22.2
8.1
7.4
1.7
2.7
5.3
2.3
23.4
25.6
0.4
11.6
31.9
-0.7
2014
16.3
18.2
89.1
3.1
22.3
8.1
7.3
1.5
2.2
4.3
2.3
19.7
22.0
0.3
10.8
29.7
-0.7
2015E
17.5
19.2
102.4
3.5
23.4
7.6
6.9
1.3
1.8
3.4
2.6
18.2
20.6
0.3
10.8
29.7
-0.7
2016E
17.1
19.0
115.4
3.5
23.9
7.7
7.0
1.1
1.4
2.6
2.6
15.7
19.0
0.3
10.8
29.7
-0.7
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
8.5
314.3
322.8
0.0
12.8
335.6
122.6
37.8
84.8
10.8
145.4
113.6
11.1
4.0
69.4
29.0
19.1
4.8
14.3
94.5
335.6
2014
8.5
367.8
376.3
0.0
14.3
390.6
138.6
44.8
93.9
10.8
191.4
113.6
11.1
4.0
69.4
29.0
19.1
4.8
14.3
94.5
390.6
(INR Billion)
2015E
2016E
8.5
8.5
424.3
479.3
432.8
487.8
0.0
0.0
16.0
18.5
448.8
506.3
154.6
170.6
52.2
60.0
102.5
110.7
10.8
10.8
240.7
289.5
114.1
114.8
11.5
12.0
4.2
4.4
69.4
69.4
29.0
29.0
19.2
19.5
5.0
5.2
14.3
14.3
94.8
95.4
448.8
506.3
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
Other income
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
78.2
6.5
-20.3
0.3
-7.6
-14.3
43.1
-12.4
-18.5
0.0
-30.9
0.0
-0.3
-15.3
20.3
4.7
16.9
52.6
69.4
2014
79.5
7.8
-18.2
0.5
-9.1
0.0
59.6
-16.0
-46.0
0.0
-62.0
0.0
-0.5
-15.3
18.2
2.4
-0.1
69.4
69.3
(INR Billion)
2015E
85.8
7.4
-20.2
0.8
-10.3
-0.3
63.2
-16.0
-49.3
0.0
-65.3
0.0
-0.8
-17.3
20.2
2.1
0.0
69.4
69.4
2016E
89.8
7.8
-22.5
0.8
-15.0
-0.5
60.4
-16.0
-48.8
0.0
-64.8
0.0
-0.8
-17.3
22.5
4.4
0.0
69.4
69.4
21 April 2014
4

Hindustan Zinc
N O T E S
21 April 2014
5

Hindustan Zinc
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HINDUSTAN ZINC LTD
No
No
No
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