Hindustan Zinc Limited

April 10, 2018 . Equities Desk

Capacity Addition + Strong Price Outlook = Sustained Growth Momentum : Hindustan Zinc Limited (HZL) is the India’s largest and world’s second-largest zinc miner. It caters to ~80% of zinc demand in India. The company has also the world’s second largest operating zinc mine – Rampura Agucha Mine. HZL’s business comprises of mining and smelting of zinc and lead along with captive power generation. It is the only integrated zinc manufacturer in India, with zinc smelting capacity of 823 ktpa and lead smelting capacity of 185 ktpa.

Valuation: Although, we expect strong near-term zinc prices due to tight inventories, some correction in FY20 is expected due to new supplies coming in. Therefore, we build-in LME zinc prices of US$3,186/ton for FY19E and US$3,059/ton for FY20E. We like HZL given its strong balance sheet, robust fundamentals, lower cost of production, integrated business model, debt free status and healthy dividend yield. We project the top line and EBITDA to clock a CAGR of 15.6% and 16.3%, respectively over FY17-20E driven by strong outlook on zinc and HZL’s quality operations. Hence, we recommend BUY rating on the stock with a target price of Rs 345 where we value the stock at its three year mean of 7x FY20E EV/EBITDA.

Research Report – Hindustan Zinc Limited

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