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Motilal Oswal Report
Hindustan Zinc’s Q1 FY21 results reflect impact of the Covid-19 led shutdown, lower London Metal Exchange (LME) prices and adverse sales mix (higher exports). Ebitda was down 14% QoQ to Rs 15.8 billion (6% higher than estimated), aided by lower costs. However, profit after tax (PAT) inched up 1% QoQ to Rs 13.6 billion on higher other income (versus estimated Rs 10.0 billion).
We expect Hindustan Zinc’s Ebitda at 11% compound annual growth rate (CAGR) over FY20-22E despite lower LME, primarily on approximately 10% volume CAGR to 1,034 kilotonnes. LME Zinc prices have recovered approximately 21% from the recent lows this year and are down just approximately 5% year to date 2020 (current market price (CMP) 2,173 U.S. dollar per tonne). We have factored in LME Zinc of 2,125 U.S. dollar per tonne for FY21E and 2,250 U.S. dollar per tonne for FY22E.
At CMP, the stock trades at 6.3 times/5.0 times FY21E/FY22E enterprise /Ebitda. We remain Neutral, with target price of Rs 208 per share, based on 6.0 times FY22E EV/Ebitda.
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