CMP (Rs) 111.90

Target Price (Rs) 125.00

ISIN: INE267A01025

June 20th

, 2013

HINDUSTAN ZINC LIMITED

Result Update: Q4 FY13

BUYBUYBUYBUY

Stock Data

Sector Metals

BSE Code 500188

Face Value 2.00

52wk. High / Low (Rs.) 146.80/106.90

Volume (2wk. Avg ) 48000.00

Market Cap ( Rs in mn ) 472811.07

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 126998.40 139698.24 150874.10

EBITDA 84962.60 94285.58 102507.36

Net Profit 68994.80 77342.89 83329.73

EPS 16.33 18.30 19.72

P/E 6.85 6.11 5.67

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX HINDUSTAN ZINC LTD

SYNOPSIS

Hindustan is one of the leading Silver

producers globally. It has mining, smelting

and power operations in multiple locations

throughout India.

During the quarter ended, the company

posted standalone Net Profit is increased by

53.29% to Rs.21658.10 million.

Hindustan Zinc Mined metal production was

260kt in Q4 and 870kt in FY 2012-13, as

compared with 223kt and 830kt in the

corresponding prior periods.

Hindustan Zinc Lead production in Q4 was

32kt up 2% and Refined Silver production in

Q4 was 100 tonnes up 120%, as compared

with the corresponding prior quarter.

Hindustan Zinc has recommended final

dividend of Rs. 1.50 per share for the year

2012-2013.

Hindustan Zinc mined metal production is

projected to increase by 15% to 1.0 mtpa and

Silver production from is projected to be

about 360 tonnes in FY 2014.

Net Sales and PAT of the company are

expected to grow at a CAGR of 10% and 15%

over 2012 to 2015E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Hindustan Zinc LTD 111.90 472811.07 16.33 6.85 1.46 155.00

National Aluminum Ltd 30.00 77317.20 2.30 13.04 0.66 25.00

Parekh Aluminex Ltd 45.65 590.70 0.00 0.00 0.13 40.00

Alicon Castalloy Ltd 60.05 660.60 19.31 3.11 0.64 40.00

Investment Highlights STANDALONE

Results updates- Q4 FY13,

Hindustan Zinc Ltd is a flagship company of

Hindustan Group, is among the top leading metal

industry in India, reported its financial results for

the quarter an year ended 31st March, 2013. During

the quarter witness a healthy increase in overall

sales & net profit on an account of performance in

metal production, higher sales volumes, lower coal

prices, improved price realizations for Silver, rupee

depreciation, higher investment income & enhanced

operational efficiencies.

Months Mar-13 Mar-12 % Change

Net Sales 39086.50 31350.00 24.68

PAT 21658.10 14128.40 53.29

EPS 5.13 3.34 53.29

EBITDA 25102.60 20316.70 23.56

The company’s net profit jumps to Rs.21658.10 million against Rs.14128.40 million in the corresponding quarter

ending of previous year, an increase of 53.29%. Revenue for the quarter rose 24.68% to Rs.39086.50 million

from Rs.31350.00 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.5.13 a share during the quarter, registering 53.29% increase over previous year period.

Profit before interest, depreciation and tax is Rs.25102.60 millions as against Rs.20316.70 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter Power & Fuel Cost shows a

decline of 14% than the Corresponding period of the

last year. Total expenditure in Q4 FY13 was at Rs.

19145.60 million as against Rs. 18612.20 million in

Q4 FY12. Cost of Material Consumed was at Rs.

1182.10 millions against Rs. 832.00 millions in the

corresponding period of the previous year. Other

Expenditure was at Rs. 2041.90 million and Other

Mining & Manufacturing Expenses was Rs. 3351.40

million, Mining Royalty expenses at Rs. 2439.50

millions in Q4 FY13 are the primarily attributable to

growth of expenditure.

Segment Revenue

Latest Updates

• Hindustan Zinc Ltd has recommended final dividend @75% (Rs. 1.50 per share) for the year 2012-2013, the

total dividend for the year 2012-13 is 155% i.e. is Rs. 3.10 per share.

Expansion Projects

• During the year, Hindustan Zinc has approved the next phase of growth plan, which will increase its

mined metal production capacity to 1.2 mtpa. Rampura Agucha underground mine and Kayad mine

produced development ore in the second half of FY 2013 and will start commercial production in FY

2014.

• The projects will be completed in six years and benefit of growth projects will start flowing in from third

year, even as projects will continue till FY18-19. Annual capital expenditures for these projects will

average USD 250 million a year over next six years.

Q4 Operational Performance

• Mined metal production was 260kt in Q4 and 870kt in FY 2012-13, as compared with 223kt and 830kt in

the corresponding prior periods.

• Refined Lead production in Q4 was 32kt up 2% and Refined Silver production in Q4 was 100 tonnes up

120%, as compared with the corresponding prior quarter.

• Integrated production of refined Zinc was down 4% in Q4 and 12% in FY 2012-13 from a year ago. The y-

o-y decline in Zinc metal production was mainly on account of lower MIC production in the first half in

comparison to that in second half.

Company Profile

Hindustan Zinc (HZL) was incorporated in January 1966. Hindustan Zinc is a Vedanta Group company in Zinc,

Lead and Silver business. HZL is India’s leading integrated producer of zinc & lead and is among the world’s

leading integrated producers. It has a metal production capacity of 10, 64,000 tonnes per annum(879,000 tonnes

of zinc and 185,000 tonnes of lead). HZL has around 7,000 employees. The company is a subsidiary of the NYSE

listed, Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining

major, Vedanta Resources plc.

The Company has four mines and four smelting operations: mines are situated at Rampura Agucha (largest zinc

producing mine in the world), Sindesar Khurd, Rajpura Dariba and Zawar in the State of Rajasthan; while the

smelters are located at Chanderiya, Debari and Dariba in the State of Rajasthan and Vizag in the State of Andhra

Pradesh.

Business Activities

HZL core business comprises of mining and smelting of zinc and lead along with captive power generation. It

manufacturers three qualities of zinc -- special high grade zinc used in construction, infrastructure, household

appliances etc; high grade zinc and prime western zinc.

HZL manufactures 99.99% pure lead used in lead acid battery, ceramic glazes, electrodes, etc. It manufactures

silver used in photographic material, conducter, jewellery, etc. The mineral major produces cadmium, whose

purity ranges from 99.95-99.99%. It is used in Ni-Cd batteries, stablizers, coating and alloys. HZL also

manufactures sulphuric acid used in fertilizers, dyes, textiles, sugar refining, etc.

The world's largest integrated Zinc-Lead producer; and one of the lowest cost producers in the world. Hindustan

is also one of the leading Silver producers globally. It has mining, smelting and power operations in multiple

locations throughout India. The principal products are: refined Zinc metal and refined Lead metal. In addition to

recover Silver, Cadmium and Sulphuric acid.

HZL also own 474 MW of coal based thermal captive power plants in Rajasthan to support its metallurgical

operations. It also has 123.2 MW of wind energy in Gujarat and Karnataka, which is sold to the respective State

grids. An addition of 150 MW in existing wind power capacity will increase power generation capacity to 273

MW.

Accolates

IMC Ramakrishna Bajaj National Quality Award – 'Performance Excellence Trophy' (RBNQA – 2011) in the year

2012.

Products

India's largest and the world's second largest integrated zinc-lead producer; and also one of the lowest cost zinc-

lead producers in the world. We have mining, smelting and power operations in multiple locations throughout

India

� ZINC

o Galvanizing

o Zinc Oxide

o Die Casting

o Alloys

o Rolled Zinc

� Lead

o SLI ( Starting Lighting Ignition) batteries

o Industrial batteries

� Silver

o Silverware

o Jewellery

o Silver plating

o Photography

o Dentol alloys

� Cadmium

Projects

• Ramped-up Sindesar Khurd mine to 2.0 mtpa capacity

• Commissioned the 100 ktpa Lead smelter at Dariba, increasing the Lead production capacity to 185 ktpa

• Commissioned new Silver refinery, increasing the Silver refining capacity to 500 tpa

• Commissioned 102MW expansion in wind power, increasing total wind power generation capacity to

around 274MW

• Commenced underground mine development work at Rampura Agucha mine and greenfield Kayar mine

Plants

Financial Highlight STANDALONE

Balance sheet as at March31st, 2012-2015E

(A*- Actual, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) FY12A FY13A FY14E FY15E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 8450.60 8450.60 8450.60 8450.60

Reserves and Surplus 260362.00 314306.80 370882.02 426514.33

1. Sub Total - Net worth 268812.60 322757.40 379332.62 434964.93

Non Current Liabilities

Deferred Tax Liabilities 11088.10 12798.60 13822.49 14513.61

Other Long Term Liabilities 171.50 282.30 352.88 409.34

2. Sub Total - Non Current Liabilities 11259.60 13080.90 14175.36 14922.95

Current Liabilities

Short Term Borrowings 3.90 3.90 4.10 4.30

Trade Payables 4102.90 4842.00 5423.04 5856.88

Other Current Liabilities 5631.50 5721.20 5835.62 5952.34

Short Term Provisions 5039.40 8248.70 10393.36 11848.43

3. Sub Total - Current Liabilities 14777.70 18815.80 21656.12 23661.95

Total Liabilities (1+2+3) 294849.90 354654.10 415164.11 473549.83

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 84657.20 84736.90 91515.85 97006.80

Intangible assets 471.00 100.50 110.55 116.08

Capital Work in Progress 4449.60 10818.50 13631.31 15948.63

a) Sub Total - Fixed Assets 89577.80 95655.90 105257.71 113071.51

b) Non-current investments 25.90 27.00 28.35 29.77

c) Long Term loans and advances 8758.00 18982.90 25247.26 31306.60

d) Other non-current assets 146.10 2391.90 3229.07 4068.62

1. Sub Total - Non Current Assets 98507.80 117057.70 133762.38 148476.50

Current Assets

Current Investment 126922.60 145371.80 164851.62 183606.49

Inventories 7979.4 11110.90 14413.17 17439.94

Trade receivables 3324.50 4028.70 4673.29 5234.09

Cash and Bank Balances 52553.20 69421.00 87748.14 107052.74

Short-terms loans & advances 2334.30 3733.20 5077.15 6498.75

Other current assets 3228.10 3930.80 4638.34 5241.33

2. Sub Total - Current Assets 196342.10 237596.40 281401.72 325073.33

Total Assets (1+2) 294849.90 354654.10 415164.11 473549.83

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 114053.10 126998.40 139698.24 150874.10

Other Income 15428.30 20321.50 22760.08 24580.89

Total Income 129481.40 147319.90 162458.32 175454.99

Expenditure -53789.80 -62357.30 -68172.74 -72947.63

Operating Profit 75691.60 84962.60 94285.58 102507.36

Interest -139.50 -291.00 -261.90 -275.00

Gross profit 75552.10 84671.60 94023.68 102232.36

Depreciation -6106.70 -6470.40 -6729.22 -6998.38

Profit Before Tax 69445.40 78201.20 87294.46 95233.98

Tax -14185.00 -9206.40 -9951.57 -11904.25

Net Profit 55260.40 68994.80 77342.89 83329.73

Equity capital 8450.60 8450.60 8450.60 8450.60

Reserves 260362.00 314306.80 370882.02 426514.33

Face value 2.00 2.00 2.00 2.00

EPS 13.08 16.33 18.30 19.72

Quarterly Profit & Loss Statement for the period of 30th September, 2012 to 30th June, 2013E

Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13E

Description 3m 3m 3m 3m

Net sales 28654.60 31780.20 39086.50 36350.45

Other income 5397.60 5062.70 4118.20 4612.38

Total Income 34052.20 36842.90 43204.70 40962.83

Expenditure -14223.60 -16840.10 -18102.10 -17157.41

Operating profit 19828.60 20002.80 25102.60 23805.42

Interest 20.90 -74.80 -108.30 -92.06

Gross profit 19849.50 19928.00 24994.30 23713.36

Depreciation -1745.70 -1772.10 -1218.80 -1255.36

Profit Before Tax 18103.80 18155.90 23775.50 22458.00

Tax -2705.90 -2030.50 -2117.40 -2380.55

Net Profit 15397.90 16125.40 21658.10 20077.45

Equity capital 8450.60 8450.60 8450.60 8450.60

Face value 2.00 2.00 2.00 2.00

EPS 3.64 3.82 5.13 4.75

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 13.08 16.33 18.30 19.72

EBITDA Margin (%) 66.37% 66.90% 67.49% 67.94%

PBT Margin (%) 60.89% 61.58% 62.49% 63.12%

PAT Margin (%) 48.45% 54.33% 55.36% 55.23%

P/E Ratio (x) 8.56 6.85 6.11 5.67

ROE (%) 20.56% 21.38% 20.39% 19.16%

ROCE (%) 30.43% 28.33% 26.63% 25.18%

EV/EBITDA 5.55 4.75 4.08 3.57

Book Value (Rs.) 63.62 76.39 89.78 102.94

P/BV 1.76 1.46 1.25 1.09

Charts

Outlook and Conclusion

� At the current market price of Rs.111.90, the stock P/E ratio is at 6.11 x FY14E and 5.67 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.18.30 and

Rs.19.72 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 15% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 4.08 x for FY14E and 3.57 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.25 x and 1.09 x respectively for FY14E and FY15E.

� The Company’s mined metal production is projected to increase by 15% to 1.0 mtpa and Silver production

from is projected to be about 360 tonnes in FY 2014.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.125.00 for Medium to Long term

investment.

Industry Overview

ZINC

Focus on India, being a large growing market and an underexplored territory for base metals. We supply more

than 80% of India’s demand for Zinc, which is essential for galvanising the country’s infrastructure and

construction industries.

Our newly added Lead capacity will serve the nascent but expanding automobiles and industrial segments. In

addition, our enhanced Silver production will reduce the country’s dependence on imports. While we continue to

explore for new mineral reserves to fulfill our nation’s future needs, our strong cash reserves of USD 3.5 billion

gives us a war-chest to look at acquiring strategic raw material reserves in India and overseas to supplement our

growing requirements.

The Zinc consumption growth is mainly driven by the developing countries on the path of rapid urbanisation and

increased demand for galvanized sheets. In the future, demand from the emerging countries is expected to offset

the deceleration of demand in Europe and western countries. Global Zinc demand is expected to grow at a

modest 5% in 2012 and a similar growth is anticipated in 2013, increasing the global Zinc consumption to just

short of 14Mt by the end of 2013.

Strong long term outlook for developing countries

Developing countries will continue to outpace the rest of the world, as urbanisation and infrastructure

development continue to drive the growth. The automotive industry, offers plenty of potential for Zinc demand

growth on account of low but growing vehicle density in the developing nations. Furthermore, sustained market

development including significant increase in the usage of coated steel in developing countries will open up new

markets.

The growth in China, although forecast to be slow, will still remain strong by historical global standards and

further bolster asian growth prospects. This along with the growth in the other developing economies as a whole

will result in developing world Zinc consumption growing by 6.9% p.a. over the period 2012-2015.India, being a

high growth-high demand market, has one of the lowest per capita consumption of Zinc and thus the demand

market outlook Zinc Global Zinc demand-supply balance likely to be in deficit in future 2011 global market

12,782 Kt Mine Production 12,608

KtConsumption5.5% Production growth 7.9% Consumption growth 12potential holds promise. Notwithstanding

the global economic slowdown, the industry succeeded in sustaining its positive growth momentum on the

strong fundamentals of domestic demand and expanding Continuous Galvanising sector. Moreover, the

Government’s incentive plans to boost economic growth in various industries will further drive Zinc demand.

The Government’s investment in infrastructure is proposed to be doubled in the Twelfth Five-Year plan (2012-

2017) to uSd1.0 trillion. Zinc demand growth will therefore benefit from coated steel consumption growth in

view of incessant urbanisation and forecast double digit growth in automobiles, taking it to over 8.4% in 2012

and thereon upholding the demand growth momentum to around 6-7% annual rate in long run. HZL has an 82%

market share in India and is well positioned to benefit from this growth.

Support for higher Zinc Price in future

Zinc price is projected to be in a secular uptrend and rise gradually over the next couple of years, before breaking

out in 2014. The market is presently in a slight surplus with refined metal production higher than consumption.

However, this trend to projected to reverse starting 2014 and severe mine output shortfall are foreseen in 2015.

This switch from surplus to deficit is due to robust demand growth and supply shortfall resulting from mine

closures and lack of quality mine additions. An estimated 1.2 Million tonnes of current mine production will see

closures by 2016, which is almost 10% of current Zinc demand. Further supporting the higher price outlook for

Zinc is the rising cost of production due to rising input costs, increasing mine depths and higher capital costs of

new mining projects due to infrastructural, environmental and financial bottlenecks.

Lead

While growth in Lead metal demand will be strong in 2012, its supply will play a pivotal role in the arket. Leads

major demand driver is the replacement battery market, which at present accounts for around 45% of the global

enduse consumption. The ongoing growth of the automobile industry will further push the Lead market growth.

In 2011, the Indian Lead market experienced a growth of 4.3%, as the refined Lead consumption in the country

increased to 0.46 Million tonnes. The demand from the battery sector contributes to around 90% of the Indian

Lead market.

Following the global trend, the Indian Lead market outlook looks upbeat with continued growth foreseen in the

automobile industry. India, along with the other BrIC countries, has become a sought after manufacturing hub for

major OEMs. The replacement battery market is growing too as the number of vehicles on the road are increasing

every year. rapid growth in telecommunication and the power deficiency in the country have also resulted in an

increased need of industrial and inverter batteries. For the coming years, the Lead market is expected to be

strong keeping in line with the growth in demand and the current supply – demand gap from primary source

within the country. With the expected automobile and infrastructure growth, the Indian Lead demand is

projected to grow and sustain the 6%-7% in the coming years.We have increased our Lead production capacity

to 185,000 tonnes with the successful start up of the new smelter at dariba and plan to sell most of our Lead

production in India.

Silver

Mine production rose by 4% and supply side supported by higher scrap supply increased by 9% this year. The

demand by fabrication has seen a growth of 4% this year due to consistent demand in industrial uses and robust

growth in investment, partially offset by a decline in jewellery and Silverware demand on account of high prices.

Due to the higher investment demand and steady industrial growth, Silver demand is expected to further rise in

next year. Indian demand for Silver increased by 12% to 3,550 tonnes in FY 2012, as compared to the previous

year. Indian Silver demand is expected to grow on the back of prospective growth in industrial segments with

Silver becoming a preferred investment asset along with gold

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any

financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly

available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be

relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss

or damage that may arise to any person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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