Buy Hindustan Zinc; target of Rs 340: Edelweiss

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Edelweiss Securities' research report on Hindustan Zinc

Hindustan Zinc’s (HZL) Q1FY18 EBITDA of INR23bn (up 2.1x YoY) was marginally lower than consensus estimate due to higher power & fuel  cost and lower sulfuric acid realisation. We remain upbeat on the company due to: 1) capacity ramp up (1.2mtpa by FY20) progressing as per schedule, 2) COP expected to be contained within ~USD850/t; and 3) positive outlook on zinc owing to supply constraints. Factoring in revised USDINR estimate of 66 (earlier 67), our FY18E/FY19E EPS is revised down 2% each and TP to INR340 (INR345 earlier), implying exit multiple of 13.6x FY19E, lower than peer set average of 14.2x. Maintain ‘BUY’.

Outlook

We are upbeat on HZL as the stock offers twin benefits of EPS growth (13% CAGR through to FY19E) and stable dividend yield of 4-5% for FY18E and FY19E. We keep our operating estimates unchanged; however, revise FY18E/FY19E EPS down 2% each on revised USDINR estimates. We maintain ‘BUY/SO’ with revised target price of INR340 (earlier INR 345), implying exit P/E of 13.6x FY19E.

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