For 3QFY2016, Hindustan Zinc (HZL) reported a 11% yoy decline in revenue to
Rs3,385cr, in line with estimates, led by a 17% decline in zinc revenues as higher
volumes and rupee depreciation benefits were offset by lower realizations on
account of a decline in LME prices and zinc premiums. Mined metal production
declined 13% yoy to 2,40,000MT. EBITDA for the quarter was also in line with
expectation at Rs1,478cr, declining 29% yoy, led by lower LME prices and Rs84cr
contribution towards the District Mineral Foundation (DMF). While depreciation
and finance expenses came in line with our expectations, lower tax rate resulted in
the net profit coming in 9% ahead of expectations at Rs1,811cr.
Management has maintained its guidance of a ~16% increase in refined metal
production volume for FY2016, despite a weaker mine plan in 4QFY2016.
Management also indicated that the expansion projects remain on track, which
should help drive volumes.
Outlook and valuation: We expect zinc prices to continue to decline going
forward led by global headwinds. We have however retained our volume
estimates, led by the healthy growth during the quarter. We reduce our FY2016
and FY2017 estimates in view of the higher than expected fall in realizations and
fall in zinc premiums. The stock is currently trading at 4.2x FY2017E EV/EBITDA.
We value the stock at 6x FY2017E EV/EBITDA and arrive at a target price of
Rs170. We retain our Accumulate rating on the stock.

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