Hindustan Zinc...A good buy

Among the various results declared today, Hindustan Zinc Limited too came out with its numbers for Q2FY11. The company is engaged in mining and smelting capacities to meet the domestic demand of zinc and lead metals.     

For the quarter ended 30 September’10, it reported a 20%yoy and 10.9%qoq increase in revenue. The sales volume for zinc, lead and silver increased by 24.4%, 27% and 25.8% respectively. The realization for zinc, lead and silver too increased significantly by 12.9%, 7.5% and 36.2% yoy respectively. On qoq basis, the EBITDA margins declined by 807bps yoy to 52%. This decline was due to an increase in mining expenses, stores and spares cost and increase in coal costs which led to an increase in power costs. However, on yoy basis EBITDA grew by 4.6%. On a consolidated basis, it posted a net profit of Rs.11.72bn, a 2.27% increase from corresponding previous quarter. Total income stands at Rs.21.45bn, an increase of 21.32% from corresponding previous quarter. 

Going ahead, the company is looking forward to an expansion of zinc-lead smelting capacity and increase in silver production. It has also raised the prices of zinc and lead by Rs.800 and Rs.1,100 a tonne respectively. Adding to this the company is fundamentally strong with a cash balance of Rs.12, 213cr which works out to Rs.289 per share.

                       

With 15.18% rise in stock price against 1.98% rise in sensex, during the course of last one month, the stock is an outperformer. Moreover, it outperformed the market in the past quarter, gaining 26.33% as against 11.46% rise in the Sensex.

We recommend a BUY on this scrip with a target of Rs.1482 (10.9xFY12eEPS).