Hindustan Zinc Expects One More Quarter Of Cost Pressures
While margins may be protected, the cost of production could rise 2-3% for one more quarter, Hindustan Zinc says.
The non-ferrous industry may witness one more quarter of cost inflation pressures, according to Arun Misra of Hindustan Zinc Ltd.
While margins may be protected, the cost of production could be 2-3% higher sequentially for the zinc division, mainly on account of coal linkage issues, the chief executive officer of Hindustan Zinc told BloombergQuint.
Q4 Key Highlights (Consolidated, QoQ)
Revenue up 10.1% at Rs 8,797 crore
Net profit up 8.4% at Rs 2,928 crore.
Ebitda up 13.5% at Rs 4,962 crore.
Margins at 56.4% versus 54.7%.
Hindustan Zinc has been planning to do away with "the commodity cycle of coal" and focus more on renewable energy, said Misra. The company has earmarked Rs 350 crore to develop 200-megawatt renewable capacity.
Most brokerages have raised the target price for the company despite lower-than-expected FY23 guidance, while one has downgraded its rating due to high valuations.
Here’s a summary of brokerages’ view of the company:
Citi Research
Maintain 'neutral' rating; raised target price to Rs 330 versus Rs 320 earlier, an implied downside of 4.05%.
Ebitda rose sequentially on higher zinc London Metal Exchange prices and ~1% decline in zinc cost of production before royalty.
Consensus valuations at ~7.5 x 1 year forward EV/Ebitda discounts near-term optimism in zinc pricing.
Global commodities team expects zinc prices to hold firm in the second half of this year but grind lower thereafter.
Commentary around actively considering Zinc International as a potential acquisition target creates some uncertainty around cash use.
Credit Suisse
Maintain 'underperform' rating; raised target price to Rs 310 from Rs 300, an implied downside of 10%.
Fourth quarter of FY22 was inline. FY23 guidance is lower than expected.
CoP before royalty fell quarter-on-quarter but remained elevated as linkage coal availability remained tight.
Hindustan Zinc has guided for elevated costs in FY23 as well – $1,125-1,175 per tonne vs $1,122 per tonne in FY22.
FY23 production guidance is lower than expected with mined metal production at 1.05-1.08 mt and refined metal at 1-1.03 mt.
Estimates incorporate higher costs and lower volumes.
IIFL Securities
Downgrade rating to 'reduce' from 'add'; raised target price to Rs 346 from Rs 293, an implied upside of 6.18%.
Rating downgrade amid rich valuation at 7.4 times FY24 EV/ Ebitda.
Raise Ebitda by 4% for FY23/FY24 due to multi-year high zinc prices.
Elevated LME zinc prices to boost near-term earnings.
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