We maintain outperform on Hindustan Zinc (HZL) with a target price of Rs 148 per share. HZL cash balance is 43% of its market cap and at 7x P/E FY15e and 4x EV/ebitda, we believe HZL provides low-risk exposure with strong balance sheet.
HZL reported sales of Rs 3,400 crore, up 9% y-o-y with 11%y-o-y higher metal sales volumes. Eitda was at R1,780 crore, up 22%y-o-y despite a 16% y-o-y increase in Zinc CoP due to increase in diesel prices and higher spendings on commissioning Kayar mine. PAT at R1,730 crore was up 7% y-o-y with Rs 70 crore of MTM loss.
The company reported Q3 FY14 ebitda of Rs 1,780 crore, up 22% y-o-y but in line with consensus. However, company has cut production guidance to 9 lakh tonne from 9.5 lakh tonne and 1 million at the start of the year due to delayed ramp-up of Rampura Agucha mines. HZL has already achieved 72% of its FY14e guidance in the nine months ended December 2013 against 64% in FY13.
Also, it has achieved $1,014 per tonne ebitda margin in nine months of FY14 and now require margin to $1,080 per tonne in Q4FY14e to achieve our full-year estimates. We are 7% below consensus for FY14e & expect marginal downgrade of consensus post the guidance cut. Our commodities team is constructive on zinc and expect near-term deficit in concentrate and cathode. This coupled with weak rupee to support margins of HZL, in our view.