Stock Market Update on Hindustan Zinc for 1QFY2012

Stock Market  Update on Hindustan Zinc for 1QFY2012 with an Accumulate recommendation and a Target Price `156 (12 months)

For 1QFY2012, Hindustan Zinc’s (HZL) net revenue at `2,821cr was marginally lower than our estimate of `2,941cr. However, net profit at `1,495cr was in-line with our estimate of `1,532cr. We recommend Accumulate on the stock.

Strong performance continues in 1QFY2012: HZL’s net revenue increased by 44.6% yoy to `2,821cr on account of higher sales volume and realisation. Despite the shutdown at Rampura Agucha mine during the quarter, zinc volumes grew by 16.5% yoy to 192kt and lead sales volumes grew by 4.5% yoy to 15kt. Silver sales volume increased by 14.2% yoy to 40,908kg and lead concentrate sales stood at 10,086dmt. Average zinc, lead and silver realisation increased by 11.6%, 25.5% and 98.0% yoy, respectively. On the operating front, staff cost declined by 14.0% yoy to `127cr, which led to EBITDA margin expanding by 406bp yoy to 56.4%. Thus, EBITDA grew by 55.8% yoy to `1,592cr. Further, other income was higher by 124.3% yoy to `355cr, which resulted in net profit growing by 67.8% yoy to `1,495cr despite depreciation increasing by 19.8% yoy to `135cr and higher tax rate at 17.1%.

Outlook and valuation: Currently, the stock is trading at 5.9x FY2012E and 4.4x FY2013E EV/EBITDA. We expect HZL to benefit from the expansion of zinc-lead smelting capacity during FY2012–13. Furthermore, HZL’s expansion in silver-rich Sindesar Khurd mine should result in robust bottom-line growth. HZL had a huge cash balance of `15,720cr as of June 30, 2011 (`37 per share).  We recommend Accumulate on the stock with a target price of `156.

Stock Market Update on Thermax for 1QFY2012

Stock Market  Update on Thermax for 1QFY2012 with a Neutral recommendation

Thermax reported better-than-expected results for 1QFY2012. The company registered 32.2% yoy growth in its top line to `1,044cr, higher by 16% from our expectation of `901cr. Led by strong top line, EBITDA and PAT also reported healthy growth of 18.5% and 20.7%, respectively. Order intake for the quarter was healthy at `1,688cr, while order backlog at the end of the quarter stood at `6,804cr, providing revenue visibility for the next 4–5 quarters. We remain Neutral on the stock.

Strong execution drives revenue and profit: For 1QFY2012, the company reported revenue growth of 32.2% yoy to `1,044cr (`790cr) mainly on the back of strong execution of its order book. The major upside came for the energy segment, which reported impressive growth of 32.2% yoy. EBITDA margin witnessed an expected contraction of 127bp on the back of high raw-material costs. Other operating metrics, viz. interest expenses, depreciation and other income, remained flat yoy, which lifted PAT by 20.7% yoy to `80cr yoy (`66cr).

Outlook and valuation: Thermax trails its fortune towards industrial capex, especially in sectors such as metals, cement and oil and gas, which form its mainstream arena for offering products and solutions in captive power and heating solutions. However, the tough macro environment does not augur well for the company – elevated interest rates remain a concern given the cascading impact on investments and, thereby, lower order releases. Muted demand in terms of lower inflows will directly impact the company’s future growth trajectory. The stock trades at 17.4x and 14.9x FY2012E and FY2013E EPS, respectively.
In the backdrop of unfavorable investment climate that weighs heavily on the stock, we continue to remain Neutral on the stock. 

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