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TECHNO SHARES & STOCKS LTD

INDIA RESEARCH INDIA RESEARCH INDIA RESEARCH INDIA RESEARCH



Abhilasha Satale
6633 8900 / 40278900 EXT. 152
abhilasha.satale@technogroup.co.in



































































Hindustan Zinc Ltd.
Perpetual augmentation



12
th
November 2010

Hindustan Zinc Ltd. (HZL) 2 12
th
November 2010


Hindustan Zinc Ltd.
Key Rationale
Hindustan Zinc known as lowest cost producer in the world commands premium
for its integrated facilities with total metal production capacity of 754000tpa and
debt free status. HZL has objective of increasing its capacity to 1mtpa by FY11E
with total cost of `3600cr generated through internal accruals. At current zinc
prices HZL is expected to generate EPS of `102 and `132 for FY11E and FY12E
respectively. Giving 1 multiple to cash in the balance sheet of `290 per share and 8
multiple to its core business we feel the stock has great potential to make money
for investors.
Anglo American Zinc acquisition to benefit: Anglo American zinc
acquisition at total consideration of $1338mn is profitable venture for
Hindustan Zinc as ROE on the transaction is expected to be in excess of
15%. With increase in production and wide spread geographical presence
HZL could lay hands on undeveloped Gamesberg mine which has
potential to produce 400kt. The acquisition, which is EPS accretive, is
expected to add around `1200cr to its operating EBIDTA during FY12E.
We value the asset in the balance sheet at `118 per share.
Capacity expansion to ramp up volume: HZL has successfully
added 1mtpa to its mine capacity at Rampura Agucha and 210kt to its
smelter capacity at Rajpura Dariba in FY10. It is further expanding lead
smelter capacity by 100kt at Rajpura Dariba. Total expansion cost is
anticipated at `3600cr, which will be funded through internal accruals.
Cash rich status of the firm should facilitate such expansion. Capacity
expansion is likely to increase zinc production to 747kt and lead
production to 145kt by FY12E.
Captive power plant to reduce cost: HZL being lowest cost
producer in the industry commands premium to other players. Captive
power supply is major cost-saving factor of its production. Its current
power capacity is 493MW, which will be increased to 653MW to fulfill
increased power requirement due to rising production.
Rising silver production with rising prices: HZL is exploring all the
possibilities to increase silver production. The firm is expanding mining
capacity at Sindesar Khurd mine from 0.5mnt to 1.5mnt thus, increasing
silver production to 0.5mnt by 2013E. With rising silver production we
expect silver contribution to total business to increase from current 5%
to 10%. However, rising silver prices in uncertain global economic
environment could be major boost to HZLs profitability cost being
constant. We expect silver business to be major trigger for HZLs re-
rating in the medium term.
Zinc and lead prices- stable outlook: Zinc demand is expected to
increase by 13% and 6.3% in 2010E and 2011E respectively reaching
13.4mnt by 2011E. Lead demand is expected to grow at 4.5% in 2010E
and 5.8% in 2011E. Rising consumption from Asian countries on account
of increased infrastructure and construction activities is likely to keep
zinc and lead demand outlook stable. Supply is also picking up with
demand however surplus is expected to reduce over medium term for
both the commodities. We expect very minimal downside risk for both
industrial commodities over medium term.
Valuation: Rising volume and stable realization to improve topline of
the firm at a CAGR of 20% over FY10-FY12E bottomline at a CAGR of
18% over the same period. Any further upside in silver price would be
addition to bottomline. At current market price the stock is
available at 12.4xFY11E and 9.4xFY12E earnings and 8.2x and
6.3x FY11E and FY12E EV/EBIDTA respectively. We
recommend Buy with target price of ` `` `1581.
Buy
Date 12
th
November 2010
CMP `1234
Target Price `1581
52 week High / Low 1328/900
Equity Cap (current) `422.53Cr
Face Value Re. 10
Mkt. Capitalization `52140Cr
Avg. Daily Vol. (12 M) 222857

BSE SENSEX 20518
NSE - NIFTY 6178
NSE Code HINDZINC
Bloomberg Code HZ IN
BSE Code 500188

SHAREHOLDING PATTERN @ 30-09-10
Promoters 64.92%
Indian Institutions 33.08%
Public & Others 2.00%

6-MTS YTD 1-YR
HZL
18% 31% 28%
Sensex
16% 27% 26%
Nifty
16% 27% 24%

BRIEF
FINANCIALS
FY09 FY10 FY11E FY12E
Net Sales 5,680.3 8,017.0 9,330.6 11,548.9
Sales growth -28.1% 41.1% 16.4% 23.8%
EBITDA 3,665.4 5,392.3 6,402.7 8,357.5
PAT 2,727.6 4,041.4 4,337.4 5,703.8
EPS 64.6 95.6 102.7 135.0
P/E (x) 19.8 13.3 12.4 9.4
RONW (%) 20.8% 24.8% 21.4% 22.9%
EV/EBITDA 14.3 9.7 8.2 6.3


Hindustan Zinc Ltd. (HZL) 3 12
th
November 2010



INVESTMENT HIGHLIGHTS

Anglo American Zinc Acquisition to benefit

Anglo American zinc acquisition at total consideration of $1338mn is profitable
venture for Hindustan Zinc. With this acquisition HZLs zinc and lead mine
production is expected to increase from 1.064mnt to 1.462mnt. Total reserves
and resources base is expected to increase from 272mn to 478mnt. The
consideration values Anglo American Zinc at 6x EBITDA and is expected to
accrue 15% ROE to the firm as against 5% on its current cash balance. Apart
from this, unexplored assets at Gamesburg holds lot of potentials for further
volume increase. Based on FY11E and FY12E earnings we analyze current share
price includes `118 towards Anglo Americal Zinc.

Assets acquired

The consideration includes $698mn paid towards Skorpiaon mine, $308mn
towards Lisheen mine and $332mn towards Anglo Americans 74% interest in
Black Mountin Mining.

R&R Grade 2009 Prdn.
Location Mine Ownership R&R(Mnt)
Zn% Pb% Zn Pb
Comments
Skorpion 100% 8.3 11.30% 150kt
Unique technology to extract zinc
metal from zinc oxide ore
Nambia
Gergarub
Co-expl. Agree.
With Rosh Pinah
N.A. N.A. N.A. N.A. N.A.
Black mountain 74% 51.7 1.50% 2.90% 21kt 36kt Mine life extension past 2020 possible

New mining infra coming online mid-
2010
Gamesberg 74% 137.6 6.90% 0.40% - -
One of the world's largest
undeveloped zinc deposits
South
Africa
Potential to produce 400ktpa of zinc
Ireland Lisheen 100% 8.7 11.90% 1.90% 172kt 19kt
Underground mine producing high-
quality zinc and lead


Historcal Zinc Production (kt) (2)
150 145 150
165 167
172
21
21 21
0
100
200
300
400
2007A 2008A 2009A
Skorpion Lisheen Black Mountan
336 333 343


Historcal Lead Production (kt) (2)
20
16
19
31
35
36
0
10
20
30
40
50
60
2007A 2008A 2009A
Lisheen Black Mountan
51 51
55








Hindustan Zinc Ltd. (HZL) 4 12
th
November 2010


Gross Revenue Contribution (2) (2009)
Lisheen
45%
Skorpion
35%
Black
Mountan
20%
Total : US$670m


EBITDA Contribution (2) (2009)
Lisheen
34%
Skorpion
47%
Black
Mountan
19%
Total : US$213m


Gamesberg- One of the largest undeveloped zinc mine


Gamesberg is one of the largest undeveloped zinc deposits in the world. Total
reserve base of Gamesberg is around 186mnt includes 154mnt at Gamesberg
North at 6.3% Zn and 32mnt at Gamesberg East at 9.8% Zn. The mine holds
potential to produce 400ktpa zinc at Gamemsberg North with potential to
expand to 530ktpa through development of Gamesberg East. Thus, we feel the
asset holds lot of potential to boost volume for HZL


400
725
410
390
240
200
394
382
264
209
Rampura-Agucha
Red Dog
Gamsberg
Mehdiabad
mount Isa
Selwyn
Ozernoe
Lanping
Penasquito
McArthur River
Potential New Mines Existing Mines
Vedanta-owned Anglo-owned


Valuation

As acquisition is immediate EPS accretive we expect this to contribute around
`1200cr in FY12E. With Vedantas expertise to develop the assets we are
hopeful of improved profitability from these mines. Valuing the stake at 5x
EV/EBIDTA we value the stake at ` `` `118/share.









Hindustan Zinc Ltd. (HZL) 5 12
th
November 2010


Revenue, EBIDTA and cash cost
Revenue ($mn)
509
279
236
463
285
301
112
133
150
0
200
400
600
800
1000
1200
2007A 2008A 2009A
Skorpion Lisheen Black Mountain
1122
676 670

EBIDTA ($mn)
394
132 100
242
39 72 24
41
69
-300
200
700
1200
2007A 2008A 2009A
Skorpion Lisheen Black Mountain
63 29 32
%
705
195
213

2009A Cash Costs
902
1287
1237 (1)
0
500
1000
1500
Skorpion Lisheen Black
Mountain
Skorpion Lisheen Black Mountain
US$ /


Improved volume through expansion

Mining operations
Rampura Agucha mine capacity
increased from 5mtpa to 6mtpa.
HZL owns 5 mines in Rajasthan with total resources amounting to 198mnt and
reserves amounting to 102mnt with expected mining life of 20years. Rampura
Agucha is largest and lowest cost open cost zinc mine in the world. HZL has
successfully commissioned 1mtpa concentrator at Rampura Agucha, thereby
increasing the ore production capacity from 5mtpa to 6mtpa. During FY10 the
company has started underground development work beyond the ultimate
open pit depth of 372meters from the surface. The project has state-of-the-art
infrastructure facilities and mining equipments. These initiatives will facilitate
faster rate of underground mine development and targeted production from
Rampura Agucha mine on a sustainable basis.

Capacity at Sindesar Khurd to increase
from 0.5mtpa to 1.5mtpa.
Second largest mine owned by HZL is Sindesar Khurd mine with total reserves
and resources of around 60.8mnt. The underground mine has high silver
content of 215particle for one million. The ore produced at Sindesar Khurd
mine is processed at Rajpura Dariba mines beneficiation plant. It will be
processed at the mine after commissioning of Sindesar Khurd mine. HZL is
expanding its ore production capacity from 0.5mtpa to 1.5mtpa thereby
increasing silver production from 150kt to 500kt by 2013E.

Rajpura Dariba and Zawar mines are with total reserves and resources of
around 42mnt and 61mnt respectively. The mines are well equipped with
world-class infrastructure facilities. The firm is in the process of developing two
new mines viz. Bamnia Kalan and Kayar with reserves and resources base of
5mnt and 9mnt respectively.

Mining capacity addition
6 6
0.5
1
1.5 0.9
0.9 1.2
1.2
0
2
4
6
8
10
12
Ore Production
Capacity (mtpa)
Additional Total
Rampura Agucha Mine Sindesar Khurd Mine
Rajapura Dariba Mine Zawar Mines


Hindustan Zinc Ltd. (HZL) 6 12
th
November 2010



Reserves and Resources as on March 31, 2010
Resources Reserves
Measured and indicated Inferred Proved and probable
Grade % Grade % Grade %
Mt Zinc Lead Mt Zinc Lead Mt Zinc Lead
Rampura Agucha 20.99 14.67 1.92 23.66 11.80 1.92 75.71 14.23 1.99
Rajpura Dariba 7.66 7.80 2.26 26.75 8.12 2.03 7.80 6.25 1.40
Sindesar Khurd 17.25 5.67 3.52 32.83 4.98 3.35 10.74 5.45 2.95
Bamnia Kalan 1.69 5.29 1.84 3.37 5.00 3.80
Zawar 24.66 5.00 1.80 28.70 4.76 2.71 7.85 3.66 1.95
Kayar 2.30 12.58 1.87 6.71 9.95 1.67
Total 74.54 8.41 2.28 122.02 7.21 2.55 102.09 11.89 2.04

Increased smelting capacity to improve production


Chanderia smelter is the largest smelter owned
by HZL with total capacity of 610000t of zinc
and lead and 168tpa silver. HZL has commenced
210ktpa Hydro Zinc smelter at Dariba
Consequently zinc-lead metal production
capacity has increased to 964ktpa. This
expansion is likely to increase zinc production
form 578kt in FY10 to 664kt by FY11E and
747kt by FY12E.

The firm is in the process of increasing Dariba lead smelting capacity by
100ktpa by March 2011E. Lead production volume is expected to increase
from 71.6kt in FY10 to 112kt in FY11E and 114.7kt in FY12E. Post- expansion
HZLs capacity is likely to be 1064ktpa. Total capital expenditure for these
projects will be met through internal accruals.


879 879
85
100
185
0
200
400
600
800
1000
1200
Current Cap Additional Lead
Smelter
2011E
Zinc(kt) Lead Smelter(kt)



Hindustan Zinc Ltd. (HZL) 7 12
th
November 2010



747150
664000
578411
551724
426323
348567
317558
261226
202828
144750
111900
71627
65332
63566
50187
23636
25089
32542
259240
15727
2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Zinc Lead
Tonnes


Captive power generation reduces cost

HZL has strategically installed Captive Power Plants (CPP) to cater to the
power requirement of smelters and mines. It has thermal CPPs at Chanderiya
and Zawar with total generation capacity of 314MW. In addition DG sets are
installed at Debari, Chanderiya and Zawar with total power generation
capacity of 35.62MW. It has also installed 123.2MW wind power plant and
20.2MW waste heat recovery based plant to suffice its power requirement. To
fulfill increasing power requirement through increased production capacity the
firm is further setting up 160(2*80MW) thermal power plants at Dariba. Coal
being the most important raw material for power plant the firm secures its
coal requirement partly through coal linkages with Coal India and partly
through imports from Indonesia and South Africa. The project is expected to
be commissioned by September 2010.


Power Capacity(MW)
35.62
20.2
314
493.02
653
123.2
160
0
100
200
300
400
500
600
700
TPP DG Sets Wind
Power
WHRB Total addition
TPP
Post
TPP DG Sets Wind Power WHRB addition TPP


Rising silver production and rising prices

HZLs aggressive plans on ramping up silver production with opening up of
Sindesar Khurd mine will be positive trigger for its profitability due to rising
silver prices. HZL has plans to ramp up its silver production capacity from
current 150kt to 500kt by FY13E. Stupendous rise in silver production along
with rising realization to improve silver contribution in total business from
current 5% to more than 10% by FY13E. We expect silver production to
increase substantially post 2012E. For FY12E and FY12E we expect revenue
contribution from silver business to increase from current `344cr to `490cr in
FY11E and `704cr in FY12E.

Hindustan Zinc Ltd. (HZL) 8 12
th
November 2010




Rising silver prices could act as a big trigger for the firms profitability. Though
silver contributes only 5% to its current profitability however rising silver
prices under uncertain economic scenario would be major boost to Hindustan
Zincs profitability given its increasing exposure to silver production.

Silver production capacity and volumes

500000
180000 180000 180000
162000
132000 132000
92800 92800
147600 144000 138550
105055
80405
51296
10732
86000
34666
24098
200000
2013E 2012 2011 2010 2009 2008 2007 2006 2005 2004
Silver Sales volumes
Tonnes


Revenue mix

73% 71%
9% 15%
4%
6%
14%
8%
0%
20%
40%
60%
80%
100%
2010 2012
Zinc Lead Silver Other


Lowest cost producer to command premium

HZL is the lowest cost producer of zinc in the world mainly due to its
integrated facilities which gives hoard from volatility in TcRc, captive power and
high-grade mine status. HZLs average zinc production cost works out to
$850/tonne as against world average of $1300/tonne. Similarly recovery of zinc
in the mining operations has consistently increased from 88.7% in 2002-03 to
91.2% in 2007-08.

Cash rich to facilitate expansion

HZL holds around `12376cr (`292 per share) cash and equivalents in its
books. Healthy cash balance has facilitated Anglo American Zinc acquisition
which is expected to yield around 15% ROE to the firm. Rich cash balance and
debt free status provides more room for expansion at lower cost. We expect
HZL to generate operating cash flow of `5800cr in FY12E thus facilitating
acquisition and future smelter as well as mine expansions.






Hindustan Zinc Ltd. (HZL) 9 12
th
November 2010



Industry dynamics

Zinc surplus to go down in 2010 and 2011E

Reviving demand in the Western world and rising infrastructure demand and
automobile demand in the Asian countries is driving zinc and lead usage. Zinc
demand is expected to increase by 13% and 6.3% in 2010E and 2011E
respectively reaching 13.4mnt by 2011E. Demand growth in the zinc industry is
mainly driven by improving infrastructure and construction activities in the
world.

Though major closed metal manufacturing smelters have come on stream after
surge witnessed in Zinc prices, new capex in the industry is very minimal. This
will further restrain the supply growth in the industry. Thus, we expect zinc
metal production to lag demand growth. Therefore, reducing excess capacity in
the system for near term. Zinc metal production is expected to increase by
10% and 5.6% in 2010E and 2011E respectively.

000 tonnes 2005 2006 2007 2008 2009
2010
(Jan-Jul)
2010 2011
Mine Production 10145 10447 11119 11653 11343 7131 12556.7 13385.44
% Change 3.0% 6.4% 4.8% -2.7% 10.7% 6.6%
Metal Production 10220 10655 11360 11645 11268 7273 12496.21 13196
% Change 4.3% 6.6% 2.5% -3.2% 10.9% 5.6%
Metal usage 10609 11014 11307 11436 10851 7122 12261.63 13034.11
% Change 3.8% 2.7% 1.1% -5.1% 13.0% 6.3%

Zinc mine and metal output forecast

In 2010 Zinc mine output is expected to increase by 7% mainly on
account of:
Ramp up of 190kt/year capacity at Penasquito mine in mexico
Hingher output in Australia, Brazil, India, Kazakhstan and Russsia
Rising production in China
In Peru, drop at Antamina will be offset by reopening of Iscaucruz

Further 6.6% increase is expected in mine output during 2011E:
Reopening of Nyrstars Tennessee mines in USA
Reopening of expanded Neves Corvo in Portugal

Globally new greenfield operations are witnessed in the regions of Saudi Arabia,
Tajikistan and Uzbekistan. These initiatives will shape up further to improve
mine output.

Zinc metal output is expected to increase by 9% and 5.6% in 2010e and 2011e
respectively at 13.196mnt. Production ramp up is expected to be noticeable in
regions such as Belgium, Brazil, Canada, Japan, Rep. Of Korea, Netherlands and
USA as major suspended capacity during recession has been brought on
stream.

New smelter capacity during 2010-11
210kt/yr capacity at Rajpura Dariba refinery
Votorantims new 160kt/yr line at Cajamarquilla, Peru

Hindustan Zinc Ltd. (HZL) 10 12
th
November 2010



China major driver of zinc

During last decade Chinas zinc demand has increased at a CAGR of 10%.
China has been major driver for zinc demand increasing its contribution from
10% in 2001 to 35% in 2010 of the total consumption. Post stimulus to suffice
demand revival China started importing base metals very aggressively. However,
the rise in imports is at a faster pace than demand revival resulting into piling
up of inventory. Therefore, reduced imports from China indicate inventory de-
stocking process. Similarly, with sharp price increase unviable smelter have also
come on stream resulting into production ramp up. Chinas zinc demand is
expected to grow at 7%. Steady demand growth to keep prices stable.

China production, consumption and imports

Production (Tons) Consumption (Tons)
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
J
a
n
-
0
3
J
a
n
-
0
4
J
a
n
-
0
5
J
a
n
-
0
6
J
a
n
-
0
7
J
a
n
-
0
8
J
a
n
-
0
9
J
a
n
-
1
0


0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
3
1
-
J
u
l
-
1
0
2
8
-
F
e
b
-
0
9
3
0
-
S
e
p
-
0
7
3
0
-
A
p
r
-
0
6
3
0
-
N
o
v
-
0
4
3
0
-
J
u
n
-
0
3
3
1
-
J
a
n
-
0
2
3
1
-
A
u
g
-
0
0
3
1
-
M
a
r
-
9
9
3
1
-
O
c
t
-
9
7
3
1
-
M
a
y
-
9
6

Import (Tons) Exports (Tons)
0
20000
40000
60000
80000
100000
120000
140000
J
a
n
-
0
4
J
u
l
-
0
4
J
a
n
-
0
5
J
u
l
-
0
5
J
a
n
-
0
6
J
u
l
-
0
6
J
a
n
-
0
7
J
u
l
-
0
7
J
a
n
-
0
8
J
u
l
-
0
8
J
a
n
-
0
9
J
u
l
-
0
9
J
a
n
-
1
0
J
u
l
-
1
0


0
10000
20000
30000
40000
50000
60000
70000
80000
90000
J
a
n
-
0
4
J
a
n
-
0
5
J
a
n
-
0
6
J
a
n
-
0
7
J
a
n
-
0
8
J
a
n
-
0
9
J
a
n
-
1
0


Indian zinc industry

Demand in Indian market for refined zinc increased by 25% to 525kt in FY2010,
from 419kt in the previous year. This is mainly driven by the demand created by
various infrastructure projects. The Indian zinc demand is expected to grow in
the coming years based on a positive GDP forecast. The key components for
demand growth are ongoing and upcoming infrastructure projects, telecom and
power projects and automobile sector. Hindustan Zinc is the largest zinc
manufacturer in the country holding around 74% share of the Indian Zinc
demand.


Hindustan Zinc Ltd. (HZL) 11 12
th
November 2010


Zinc price outlook

Global zinc industry has seen piling up of inventory recently however, with
rising consumption and stable supply we expect inventory level to go down in
the medium term. Thus, we dont foresee downward pressure on global zinc
prices in the medium term.

Zinc inventory vs. stock price

Zinc user industry
First Use of Zinc %
Oxides and
Chemicals
8%
Galvanising
50%
Semi-Manufactured
Products
9%
Brass Semis and
Castings
15%
Die-Casting Alloys
13%
Miscellaneous
5%


End Use of Zinc %
Transport
Infrastructure
Consumer
Products
Indusrrial
Machinery
Construction


Lead Demand supply outlook

Lead demand is expected to grow at 4.5% in 2010E and 5.8% in 2011E.
Consistent demand increase in lead would reduce surplus build into the
system. Again China is major player in lead consumption contributing more
than 30%. However, rising automobile consumption in China assures consistent
demand for lead.

000 tonnes 2005 2006 2007 2008 2009 2010(Jan-Jul) 2010 2011
Mine Production 3422 3525 3626 3749 3851 2325 4124.421 4310.02
% Change 3.0% 2.9% 3.4% 2.7% 7.1% 4.5%
Metal Production 7623 7935 8121 8653 8722 5107 9114.49 9643.13
% Change 4.1% 2.3% 6.6% 0.8% 4.5% 5.8%
Metal Usage 7785 8063 8177 8648 8625 5055 9013.13 9535.89
% Change 3.6% 1.4% 5.8% -0.3% 4.5% 5.8%


Hindustan Zinc Ltd. (HZL) 12 12
th
November 2010



Lead mine metal output is expected to grow at 7.1% and 4.5% in 2010E and
2011e due to increased output from China, India, Mexico and Autralia.
Consequently, lead metal output is expected to increase by 4.5% and 5.8% in
2010e and 2011e. Lead metal output increase is likely to be result of new
smelter capacity in China and 100kt/yr smelter at Rajpura Dariba. 130kt/yr new
capacity at Enertec operation in Mexico would also add to production rise.

Lead Stock vs. price

Valuation

HZL commands $50-60/t premium on LME zinc price. As we expect zinc prices
to consolidate at $2300/t-$2500/t in the medium term. On a conservative side
we have assumed average realization of $2400/t for FY11E. Taking into
consideration profitability of Anglo American Zinc we expect the firm to post
EPS of `103 and `132 for FY11E and FY12E respectively. Any upside in the
silver prices as anticipated would be addition to bottom line, costs remaining
the same. Debt free status gives the firm lot of impetus for new acquisition or
expansion. We expect the firm will be able to maintain ROE of around 23% in
the medium term.
However, at current market price these positives are not fully factored in as
stock is available cheaper to its global peers. At current market price the
stock is available 12.4x and 9.3x FY11E and FY12E earnings
respectively. EV/EBIDTA works out at 8.2x and 6.3x FY11E and
FY12E respectively. We recommend, BUY with target price of
` `` `1581.

Peer comparison

PARTICULARS YEAR TECK XSTRATA NYRSTAR KOREA ZINC OZ MINERAL HINDALCO HZL
P/E 2011 10.1 12.1 12.4 11.7 14.3 14.1 11
2012 10.3 9.3 6.2 9.9 14.4 11.8 8.6
EV / EBITDA 2011 5.5 7.2 NA 7.9 6.4 7.8 8.2
2012 5.7 5.7 NA 6.7 6.7 6.9 6.3
ROE 2011 17.0 14.8 11.0 20.4 14.1 13.9 21.4
2012 12.2 18.3 20.9 20.0 12.2 14.4 22.9
P/BV 2011 1.5 1.7 1.3 2.2 1.8 1.9 2.7
2012 1.3 1.5 1.1 1.8 1.7 1.6 2.2




Hindustan Zinc Ltd. (HZL) 13 12
th
November 2010



Concerns

Zinc price volatility

HZL derives more than 70% of revenue through zinc manufacturing. Volatility in
zinc prices has effect on the earnings of the company. Zinc being global
commodity is volatile with the global happening. Though we are positive on the
medium term outlook of the commodity any uncertainties in the global
economy could have negative impact on zinc prices thus, having impact on
companys earnings.

Lead and silver price volatility

Lead and silver contributes around 15% and 5% of the firms earnings
respectively. Volatility in these commodity prices will have effect on the firms
earnings.

















































Hindustan Zinc Ltd. (HZL) 14 12
th
November 2010


FINANCIAL SUMMARY
(` in crs.)
P & L A/c FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Gross Sales 4,339.6 9,220.5 8,736.9 6,141.5 8,437.9 9,821.7 12,156.8
Excise Duty 461.8 673.0 841.4 461.2 420.9 491.1 607.8
Net Sales 3,877.7 8,547.4 7,895.5 5,680.3 8,017.0 9,330.6 11,548.9
% Change 75.9% 120.4% -7.6% -28.1% 41.1% 16.4% 23.8%
Raw Materials 53.9 - 6.1 40.3 - 7.0 8.0
Stock Adjustments (43.5) (56.9) 59.1 (24.4) 75.3 60.0 70.0
Employee Expenses 205.4 253.4 317.4 379.0 486.0 558.9 670.6
Other Mfg Exp. 440.6 424.8 544.2 1,122.8 1,208.2 1,406.1 1,740.5
Repairs & Maintainence 130.5 200.4 215.2 - - 260.0 280.0
Power, Oil & Fuel 352.0 402.6 545.4 811.4 723.9 842.5 1,042.8
Selling & Administrative Expenses 403.2 860.2 780.1 574.5 826.1 961.4 1,190.0
Provisions & Write offs 0.3 - - - - - -
Other Expenses - Recurring 31.4 40.8 55.5 63.4 69.4 32.0 39.6
Non Recurring 4.6 22.4 20.7 (20.9) (41.9) - -
TOTAL EXPENDITURE 1,578.3 2,147.7 2,543.7 2,946.1 3,346.9 4,127.9 5,041.5
Operating Profit 2,299.4 6,399.8 5,351.8 2,734.2 4,670.1 5,802.7 7,707.5
% Change 162.9% 178.3% -16.4% -48.9% 70.8% 24.3% 32.8%
Other Income - Recurring 95.8 222.7 702.3 931.2 722.2 600.0 650.0
Non Recurrng 20.0 8.6 149.4 - - - -
EBITDA 2,415.2 6,631.0 6,203.4 3,665.4 5,392.3 6,402.7 8,357.5
% Change 139.2% 174.5% -6.4% -40.9% 47.1% 18.7% 30.5%
Current Interest 47.4 28.4 24.2 21.9 43.9 - -
Financial Charges - - - - - - -
Less: Interest Capitalised - - - - - - -
PBDT 2,367.8 6,602.6 6,179.3 3,643.5 5,348.4 6,362.7 8,317.5
Depreciation 138.3 156.1 220.5 285.3 334.3 380.0 450.0
EBIT 2,277.0 6,475.0 5,982.9 3,380.1 5,058.0 6,022.7 7,907.5
PBT 2,229.6 6,446.5 5,958.8 3,358.2 5,014.1 5,982.7 7,867.5
% Change 141.9% 189.1% -7.6% -43.6% 49.3% 19.3% 31.5%
Current Tax 622.5 1,950.9 1,465.4 517.6 830.9 1,473.2 1,937.3
Deferred Tax 133.3 59.5 122.0 109.7 141.8 169.2 222.4
Fringe Benefit Tax 1.3 1.5 1.9 3.3 - 3.0 4.0
Net Profit Before Minority Interest 1,472.5 4,434.7 4,369.5 2,727.6 4,041.4 4,337.4 5,703.8
% Change 126.6% 201.2% -1.5% -37.6% 48.2% 7.3% 31.5%
Minority Interest 11.6 67.2 124.0 - - - -
Net Profit After Minority Interest 1,460.9 4,367.5 4,245.5 2,727.6 4,041.4 4,337.4 5,703.8
Extra Ordinary Items 11.6 67.2 124.0 45.2 34.2 44.0 54.0
Adjusted PAT 1,460.9 4,367.5 4,245.5 2,682.4 4,007.2 4,293.4 5,649.8
% Change 122.0% 199.0% -2.8% -36.8% 49.4% 7.1% 31.6%
Dividend - Equity 105.6 211.3 211.3 169.0 253.5 269.3 354.4
Preference - - - - - - -
Retained Earnings 1,366.9 4,223.4 4,158.2 2,558.6 3,787.9 4,068.1 5,349.3



Hindustan Zinc Ltd. (HZL) 15 12
th
November 2010



(` in crs.)
Balance Sheet FY06 FY07 FY08 FY09E FY10E FY11E FY12E
Share Capital - Equity 422.5 422.5 422.5 422.5 422.5 422.5 422.5
Preference - - - - - - -
Reserves & Surplus - - - - - - -
Revaluation Reserve - - - - - 1.0 2.0
Others 3,007.3 7,204.5 11,425.7 13,984.3 17,772.1 21,840.2 27,189.5
Minority Interest - - - - - - -
Secured Loans - Long Term - - - 8.3 - - -
Short Term - - - - - - -
Unsecured Loans - Long Term 0.4 0.4 0.4 0.4 60.5 60.5 60.5
Short Term 557.6 - - - - - -
Deferred Tax Liabilities 255.9 306.0 462.9 558.9 711.2 320.0 230.0
Total Liabilities 4,243.7 7,933.4 12,311.5 14,974.3 18,966.4 22,644.2 27,904.5

Gross Block 2,990.0 3,499.8 5,181.8 5,855.5 8,240.7 8,960.0 15,210.0
Less Accumulated Depreciation 1,129.7 1,264.2 1,484.6 1,705.6 2,076.6 2,456.6 2,906.6
Less Impairment of Assets - - - - - - -
Net Block 1,860.3 2,235.6 3,697.2 4,149.9 6,164.1 6,503.4 12,303.4
Capital WIP 57.8 635.0 465.5 1,108.4 1,113.0 2,280.0 630.0
Lease Adjustments - - - - - - -
Investments 1,604.9 4,403.3 6,332.5 6,928.9 10,949.2 11,500.0 10,500.0
Current assets, Loans &
Advances

Inventories 383.1 499.3 518.1 545.7 451.7 575.0 680.0
Debtors 689.9 556.6 443.7 164.9 151.8 225.0 290.0
Advances 162.4 305.4 387.1 354.2 464.2 610.0 720.0
Total Current Assets 1,235.4 1,361.3 1,348.9 1,064.8 1,067.7 1,410.0 1,690.0
Less Current Liabilities 415.8 641.8 774.9 802.8 986.3 1,090.0 1,150.0
Provisions 187.4 185.0 123.6 198.1 339.5 190.0 260.0
Net Current Asssets 632.2 534.5 450.4 63.8 (258.1) 130.0 280.0
Cash & Bank 74.0 119.7 1,362.8 2,719.2 927.5 2,180.8 4,141.1
Miscelleneous Exp. Not w/f - - - - - - -
Deffered Tax Asset 14.5 5.4 3.2 4.2 70.7 50.0 50.0
Total Assets 4,243.7 7,933.4 12,311.5 14,974.3 18,966.4 22,644.2 27,904.5







Hindustan Zinc Ltd. (HZL) 16 12
th
November 2010



Expense Analysis FY06 FY07 FY08 FY09E FY10E FY11E FY12E
Raw Material / Net Sales 1.4% 0.0% 0.1% 0.7% 0.0% 0.1% 0.1%
Raw Material adjusted / Net Sales 0.3% -0.7% 0.8% 0.3% 0.9% 0.7% 0.7%
Power & Fuel / Net Sales 9.1% 4.7% 6.9% 6.0% 9.0% 9.0% 9.0%
Employee Exp. / Net Sales 5.3% 3.0% 4.0% 6.7% 6.1% 6.1% 6.1%
Other Mfg Exp./ Net Sales 11.4% 5.0% 6.9% 19.8% 15.1% 15.1% 15.1%
S & D/ Net Sales 10.4% 10.1% 9.9% 10.1% 10.3% 10.3% 10.3%
Other Exp./ Net Sales 0.9% 0.7% 1.0% 0.7% 0.3% 0.3% 0.3%

Margin Analysis FY06 FY07 FY08 FY09E FY10E FY11E FY12E
Operating Margin(%) 59.3% 74.9% 67.8% 48.1% 58.3% 62.2% 66.7%
EBITDA Margin(%) 62.3% 77.6% 78.6% 64.5% 67.3% 68.6% 72.4%
PBDT Margin(%) 61.1% 77.2% 78.3% 64.1% 66.7% 68.2% 72.0%
EBIT Margin(%) 58.7% 75.8% 75.8% 59.5% 63.1% 64.5% 68.5%
PBT Margin(%) 57.5% 75.4% 75.5% 59.1% 62.5% 64.1% 68.1%
PAT Margin(%) 38.0% 51.9% 55.3% 48.0% 50.4% 46.5% 49.4%
EBIAT Margin(%) 39.2% 52.2% 55.6% 48.4% 51.0% 46.9% 49.7%

Analysis Inputs FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Book Value Per Share 65.2 130.8 230.5 310.7 385.8 478.8 590.2
DPS 2.5 5.0 5.0 4.0 6.0 6.4 8.4
EPS 34.8 105.0 103.4 64.6 95.6 102.7 135.0
Adjusted EPS 34.6 103.4 100.5 63.5 94.8 101.6 133.7
CEPS 41.3 110.1 111.5 73.9 106.9 115.6 147.5
Adjusted CEPS 41.0 108.5 108.6 72.8 106.1 114.6 146.2
Cash As a % Of Total Exp. 3.0% 4.5% 29.1% 69.3% 54.5% 37.6% 62.7%
Net Sales/ Gross Block (Times) 1.3 2.4 1.5 1.0 1.0 1.0 0.8
Depreciation Cost (%) 8.5% 7.6% 7.4% 7.3% 6.5% 6.0% 4.8%
Current Tax (%) 28.0% 30.3% 24.6% 24.6% 24.6% 24.6% 24.6%
Dividend / Reported Profit (%) 7.2% 4.8% 4.8% 4.8% 6.3% 6.3% 6.3%

Ratio Analysis FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Current Ratio (Times) 2.2 1.8 3.0 3.8 1.5 2.8 4.1
Debt Equity Ratio (Times) 0.2 0.0 0.0 0.0 0.0 0.0 0.0
Interest Coverage Ratio(Times) 32.1 156.9 181.8 125.7 93.0 109.4 143.6
Return On Avg Net Worth(%) 53% 80% 45% 21% 25% 21% 23%
Return On Avg Capital Employed (%) 46% 77% 45% 21% 25% 22% 23%
Dividend Payout (%) 7% 5% 5% 6% 6% 6% 6%
Dividend Yield (%) 0% 0% 0% 0% 0% 0% 1%
Debtors Turnover(Times) 8.2 13.7 15.8 18.7 50.6 49.5 44.9
Creditors Turnover(Times) 23.5 43.8 28.1 17.2 17.8 17.6 19.6
Inventory Turnover (Times) 10.8 19.4 15.5 10.7 16.1 18.2 18.4
Average Collection period (Days) 44.7 26.6 23.1 19.6 7.2 7.4 8.1
Average Payment period (Days) 15.5 8.3 13.0 21.2 20.5 20.7 18.6
Inventory Turnover (DAYS) 33.8 18.8 23.5 34.2 22.7 20.1 19.8

Valuation Ratios FY06 FY07 FY08 FY09 FY10 FY11E FY12E
P/E Ratio Based On current Price 36.6 12.1 12.3 19.8 13.3 12.4 9.4
Price/Adjusted EPS 36.9 12.3 12.7 20.1 13.4 12.5 9.5
Price/CEPS 30.9 11.6 11.4 17.3 11.9 11.0 8.6
Price/Adjusted CEPS 31.1 11.8 11.7 17.5 12.0 11.1 8.7
Price/Book Value 19.6 9.7 5.5 4.1 3.3 2.7 2.2
EV/OP 22.8 8.2 9.8 19.2 11.2 9.0 6.8
EV/EBITDA 21.7 7.9 8.5 14.3 9.7 8.2 6.3
EBIAT/EV 2.9% 8.5% 8.4% 5.2% 7.8% 8.3% 10.9%
Pay Back Period 30.1 11.3 11.1 16.8 11.6 10.7 8.4



Hindustan Zinc Ltd. (HZL) 17 12
th
November 2010




Cash Flow FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Net profit 1,460.9 4,367.5 4,245.5 2,682.4 4,007.2 4,293.4 5,649.8
Depreciation 138.3 156.1 220.5 285.3 334.3 380.0 450.0
Deffered Tax (133.3) (59.3) (159.1) (95.0) (85.9) 370.5 90.0
change in working capital (429.1) 97.7 84.1 386.6 321.9 (388.1) (150.0)
Cash Flow From Operating Activities: 1,036.8 4,562.0 4,391.0 3,259.3 4,577.5 4,655.8 6,039.8
Capex (192.7) (1,087.0) (1,512.5) (1,316.6) (2,389.7) (1,886.4) (4,600.0)
Investments (Net) (917.0) (2,798.4) (1,929.2) (596.4) (4,020.3) (550.8) 1,000.0
Cash Flow from Investing Activities (1,109.7) (3,885.4) (3,441.6) (1,913.1) (6,410.0) (2,437.2) (3,600.0)
Dividend (105.6) (211.3) (211.3) (169.0) (253.5) (269.3) (354.4)
Share Capital - - - - - - -
Debt (13.3) (557.6) - 8.3 51.8 - -
Cash Flow From Financing Activities (118.9) (768.9) (211.3) (160.7) (201.7) (269.3) (354.4)
Others (243.7) (138.0) (505.0) (170.9) (242.7) 696.1 125.0
Net change in cash 51.9 45.7 1,243.1 1,356.4 (1,791.6) 1,253.2 1,960.3
Opening cash 22.1 74.0 119.7 1,362.8 2,719.2 927.5 2,180.8
Closing cash 74.0 119.7 1,362.8 2,719.2 927.5 2,180.7 4,141.1














































Hindustan Zinc Ltd. (HZL) 18 12
th
November 2010

















































Corporate Office:
Manu Mansion, 2
nd
Floor, 16, Shahid Bhagatsingh Marg, Fort, Mumbai 400 001. Tel. 91-226633 8900 / 2261 8787 / 4027 8900
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