Brokers’ Call: NIIT, Hindustan Zinc

ICICI Securities cuts NIIT’s target to Rs 30

ICICI Securities has maintained its ‘Reduce rating on NIIT and reduced target price to Rs 30 from Rs 33. NIIT disappointed yet again in Q3FY13, with EBITDA margin declining 670bps YoY to lowest ever 3.3% and net loss before share of NIIT tech’s profit at Rs 126 million.

Individual learning segment (ILS) revenues plunged 22% YoY toRs103 crore and enrolments contracted 21% yoy owing to bleak student sentiment led by slow hiring by IT industry.

Accordingly, ILS segment reported first ever EBITDA loss of Rs34 million vs. EBITDA profit of Rs173 million yoy owing to negative operating leverage.

The stock has underperformed broad indices by 45% yoy and its holding in NIIT Tech post 25% holding company discount amounts to 70% of current market price. However overall earnings would continue to disappoint until there is a meaningful recovery in ILS.

Espirito Retains Buy on HZL

Espirito Santo has maintained its ‘Buy’ rating on Hindustan Zinc with a target price of Rs169 per share on account of its strong operational profile, 25+ years of mine life, strong cash balance ($3.5 billion) and expected volume growth in MIC to 1mtpa by FY14E.

In addition, action expected on a buyout of the minority stake via the auction route could provide a fillip in our view to the stock price in the medium term, given the timing of the sale is critical, as the government struggles to achieve its FY13 disinvestment target.

In August 2012, Vedanta’s board approved a maximum pay-out of $3.93 billion (implying a FV of Rs143/share) and this can be expected to provide a cushion in the run up to the event.