Citigroup puts 'sell' rating on Hindustan Zinc
Citigroup has downgraded Hindustan Zinc’s (HZL) rating to ‘sell’ by reducing the target price to Rs 430 on the back of an earnings cut of 22% for FY09 and 27% for FY10.
HINDUSTAN ZINC
RESEARCH: CITIGROUP
RATING: SELL
CMP: Rs 405
Citigroup has downgraded Hindustan Zinc���s (HZL) rating to ���sell��� by reducing the target price to Rs 430 on the back of an earnings cut of 22% for FY09 and 27% for FY10. Citigroup���s new estimates incorporate changed zinc and lead forecasts, updated trends in rupee-dollar exchange rates and small changes in volumes based on management feedback .
Zinc prices are expected to fall 41% year-on-year (y-o-y ) in FY09, further fall 10% y-o-y to reach a bottom in FY10, and recover thereafter in FY11. HZL enhanced its zinc capacity by 88,000 tonnes per annum (tpa) to 669,000 tpa in April ���08 (total zinc-lead capacity to 755,000 tpa).
In addition, HZL has announced further capital expenditure (capex) to enhance zinc capacity by 210,000 tpa and lead capacity by 100,000 tpa ��� taking the total to 1.07 million tpa by ���10, together with additional mining and captive power capacities.
Citigroup sees a fall in earnings and EBITDA margins despite positive factors for HZL, such as its status as one of the lowest-cost producers globally, strong zinc volume growth (20% in FY09E and 40% in FY10E), high realisations for by-products like sulphuric acid, and savings from commissioning of captive power.
RESEARCH: CITIGROUP
RATING: SELL
CMP: Rs 405
Citigroup has downgraded Hindustan Zinc���s (HZL) rating to ���sell��� by reducing the target price to Rs 430 on the back of an earnings cut of 22% for FY09 and 27% for FY10. Citigroup���s new estimates incorporate changed zinc and lead forecasts, updated trends in rupee-dollar exchange rates and small changes in volumes based on management feedback .
Zinc prices are expected to fall 41% year-on-year (y-o-y ) in FY09, further fall 10% y-o-y to reach a bottom in FY10, and recover thereafter in FY11. HZL enhanced its zinc capacity by 88,000 tonnes per annum (tpa) to 669,000 tpa in April ���08 (total zinc-lead capacity to 755,000 tpa).
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In addition, HZL has announced further capital expenditure (capex) to enhance zinc capacity by 210,000 tpa and lead capacity by 100,000 tpa ��� taking the total to 1.07 million tpa by ���10, together with additional mining and captive power capacities.
Citigroup sees a fall in earnings and EBITDA margins despite positive factors for HZL, such as its status as one of the lowest-cost producers globally, strong zinc volume growth (20% in FY09E and 40% in FY10E), high realisations for by-products like sulphuric acid, and savings from commissioning of captive power.
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