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INITIATING COVERAGE 31 MAR 2016

Hindustan ZincBUY

Silver to offset flat-lining ZnHindustan Zinc is likely to benefit from the zinc (Zn)industry’s improving fundamentals. Despite the

current weakness, Zn is expected to head into a

structural deficit as large sources of supply go offline.

HZL’s silver volumes will improve as Sindesar Khurd

(SK) ramps up to fill the gap created by RampuraAgucha (RA), which is moving from opencast

operations to underground. Valuations are

compelling despite the weakness in Zn price in the

medium term. The one-off Rs 24 dividend acts asicing on the cake.

We initiate with a BUY and a TP of Rs 195 (5.5x FY18EV/EBITDA, including dividend of Rs 24).

Investment arguments

Zinc (Zn) is headed into a structural deficit mainly

because of the recent/upcoming mine closures

(Lisheen, Century) and production cuts announced

by miners (Glencore, Nyrstar). Increasinggalvanised steel output in China is expected to

drive demand in the near and medium term,

despite overall weakness in steel output. Zn

inventories (LME + SHFE) have fallen ~14% over

CY15 alone and are at a six-year low.

Long-term support for industry fundamentals may

come from the fact that at current prices, new

mine development is not remunerative. Nyrstar,

the largest Zn refiner, assesses that Zn price of Rs

US$ 2,500/t (~US$ 2,220 in real terms) is requiredto incentivise new mine development.

HZL, the world’s fourth-largest Zn producer and

second-largest miner, operates some of the lowest

cost Zn assets globally. It is currently transitioning

its largest mine, the Rampura Agucha (RA) open-

cast mine, to underground mining. To make up for

lower volumes, Sindesar Khurd (SK) is being

ramped up.

Due to higher silver content in the ore at SK mine

(182 g/t in P+P reserves vs. ~50 at RA), HZL isexpected to gradually ramp up its silver output.

Given the lower attributable costs (mostly refining

of lead concentrates), HZL enjoys high EBIT

margins in the silver business (~85% in 9MFY16).

Outlook and view: On flattish EBITDAexpectations, HZL trades at 6.2/5.3x FY17/18

EV/EBITDA. The valuations are reasonable and will

not appear stretched even if Zn prices remain

depressed in the medium term. Increasing silver

exposure helps offset the flat-lining Zn output.

Financial Summary

(Rs bn) FY14 FY15 FY16E FY17E FY18E

Net Sales 134.1 145.1 142.0 156.7 163.8

EBITDA 69.6 74.2 71.2 79.5 82.3

PAT 69.0 81.8 81.3 76.0 81.3

Diluted EPS (Rs) 16.3 19.4 19.2 18.0 19.2

P/E (x) 10.7 9.0 9.1 9.7 9.1

EV / EBITDA (x) 7.2 6.3 5.9 6.2 5.3

RoE (%) 19.8 20.2 20.0 18.7 17.4Source: Company, HDFC sec Inst Research

INDUSTRY METALS

CMP (as on 30 Mar 2016) Rs 175

Target Price Rs 195

Nifty 7,735

Sensex 25,339

KEY STOCK DATA

Bloomberg HZ IN

No. of Shares (mn) 4,225

MCap (Rsbn) / ($ mn) 740/11,172

6m avg traded value (Rsmn) 173

STOCK PERFORMANCE (%)

52 Week high / low Rs 181 / 116

3M 6M 12M

Absolute (%) 19.6 26.7 9.2

Relative (%) 22.6 29.8 18.6

SHAREHOLDING PATTERN (%)

Promoters 64.92

Institutions 3.45

Public & Others 31.63

Source : BSE

Ankur Kulshrestha

[email protected]

+91-22-6171-7346

Anuj [email protected]

+91-22-6171-7321 HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

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HINDUSTAN ZINC : INITIATING COVERAGE

Zn: Headed into structural deficit

Mined metal production (~13.6 mT in CY15E) has

kept pace with the end use (13.9mT).

Metal production (CAGR CY10-15: 1.7%) has

barely kept up with usage (CAGR CY10-15: 1.9%).

World Refined Zinc Supply And Usage 2010-2015Mn T CY11 CY12 CY13 CY14 CY15 CY16E

Mine Prodn 12.7 13.1 13.3 13.5 13.4 13.8

2.2% 3.8% 1.0% 1.7% 0.3% 1.8%

Metal Prodn 13.1 12.5 13.1 13.5 14.0 14.2

1.4% -4.2% 4.9% 2.8% 3.7% 1.6%

Metal Usage 12.7 12.3 13.2 13.7 13.8 14.3

0% -3% 7% 4.1% 1.1% 3.3%

Source: ILZSG, HDFC sec Inst Research

Urbanisation in China to drive demand

While global steel demand is likely to stagnate

(worldsteel expects 0.7% growth in CY16 after a

2.8% decline in CY15), Zn demand may outpace.

This is on account of lower proportion of

galvanised steel output in China (~5% of crude

steel in 2014) vs. developed economies (~20% in

US), which is likely to trend higher, drivingincremental Zn demand. Moreover, bulk of the

zinc demand in China came from galvanizing

(~57% in CY15) which is expected to grow.

China will continue to remain the dominant

driving force as galvanised sheet usage in cars,

consumer durables and construction activity is

expected to grow.

Near-term forecasts predict market deficit, asChina ups galvanised steel usage

In the near term, Zn mine production is forecast

to increase ~1.8% (ILZSG forecast for CY16),

driven by higher output from China. Ex-Chinaproduction is expected to decline 1.8% owing to

mine closures.

• Significant Zn operations reached the end of

their mine life recently (Century in Aug-15,

which produced ~3.5% of the global supply in

2014, and Lisheen in Nov-15, which produced

~1.0%).

• Horsehead Holding Corp, a large US Zn

producer filed for bankruptcy in February2016.

Forecast Large Drops In Zn Supply

Mine Country OperatorCapacity

(kTPA)

Likely

closure

Century Australia MMG 500 2015

Lisheen Ireland Vedanta 170 2015

Skorpion Namibia Vedanta 150 2016

Pomorzarny Poland KGHM 70 2017

Source: Company, ILZSG, HDFC sec Inst Research

Global production of refined zinc metal in 2015 isforecast to rise by 1.6% to 14.2 mT. An

anticipated increase in South Korea, along with

Mexico and Namibia, will be partially offset by

reductions in the Netherlands.

ILZSG forecasts demand to rise by 3.3% to 14.4

mT in 2016, driven by a 4.9% increase in China,

mainly as a result of increasing galvanised steel

output.

Led by mine closures and

production cuts, global supply

is expected to remain tight

Chinese Zn demand is expected

to remain strong owing to

increasing usage of galvanised

steel

ILZSG expects Zn industry to

move into deficit in 2016

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The Zn industry is expected to move from a

surplus of ~88 kT in 2015 to a deficit of 152kT in

2016.

Production cuts announced by Glencore (500 kT),

Chinese smelter (500kT) and Nyrstar (mine

suspensions) will add further to the deficit.

LME and SHFE stocks fell by 106 kT (14%) during

2015 and this underlines the tightening

availability of Zn.

Unremunerative prices to disrupt future supply

Nyrstar, the world’s largest refined zinc

producer, estimates that the current price levels

are below incentive price for new mine

development. This implies that only a small

percentage of probable projects will be viable

and achieve commercial production, hence

restricting large capacity additions in the future.

It estimates Zn price of US$ 2,500/t (real terms:

~US$ 2,200) required to incentivise new mine

development.

Current Zn Prices Not Remunerative Enough

Source: Nyrstar, Consensus Economics, HDFC sec Inst Research

Wide-range in Zn basis pricing points touncertainty

Per Metal Bulletin (via Bloomberg), recent

negotiations for Zn treatment charges between

miners and refiners indicate high level

uncertainty regarding Zn ore prices.

Teck and Korea Zinc signed an agreement for zinc

concentrates supply in 2016, with the TC set at

US$203/t.

• The basis price was US$2,000/t, with

escalators: 3% down for prices of

US$1,500-2,000/t, 9% up for US$2,000-

2,500/t, 8% for US$2,500-3,000/t, 5% for

US$3,000-3,750/t.

Teck and Glencore settled the basis price at

US$1,500/t and TCs at US$188.

• Escalators are 3% up for price range of

US$1,500-2,000/t, 9% for $2,000-2,500/t,

8% for $2,500-3,000/t, 5% for $3,000-

3,750/t.

The wide range seen in the TC basis pricing

(US$1,500-3,000/t) points to significant

uncertainty in future Zn prices.

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,6002,800

3,000

1 0

1 1

1 2

1 3

1 4

1 5

1 6

1 7

1 8

1 9

2 0

$/tn

>50% upside forecast incoming years

$2,467

LT real price: 2,184

Spot priceForecast

Current Zn prices are not

remunerative enough to spur

new mine development, willrestrict future supplies

Driven by expectations of a

deficit, Zn has outperformed

other base metals, with

exchange stocks at a 6-year

low

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Favourably poised vs. other base metals

Given a favourable outlook on demand-supply,

Zinc has outperformed all other base metals in

the past 2-3 years.

Zn Has Outperformed Other Base Metals

Source: Company, HDFC sec Inst Research

Zn stocks (LME +SHFE) are at a six-year low as

the market moves into structural deficit.

LME + SHFE Stocks At a Six-year Low


500

1,000

1,500

2,000

2,500

3,000

-

500,000

1,000,000

1,500,000

2,000,000

D e c - 0 7

J u n - 0 8

D e c - 0 8

J u n - 0 9

D e c - 0 9

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

J a n - 1 5

J u l - 1 5

J a n - 1 6

LME+SHFE Stock Levels Zn Price

$/tnmt

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

J a n - 1 3

J u l - 1 3

D e c - 1 3

J u n - 1 4

D e c - 1 4

J u n - 1 5

D e c - 1 5

Zn Cu Al Pb

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HZL : Company Overview

Reserves And Resources

FY15

Ore Reserve

Proved and probable

Grade %

Mineral resource

Measured and Indicated

Grade %

Inferred

Grade %

Million

mTZinc Lead

g/t

Silver

Million

mTZinc Lead

g/t

Silver

Million

mTZinc Lead

g/t

Silver

RAM (OC) 12.7 13.1 1.9 54

RAM (UG) 36.8 14.4 1.8 61 18.3 15 2 61 35.2 9.9 2.1 62

Sindesar Khurd 32.2 4.5 3.1 182 28.5 4.8 2.7 130 45.3 3.8 2.5 109

Rajpura Dariba 9.6 6.4 1.6 63 22.7 6.8 2.3 67 24.3 6.6 1.9 92

Bamnia Kalan 5.4 4.5 1.6 66 12.2 3.8 1.8 56

Zawar 9.6 3.4 1.8 33 25 4.8 1.8 42 49.2 4.9 2.6 50

Kayad 7.3 9.6 1.4 30 0.2 13.6 2 36 0.6 7.1 1 16

Total 108.2 9.3 2.2 92 100.2 7.1 2.2 78 166.8 5.8 2.3 75


Map Of Operations


Rampur Agucha (RA) is the

most important mine, with

highest zinc/lead grade

Sindesar Khurd (SK) ramp up is

likely to replace some of the

declining volumes from RA

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Company overview (Cont’d)

HZL is the 2nd-largest company by mined metal

and the 4th largest by Zn/Pb produced globally.

Global Zn/Pb Miners


Note: Contained Zn in mined metal indicated

Global Zn/Pb Smelters

Source: Company, Nyrstar, HDFC sec Inst Research

Note: Korea Zinc and Votorantim Nos from CY14

It is also amongst the lowest cost producers forzinc globally, comfortably in the top decile. This

is owing to its fully integrated operations (full

sourcing of concentrates from own mines).

% Of Captive Sourced Concentrates


Rampura Agucha (RA), is world’s largest Zn mine.

It is also the pre-eminent source of contained

zinc for HZL (~83% of zinc mined metal from RA).

Ore Mined (mTPA)


1,115 1,091 1,058

821

597

-

200

400600

800

1,000

1,200

N y r s t a r

K o r e a Z i n c

G l e n c o r e

H i n d u s t a n

Z i n c

V o t o r a n t i m

kT, CY15

0%10%20%30%40%50%60%70%80%90%

-1.02.03.04.05.06.07.08.09.0

10.0

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

F Y 1 4

F Y 1 5

Rampura Agucha Sindesar Khurd

Rajpura Dariba Zawar

Kayad Bamnia Kalan

% Share of Rampura Agucha

mTPA

95.0%

96.0%

97.0%

98.0%

99.0%

100.0%

101.0%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

F Y 0

9

F Y 1

0

F Y 1

1

F Y 1

2

F Y 1

3

F Y 1

4

F Y 1

5

Ref ined Z inc ( T) Integ ra ted Z inc ( % of total )kTPA

Hindustan Zinc is the second-

largest miner and fourth-

largest by refined Zn

production

Nearly fully integrated

operations and low cost of

operations put it comfortably

in the top decile globally

1,445

969

658540

234

-

200

400

600

800

1,000

1,200

1,400

1,600

G l e n c o r e

H i n d u s t a

n

Z i n c

T e c k

M M

G L t d

N

y r s t a r

kT, CY15

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HZL is shifting to U/G mining at RA and this is

expected to ramp up over the course of the next

4-5 years. This will accompany a drop in O/C

production from the RA mine.

The next important mine is Sindesar-Khurd (SK),

which will make up for the shortfall at RA. Whilethe Zn content is low, this is more than offset by

the high silver content in the ore at SK.

Sindesar Khurd

Ore Reserve

Proved and probable

Million

mT

Grade (%)

Zinc Lead g/t Silver

FY15 32.2 4.5 3.1 182

FY14 20.4 4.6 2.6 155


Given the higher stripping costs in U/G vs. O/C

mining, it is expected that the overall mining

cost for the company will increase. However,the HZL management claims the costs will not

be drastically higher than the current

production costs.

HZL is targeting 1.2 mT of mined metals by 2019,

with increased production largely from U/G

mining.

HZL has also systematically invested in upgrading

its power and fuel integration and is now self

sufficient in power (consumption at ~4,100

units/t).

Electricity Consumption


Sulphuric acid is a key byproduct of Zn

manufacturing. HZ has 1.25 mTPA of sulphuricacid manufacturing capacity. Sulphuric acid

revenues (typically offset against operating

costs) have contributed to ~3-4% of the total

revenues.

Sulphuric Acid Revenues As % Of Total Revenues

Source: Company, HDFC sec Inst Research, as Indicated in IFRS

disclosure by Vedanta

80%

85%

90%

95%

100%

-

1,000

2,000

3,000

4,000

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

F Y 1 4

F Y 1 5

Grid power Fuel oil

Thermal Power (Captive) % Share of Captive power

mn kWh

2.4%

3.8%

4.8%

3.9%

2.9%3.3%

–

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

F Y 1 4

F Y 1 5

SK mine ramp up will lead to

higher silver volumes

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Family silver

Hindustan Zinc is the largest contributor to

Vedanta’s EBITDA. It contributed ~43% in FY15,

which went up to ~46% in 9MFY16. This is

partially attributable to lower crude prices, which

have driven down contribution from Cairn India.

Further, with ~Rs 290bn in net cash, HZL offsets

the substantial borrowings in other group

companies, on a consolidation basis.

However, access to cash is restricted till the issue

of GoI sale of 29.5% stake in HZL is resolved. The

Supreme Court stayed the sale on a plea by anemployee union (National Confederation of

Officers’ Association) in January 2016.

HZL Accounted For ~46% Of Group EBITDA In 9MFY16


Vedanta Limited Net Debt/(Cash) Position

Company 31st December 2015Debt Cash Net Debt

Vedanta Limited Standalone 42,645 3,055 39,590

Zinc India - 28,214 (28,214)

Zinc International 64 673 (609)

Cairn India - 18,643 (18,643)

BALCO 5,949 25 5,924

Talwandi Sabo 7,440 8 7,432

Twin Star Mauritius Holdings Limited and Others 24,854 67 24,787

Vedanta Limited Consolidated 80,952 50,685 30,267


HZL

42.6

Others

57.4

2015

HZL

45.9

Others54.1

9M 2016

Significant strategic

component of Vedanta Group

especially from cash flow

perspective

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EV/EBITDA (Rolling 1-year Fwd) P/E (Rolling 1-year forward

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Peer Valuations

CompanyMCap

USD mn

EV

USD mn

EV/EBITDA (x) P/E (x) EBITDA margin (%)

CY16E CY17E CY16E CY17E CY16E CY17E

KOREA ZINC 7,895 6,424 7.2 6.6 14.1 12.6 17.9 18.1

TECK RESOURCES 4,515 10,284 8.4 7.2 NM 39.0 22.5 25.5

NYRSTAR NV 720 1,547 4.9 3.7 NM 9.6 9.4 10.4

HINDUSTAN ZINC 10,874 7,172 6.2 5.3 9.7 9.1 50.7 50.2

Source: Company, Bloomberg, HDFC sec Inst Research

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

M a r - 0 7

S e p - 0 7

M a r - 0 8

S e p - 0 8

M a r - 0 9

S e p - 0 9

M a r - 1 0

S e p - 1 0

M a r - 1 1

S e p - 1 1

M a r - 1 2

A u g - 1 2

F e b - 1 3

A u g - 1 3

F e b - 1 4

A u g - 1 4

F e b - 1 5

A u g - 1 5

F e b - 1 6

EV/EBITDA Average

+1 SD -1 SD

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

M a r - 0 7

S e p - 0 7

M a r - 0 8

S e p - 0 8

M a r - 0 9

S e p - 0 9

M a r - 1 0

S e p - 1 0

M a r - 1 1

S e p - 1 1

M a r - 1 2

A u g - 1 2

F e b - 1 3

A u g - 1 3

F e b - 1 4

A u g - 1 4

F e b - 1 5

A u g - 1 5

F e b - 1 6

P/E Average +1 SD -1 SD

Current valuations not

demanding either in historical

context or relative to peers

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Key Assumptions

2012 2013 2014 2015 2016E 2017E 2018E

Volumes

Zinc (kT) 759 677 749 734 787 819 819

Lead (kT) 99 125 130 135 145 158 158

Silver (T) 242 408 388 328 453 492 535Average realizations

Zinc (Rs/T) 2,386 2,315 2,362 2,670 2,225 2,225 2,283

Lead (Rs/T) 2,679 2,644 2,658 2,512 2,250 2,300 2,500

Silver (US$/oz) 35.6 32.1 23.4 20.0 16.8 18.2 19.3

LME-assumptions (US$/ton)

Zinc (Rs/T) 2,100 1,948 1,909 2,178 1,800 1,800 1,850

Lead (Rs/T) 2,266 2,112 2,092 2,024 1,750 1,800 2,000

Silver (US$/oz) 35.5 30.5 21.5 18.2 14.9 16.3 17.4

Rs/US$ rate 48.0 54.4 60.5 61.1 65.5 68.0 68.0


We have built in flattish Zn prices for FY17E/18E while

building an improvement in

silver

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Income Statement

Year ending Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E

Net sales 134,059 145,113 142,013 156,697 163,805

Growth % 5.6 8.2 (2.1) 10.3 4.5

Material and Mining Exps 55,153 59,854 59,698 64,938 68,085

Employee Expenses 6,801 8,689 8,800 9,680 10,648

SG&A Expenses 3,129 3,192 3,492 3,813 4,004

Other operating exps 1,663 1,955 2,053 2,155 2,263

Operating profits 67,314 71,423 67,970 76,110 78,806

Operating Profit Margin(%) 50.2 49.2 47.9 48.6 48.1

Other operating income 2,301 2,772 3,234 3,393 3,465

EBITDA 69,615 74,195 71,204 79,504 82,271

EBITDA % 51.9 51.1 50.1 50.7 50.2

EBITDA Growth % 6.5 6.6 (4.0) 11.7 3.5

Depreciation 7,846 6,442 6,934 8,059 8,959

EBIT 61,769 67,753 64,271 71,445 73,312

Other Income (including EO

items)18,377 28,183 28,330 22,576 27,305

Interest 449 235 235 235 235

PBT 79,697 95,701 92,366 93,786 100,382

Tax 10,651 13,921 11,084 17,819 19,073

RPAT 69,046 81,780 81,282 75,967 81,310

APAT 69,046 81,780 81,282 75,967 81,310

APAT Growth (%) 0.1 18.4 (0.6) (6.5) 7.0

Adjusted EPS (Rs.) 16.3 19.4 19.2 18.0 19.2

EPS Growth (%) 0.1 18.4 (0.6) (6.5) 7.0


Balance Sheet


SOURCES OF FUNDS

Share Capital 8,451 8,451 8,451 8,451 8,451

Reserves 365,725 425,081 368,930 427,120 489,403

Total Shareholders Funds 374,176 433,531 377,380 435,571 497,854

Deferred Taxes 16,581 25,186 25,186 25,186 25,186

Long Term Provisions & Others 564 1,321 119,968 1,321 1,321

TOTAL SOURCES OF FUNDS 391,321 460,038 522,534 462,078 524,361

APPLICATION OF FUNDS

Net Block 91,473 94,462 107,528 129,469 130,511

CWIP 19,610 23,340 18,340 6,340 6,340

LT Loans and Advances 25,193 40,080 47,469 48,407 49,411

Total Non-current Assets 136,304 157,882 173,337 184,217 186,262

Inventories 11,982 12,117 12,734 13,158 13,748

Debtors 3,995 6,588 6,367 6,579 7,332

Other Current Assets 9,136 5,482 5,482 5,482 5,482

Cash & Equivalents 255,350 307,852 352,964 281,042 340,153

Total Current Assets 280,463 332,039 377,547 306,261 366,715

Creditors 5,103 6,308 4,775 4,825 5,041

Other Current Liabilities & Provns 20,343 23,574 23,574 23,574 23,574

Total Current Liabilities 25,446 29,882 28,350 28,399 28,615

Net Current Assets 255,017 302,157 349,197 277,862 338,100

TOTAL APPLICATION OF FUNDS 391,321 460,038 522,534 462,078 524,361


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Cash Flow


Reported PBT 79,697 95,701 92,366 93,786 100,382

Non-operating & EO items (19,611) (28,239) (28,330) (22,576) (27,305)

Interest expenses 449 235 235 235 235

Depreciation 7,846 6,442 6,934 8,059 8,959Working Capital Change 1,331 (2,535) (1,929) (587) (1,127)

Tax paid (16,401) (19,846) (18,473) (18,757) (20,076)

OPERATING CASH FLOW ( a ) 53,312 51,758 50,803 60,160 61,067

Capex (18,498) (13,395) (15,000) (18,000) (10,000)

Free cash flow (FCF) 34,815 38,364 35,803 42,160 51,067

Investments (1) 28 0 0 0

Non-operating Income 18,994 28,211 28,330 22,576 27,305

INVESTING CASH FLOW ( b ) 495 14,844 13,330 4,576 17,305

Debt Issuance/(Repaid) (4) 0 0 0 0

Interest expenses (449) (235) (235) (235) (235)

FCFE 948 15,079 13,565 4,811 17,540

Share Capital Issuance 0 0 0 0 0

Dividend (15,325) (18,469) (18,786) (136,423) (19,026)

FINANCING CASH FLOW ( c ) (15,778) (18,704) (19,021) (136,658) (19,261)

NET CASH FLOW (a+b+c) 38,029 47,898 45,112 (71,922) 59,111

EO Items/Others - - - - -

Closing Cash & Equivalents 252,822 303,248 352,964 281,042 340,153


Key Ratios

FY14 FY15 FY16E FY17E FY18E

PROFITABILITY (%)

EBITDA Margin 51.9 51.1 50.1 50.7 50.2

APAT Margin 51.5 56.4 57.2 48.5 49.6

RoE 19.8 20.2 20.0 18.7 17.4Core RoCE 64.5 69.0 110.3 86.2 52.6

RoCE 20.1 20.3 20.1 18.7 17.5

EFFICIENCY

Tax Rate (%) 13.4 14.5 12.0 19.0 19.0

Asset Turnover (x) 0.9 0.9 0.8 0.8 0.8

Inventory (days) 32 30 32 30 30

Debtors (days) 11 16 16 15 16

Payables (days) 14 16 12 11 11

Cash Conversion Cycle (days) 29 31 36 34 35

Debt/EBITDA (x) N/M N/M N/M N/M N/M

Net D/E N/M N/M N/M N/M N/M

Interest Coverage N/M N/M N/M N/M N/M

PER SHARE DATA

EPS (Rs/sh) 16.3 19.4 19.2 18.0 19.2

CEPS (Rs/sh) 18.2 20.9 20.9 19.9 21.4

DPS (Rs/sh) 3.5 4.4 27.8 3.6 3.8

BV (Rs/sh) 88.6 102.6 89.3 103.1 117.8

VALUATION

P/E 10.7 9.0 9.1 9.7 9.1

P/BV 2.0 1.7 2.0 1.7 1.5

EV/EBITDA 7.2 6.3 5.9 6.2 5.3

OCF/EV (%) 7.1% 6.9% 6.7% 7.9% 8.1%

FCF/EV (%) 4.6% 5.1% 4.7% 5.6% 6.7%

FCFE/Market Cap (%) 4.8% 7.2% 6.6% 6.3% 9.2%

Dividend Yield (%) 2.0 2.5 15.9 2.1 2.2


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Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

31-Mar-16 175 BUY 195

RECOMMENDATION HISTORY

100

120

140160

180

200

M a r - 1 5

A p r - 1 5

M a y - 1 5

J u n - 1 5

J u l - 1 5

A u g - 1 5

S e p - 1 5

O c t - 1 5

N o v - 1 5

D e c - 1 5

J a n - 1 6

F e b - 1 6

M a r - 1 6

Hindustan Zinc TP

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Disclosure:We, Ankur Kulshrestha, PGDBM & Anuj Shah, MSc authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect ourviews about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) inthis report.Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or itsAssociate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. FurtherResearch Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.

Any holding in stock – No

Disclaimer:This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled orarrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation ofwarranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is forinformation purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not beconstrued as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in anylocality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFCSecurities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction.If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document maynot be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived

from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other servicesfor, any company mentioned in this mail and/or its attachments.HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of thecompany(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation andother related information and opinions.HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or anyaction taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in thedividend or income, etc.HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for anyother assignment in the past twelve months.

HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this reportfor services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger orspecific transaction in the normal course of business.HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the researchreport. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts isnot based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reachdifferent conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not servedas an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the ResearchReport. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

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