Hindustan Zinc share price, ICICI Sec maintains Reduce rating with target price of Rs 280

Hindustan Zinc continues to prepare for its eventual leap towards 1.2mtpa and then 1.35mtpa of mined metal production, says ICICI Securities. While FY22 was expected to witness a ramp up in production to 1.2mtpa, the second wave of Covid outbreak in India seems to have postponed the same. Hindustan Zinc Management guided for a conservative 11.5% YoY mined metal production growth (mid-point). Similarly, silver production guidance has been stemmed down to 720te. The decline in guided range because of Covid is more than offset by commodity inflation, as can be seen in our FY22E earnings (up 10%). ICICI Securities says it has put a REDUCE rating given the rich valuations with a revised target price of Rs 280/share (Rs 257/share earlier).  

ICICI Securities says that FY22E production guidance moderated to factor in disruption on account of current pandemic. Mined metal and refined metal production is expected to be at 1025-1050kte. This compares to metal production of 930kte for FY21. Better lead production growth, up 18%YoY in FY21, and better silver grades at SK mine allowed 16% YoY growth in silver production to 706te in FY21. Management has guided for 720te of silver production in FY22. The production guidance for FY22, is slightly below expectation. Perhaps on account of Covid induced disruption in Q1FY22

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Hindustan Zinc Management highlighted the US$100mn project capex for FY22. Preparations for engineering design for the Gujarat Smelter and the Fertiliser plant are underway. On completion of the same, the proposal will be presented to the board. Preparatory work is also underway to expand integrated smelting from 1.2 to 1.35mtpa. At current mining rate reserves and resources underpins metal production for more than 25 years. Expansion of the mining plan would require EC approval. Proposal for integrated expansion will be presented to the Board by Q2/Q3FY22 and the majority of the capex spend will happen in FY23/24E, says ICICI Securities.