Good Stock Tips Advice : Hold Hindustan Zinc – Target Price Rs.147

 1QFY12 result is in line with market expectations. Revenue and EBITDA are slightly lower than market expectations. However, PAT higher than street estimates by 5% because of higher than expected other income.

 Production declined from the expected level because of unplanned two weeks shutdown at the flagship Rampura Agucha mine.

 Operating cost /ton declined slightly because of a qoq decline in royalty.

 However, cost pressure is expected to continue in FY12&13 because of increased share of production from lower grade underground mines, start of initial work on underground mining at Agucha and continued strength of coal prices.

 The outlook for Zinc may continue to remain weaker than that of lead as Zinc is expected to stay surplus in 2011&2012.

 It seems that current zinc prices are substantially above the marginal cost and the price may move lower as the risk appetite wanes.

 On the other hand, demand –supply for lead would be in balance in 2012 and may be a deficit of 2lakh tons by 2013.

 EPS estimates for FY12 has been cut by 5.4% and it has been increased by 3.7% for FY13, factoring slower ramp up in Dariba and revised metal price assumptions.

 The stock is currently traded at 9.5 multiple of FY12 expected earnings and at 7.6 multiple of FY13 expected EPS. Thus, it seems that the stock is expensive while compared to global peers and does not look a compelling buy.