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* Hindustan Zinc reported EBITDA miss of 6% due to: 1) mining royalty expenses which were higher by 9% than our estimates; 2) other expenses which were higher by 27% than our estimate. Revenue was in line with our expectations.

* Reported PAT was 19% below our estimates due to lower-than-estimated EBITDA and also due to tax expenses which were higher by 26% vs. our estimates.

* Economic recovery is strong in China and ASEAN countries though there is some slowdown seen in Europe and the US due to subsequent waves of Covid-19. The second wave of the pandemic has impacted India but we expect the weakness in domestic demand to be offset by stronger exports.

* We keep our target price unchanged at Rs281 with a Hold rating, valuing HZL at 6.5x FY22E EV/EBITDA. Key upside risk to our TP is any momentum on stake sale by Govt to HZL promoters, while downside risk is lower commodity prices.

* Achievable Volume Guidance for FY22: Management has targeted guidance of 1,025- 1,050kt for refined metal production and 720mt for silver production for FY22. We estimate mined metal production at 1,116kt, driven by ramp-up in RA and SK mines. Our silver production estimate for FY22 at 699kt is in line with management guidance. A further uptick in volumes might upgrade our volume assumptions.

* Growth Projects still work in progress: Due to restrictions around travel from China, there is a continuous delay in commissioning of Fumer. Management now expects to commission it in Q2FY22. Additionally, the Greenfield project in Gujarat is still at the drawing board stage with cost estimation to be done later which requires board approval.

* Leveraging the balance sheet: Management has raised debt to fund capex while the cash in the balance sheet is being used to pay dividend. We note that this is being done to increase dividend payout to support debt servicing at ultimate parent level viz., Vedanta Plc. We have modelled Rs22/share dividend for FY22/23 which implies an yield of 6.9% at CMP.

Outlook and valuations: The stock trades at 7.3x of our FY22E EV/EBITDA which we believe limits any upside potential. Maintain Hold with an unchanged target price of Rs281.

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