Stock in Action – Hindustan Zinc 06 November 2024

Why is Hindustan Zinc Share in News? 

Hindustan Zinc is in the news because the Indian government has announced plans to divest up to a 2.5% stake in the company through an Offer for Sale (OFS). The government is selling up to 2.5% of its stake in Hindustan Zinc at a floor price of ₹505 per share, which is roughly a 10% discount to the stock’s recent trading price of around ₹559.45. This OFS includes an initial 1.25% equity stake (approximately 5.28 crore shares) with an additional 1.25% as a greenshoe option. The floor price is set at ₹505 per share, about 10% lower than the recent market price, aiming to raise over ₹5,000 crore if fully subscribed.

Key Details of the Offer For Sale of Hindustan Zinc

Opening Dates:
•    Non-Retail Investors: November 6 (T day)
•    Retail Investors: November 7 (T+1 day)
Floor Price: ₹505 per share (10% discount to previous close of ₹559.75).
Brokerages Handling the OFS: Axis Capital, HDFC Securities, ICICI Securities, and IIFL Securities.

Market Impact
Following the announcement, HZL shares saw a 7% drop, reflecting investor response to the government’s divestment plan at a discounted price. HZL, majority-owned by Vedanta (holding 63.42%), saw a decline despite robust growth over the past year, with its stock price up 76% year-to-date.

Financial Performance and Analyst Insights of Hindustan Zinc

Financials: 

• HZL reported a strong 35% YoY rise in Q2 net profit (₹2,327 crore), driven by better zinc prices and cost-saving renewable energy measures. 

• Its consolidated Q2 revenue grew by 22% to ₹8,252 crore.
Analyst Ratings:

• JM Financial has a positive view with a target price of ₹540, citing HZL's low-cost production and robust mining reserves.

• Nuvama holds a "Reduce" rating with a target price of ₹350, noting a potential net debt increase to ₹6,600 crores by FY25 despite high dividend payouts.

About Hindustan Zinc 

Incorporated in 1966, Hindustan Zinc in Zinc-Lead and Silver business is world’s 2nd largest integrated Zinc producer and Hindustan Zinc is the 5th largest silver producer globally with an annual production of ~714 tonnes. The company has a market share of ~75% of the growing Zinc market in India with its headquarters at Zinc City, Udaipur along with Zinc-Lead mines and smelting complexes spread across the state of Rajasthan.

Probable Outlook for FY25 

1. Both mined metal and refined metal production in FY25 is expected to be higher than FY24, given the rampup of all major projects commissioned and better capacity utilization. Mined metal is expected to be between 1,100-1,125 kt & refined metal production in the range of 1,075-1,100 kt.

2. FY25 saleable silver production is projected to be between 750-775 MT.

3. Zinc cost of production in FY25 is expected to be in between US$ 1,050-1,100 per MT.

4. Project capex for FY25 is expected to be in the range of US$ 270-325 million.

Conclusion

Hindustan Zinc Ltd (HZL) remains an attractive investment in India's mining sector, bolstered by its leading position as one of the largest zinc producers globally and a major player in the silver market. The government’s recent Offer for Sale, while initially pressuring share prices, provides a unique buying opportunity at a 10% discount, which may appeal to long-term investors. With solid financials—including a 35% YoY profit increase and expanding revenue driven by improved zinc prices and energy cost savings—HZL has demonstrated resilience and growth potential. Analysts’ perspectives vary, with some highlighting its cost-efficient production and others expressing caution due to potential debt rises.