Hindustan Zinc Ltd shares fell over 7% Shares fell 342 points to 20% on the BSE in early deals on Friday after the Vedanta group company reported net profit for the third quarter ending December 2022. 2,156 crore as compared to 2,701 crore in the corresponding quarter of the previous financial year.
“Smelter closures in Europe and reopening in China are expected to support zinc prices in the near term. Although; The demand outlook is still hazy as Europe and the US are still not out of trouble. ZI acquisition looks expensive (assuming c.7x 500Kt sales) despite growth potential that may take time to materialise. Also, ZI currently lacks matching smelting capacity and thus is operating at lower margins,” said analysts at PhilipCapital.
Anil Agarwal promoted Vedanta said it will sell Zinc International assets Hindustan Zinc for a cash consideration of $2,981 million. The acquisition will help it ramp up from 1.2mt capacity to 2mt+ capacity, providing access to countries in Africa, Europe and North America. According to analysts, Hindustan Zinc will start paying 2% royalty on sales to Vedanta Ltd for the use of the brand name.
They believe that if the deal goes through, Hindustan Zinc has the ability to provide Dividend Will be severely compromised as ZI will require additional capex. Keeping the same in mind, Phillip Capital is downgrading Hindustan Zinc to ‘Sell’ while maintaining its target price. 315.
Management reiterated volume guidance of over 1mt for FY23E and a gradual ramp up to 1.2mt volumes by FY24. People at Motilal Oswal believe that reduced zinc and lead stocks in warehouses should support the prices.
“We have increased our FY24 estimates to include the benefits of cost reduction. At its current levels, HZ is trading at rich valuations of 6.7x FY24 EV/EBITDA. We reiterate our neutral rating on the stock for a target price of 350,” suggested the brokerage.
Given the potential to develop ~1 million tonnes of capacity over the next 6-7 years, the acquisition will offer growth optionality, thereby doubling HZL’s overall capacity, according to JM Financial, which is optimistic with the stock’s target price. 350. “While the acquisition (if it goes through) will add significant value over the long term, the expensive valuation is likely to weigh on near-term stock performance,” it added.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, breaking news events and breaking news Update on Live Mint. download mint news app To get daily market updates.