Hindustan Zinc ends flat post Q2; here is what brokerage says

Shares of Hindustan Zinc (HZL) ended flat after surging 3 per cent in trade on Tuesday after the company reported 5 per cent growth in its net profit at Rs 2,285.26 crore for the quarter ended September 30, 2015 helped by volume growth and cost optimisation.

The stock ended the day at Rs 159.10, up 0.44 per cent, while it hit an intraday high of Rs 163.15, up 2.99 per cent, on the Bombay Stock Exchange.

HZL announced special dividend of Rs 1.9 per share in addition to interim dividend of Rs 1.9 per share. Cash and equivalents were up 13% in the first half.  

"The stock is trading at an attractive EV/EBITDA of 5.1xFY17E. We value the stock at Rs 177/share based on EV/EBITDA of 6.5xFY17E," said brokerage firm Motilal Oswal Financial Services.

"Hindustan Zinc will benefit from production ramp-up at Sindesar Khurd (SK) mine. We expect mine production at HZL to increase by 5 per cent to 2 per cent in FY16E/17E," the brokerage added.

The company plans to increase mining capacity to 1.2mt, given its healthy reserves and successful exploration programs over the years.

The recovery in global zinc prices will support the company's operational performance, believes brokerage.

"Zinc market globally is expected to turn into a deficit on closure mines, after more than 6 years of over-supply, as older mines are coming to an end of their life. About 900 kt of production is expected to be closed over 2015-16," said brokerage.

Key risk:

Disappointment on global zinc and lead demand growth