Hindustan Zinc, Vedanta shares in focus today. Here’s why

Shares of Hindustan Zinc Ltd will be in focus on Monday morning as the chief executive officer Arun Misra reportedly said his company would take forward its demerger proposal to the board in 4-6 weeks as soon as it receives final recommendations from consultants. Hindustan Zinc’s board had earlier asked the Vedanta Ltd promoted company it to explore a corporate restructuring to create three separate entities for its lead and zinc, silver, and recycling businesses, the ET reported on Monday. 

Vedanta owned 64.92 per cent stake in Hindustan Zinc as on September 30.

The formation of three companies and the distribution of cash and debt would be based on recommendations by consultants, the ET report suggested adding that Hindustan Zinc hopes that the demerger would boost its valuations and unlock shareholder value.

Motilal Oswal Securities said Hindustan Zinc shares are currently trading at a rich valuation of 6.7 times FY25 EV/Ebidta and 5.6 times FY25 P/B. This brokerage retained its FY24 and FY25 estimates and suggested a ‘Neutral’ rating on the stock with a target price of Rs 290.

“The Q2FY24 performance has been largely in line with our estimates. Though management has reiterated its FY24 mined metal volume guidance of around 1.1mt and expects the cost of production to be in the range of $1,125-1,175 per tonne, any price fluctuations in LME and increase in coal cost would impact the margins,” it said.

Hindustan Zinc has retained its guidance for FY24. It said mined metal production is likely to be around 1,075-1,100 kt and refined metal production in the range of 1,050-1,075 kt. Saleable silver production is projected in the 725-750 mt range.

Zinc cost of production in FY24 is expected to be in the $1,125-1,175 per mt range. Project capex for the year is expected to be in the range of $175-200 million, Hindustan Zinc said on Friday.

The Vedanta group firm had clocked a 35.4 per cent year-on-year (YoY) fall in consolidated profit at Rs 1,729 crore for the September quarter, hurt by lower sales and lower zinc prices. This was against a consolidated profit of Rs 2,680 crore in the same quarter last year.

"We cut FY24E Ebitda by 4 per cent to factor in lower zinc and silver volumes. We see Hindustan Zinc lacking growth (EBitda CAGR of 4 per cent over FY23-26E). We rollover and value it at 6.0 times FY25E/FY26E average, which yields a fair
value of Rs 253 (unchanged). Reiterate ‘Reduce’," said Nuvama Institutional Equities in a note.