Moneycontrol
Apr 21, 2017 04:04 PM IST | Source: Moneycontrol.com

Hindustan Zinc Q4 net soars, but analysts remain mixed on stock performance

Analysts’ review of Q4 performance reveals that stock has largely priced in metal prices increase.

 
 
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Despite posting stellar numbers, Hindustan Zinc witnessed selling pressure on Friday after the stock fell over 4 percent intraday. Investors could have been cautious on the stock after analysts were mixed on the company’s results.

The company’s net profit grew by 42 percent in Q4 to Rs 3,057 crore against Rs 2,147.2 crore during the same quarter last year. It reported a 72.4 percent jump in its total income at Rs 7,237 crore against Rs 4,197.6 crore YoY, while its operating profit rose to Rs 4,215 crore against Rs 2,049 crore during March quarter last year.

The margin, too, reported higher than last year at 58.2 percent against 48.8 percent.

Macquarie has maintained an outperform rating with a cut in target price by 14 percent to Rs 300. Visibility in volume growth, strong balance sheet, and bullish outlook on zinc prices make the company a safe stock, it said.

Meanwhile, key catalysts for the stock are higher zinc prices and volume growth, the research firm’s report added.

Furthermore, it estimates 80 percent dividend payout for FY18-19E (prev. 35%), implying 7-8% dividend yield.

The research firm also cut EPS by 9-14 percent FY18E,19E and target price by 14% to Rs300 largely due to higher dividend estimate and lower other income

Citi has a neutral rating on the stock with a cut in the target price to Rs 295 from Rs 300. It expects FY18 margin to be over 60 percent on the back of metal tightness. This is even as the spot LME is lower than Q4, it said. The research firm believes that while the stock’s valuation is at a peak, a fair bit of optimism is priced in. It recommends playing zinc through Vedanta.

IDFC Securities downgraded the stock to underperform rating with a target of Rs 267. It believes that the stock already factors in high zinc prices. The prices could also recover from current level of USD 2,550 per tonne.

“We believe the stock price already factors in high zinc prices and trades at a higher multiple and thus does not provide any upside,” it said in the report, explaining the rationale behind the downgrade.

Credit Suisse maintained a neutral call on the stock with a cut in target to Rs 273 from Rs 311.32. The research firm observed that most of the earnings beat was on account of 26,000 tonne of concentrate sales.

A stronger rupee, weaker zinc price for FY18 and lower than expected FY18 volume lead to target cut, it said. The output guidance was lower than its expectations, it added.

Apart from one outperform rating, the one more research firm was positive on the stock.

Deutsche Bank maintained a buy call on the stock with a target at Rs 340. It observed that strong operating performance was driven by higher production and better realisations. The earnings outlook for FY18 remained strong. Overall, it remains positive on zinc despite the recent price weakness.
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