Centrum recommended hold rating on Hindustan Zinc with a target price of Rs 275 in its research report dated October 22, 2018.
Centrum's research report on Hindustan Zinc
We downgrade Hindustan Zinc (HZL) to Hold with a revised TP of Rs275 as weakening price outlook for LME Zn/Pb led by sharp increase in mining output globally is likely to result in a balanced zinc market in CY19 thereby reversing the deficit position seen since CY16. We like HZL for its attractive asset base, growing volumes but see earnings growth remaining muted with lower LME realisations. Valuations appear rich on the revised lower earnings and don’t leave much room for any disappointments on volume/cost front.
We continue to like HZL for its strong fundamentals together with high free cash flow generation and strong dividend payout track record. However, weakening price outlook for zinc is expected to keep earnings growth muted in medium term from a high base of FY18. We value the stock at FY20E EV/EBITDA multiple of 7.5x and downgrade to Hold with a revised TP of Rs275. Key upside/downside risk is higher LME/lower volumes.
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