Neutral Hindustan Zinc; target of Rs 300: Motilal Oswal

Motilal Oswal's research report on Hindustan Zinc

Hindustan Zinc (HZL) is India's largest and the world's second largest integrated zinc producer and is one of the lowest cost producers of zinc globally. HZL is a 64.92% subsidiary of VEDL and 29.54% of its stake is held by government. It commands 80% market share in primary zinc market in India and operates the world's largest UG zinc mine at Rampura Agucha along with mines at Sindesar Khurd, Rajpura Dariba, Zawar and Kayad. It has a total ore reserves of 173.5mt and R&R of 460.1mt containing 30.8mt of metal content (~6.6%). HZL has total mined metal capacity of 1.2mt and smelting capacity of 1.123mt and is further ramping up its UG mines to reach a mined metal capacity of 1.35mt and eventually 1.5mt. The company is all set to capture the growing domestic steel and automobile demand amid rapid expansion in infrastructure and construction, as well as improved standard of living and urbanization. As India inches towards the 300mt crude steel production target by FY30-31, the demand for galvanized steel is likely to outpace other metals. HZL has a strong focus on value added products (VAP). The share of VAP stands at ~20% of the total sales, which is expected to gradually rise to 24% by FY25.

Outlook

While HZL is well placed, the stock trades at 6.1x FY24E EV/EBITDA and appears to be fully discounting the benefits. We maintain our Neutral rating on the stock with a TP of INR300 (premised on 6x FY24E EV/EBITDA).