Hold Hindustan Zinc; target of Rs 300: Centrum Research

Centrum Research's research report on Hindustan Zinc

We maintain our Hold rating on Hindustan Zinc (HZL) as positives such as strong volume growth and robust zinc pricing outlook have been largely factored into the current valuations leaving risk-reward unfavourable. We continue to like HZL for its strong fundamentals, its plans to expand mining to 1.2 mtpa over the next few years, transition to underground mining through shafts, and cost economies but believe that most positives are factored in at current levels with little room for any disappointment or unexpected surprise on either volume or cost front (negative cost surprise was visible in H1). Valuations at 7.7x FY19E EV/EBITDA are fair.

Outlook

Maintain Hold on rich valuations: We continue to like HZL for its strong fundamentals with structurally positive pricing scenario for zinc and lead globally due to mining supply cuts and the metal deficit. Attractive dividend payouts and high free cash flow generation further buttress our positive stance on the stock but rich valuations continue to cap upside and we maintain Hold. We continue to value the stock at EV/EBITDA multiple at 7.5x on FY19E to arrive at a revised TP of Rs300. Key downside risk to our call is slower ramp-up in volumes while upside risks are higher LME and rupee depreciation.

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