What should investors do with Hindustan Zinc shares post Q4 results? 

Shares of mining firm Hindustan Zinc tanked seven per cent after the company posted its Q4 results on Monday. The stock closed 6.35 per cent lower at Rs 323 against the previous close of Rs 344.90. 

The company reported a rise of 18 per cent year-on-year (YoY) on its consolidated net profit at Rs 2,928 crore for the quarter ended March 31, 2022 mainly driven by higher volumes and higher metal prices. The Vedanta Group-owned company had reported a net profit of Rs 2,481 crore in the year-ago period.  

Revenue from operations jumped 26.6 per cent to Rs 8,797 crore in the said quarter from Rs 6,947 crore in the same quarter last fiscal led by higher zinc volumes and zinc LME prices, as well as favourable exchange rates while partially offset by lower lead and silver volumes. 

With a market capitalisation of more than Rs 1,36,000 crore, the shares stand higher than 50 day moving averages but lower than 5-day, 20-day, 100-day and 200-day moving averages.  

Should you buy the dip?

Citi has maintained a 'Neutral' rating on the stock with a target price of Rs 330. The brokerage house noted valuations likely factor in near-term optimism for Hindustan Zinc. 

Systematic noted that Hindustan Zinc remains in the top decile of the global zinc cost curve and would trade at a premium to peers. Dividend payout is likely to remain high in line with higher cash generation, approval for transfer of general reserves to P&L, and high cash requirement at parent Vedanta Resources. The government of India is likely to gradually exit its 29 per cent stake. A high dividend payout provides strong downside support in the near term.  

"We raise our FY23/ FY24E EBITDA by 13 per cent, 12 per cent as we increase our price assumptions for zinc. We raise our target price to Rs 436 (Rs 385 earlier) and continue to value the company at 7.5x FY24E EV/ EBITDA," it added.  

"The stock is trading at 6.5xour FY23 EV/EBITDA estimates. The probability of zinc prices correcting from current levels is higher than an up move as the energy and inventory situation normalizes globally. Despite a 37 per cent rise in zinc prices and raising our target price to Rs 370 per share (from Rs 325 earlier), we maintain our Neutral rating," said Motilal Oswal. 

The brokerage firm pointed out that delay in volume growth remains a key concern along with rising costs. A slowdown in China is also the key risk to zinc prices. 

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