Demand is not able to match supply

Natural resources that are mined have the capability of getting exhausted and surging demand may hence be difficult to catch-up with supply. The shortage of supply and the huge demand for the metal on account of various applications have led to a sharp spurt in prices of zinc. In fact, since the start of the year zinc prices have gained a staggering 22 per cent on the London Metal Exchange, which is a big positive for companies like Hindustan Zinc. It will not be a surprise to see zinc prices going even further higher boosting prospects for a player like Hindustan Zinc.

Large scale reserves

For a mining company what is most important is that it should have adequate reserves to mine in the coming years. Hindustan Zinc has mine life that can last for more than 25 years. The company is also an integrated player and one among the cost efficient zinc players and compares very favourable to others around the globe. Apart from this it is a cash rich player and the debt on the books is not a cause for worry. There are also plans to expand the capacity of the company which would further boost its prospects. The company is also planning to reduce costs through various initiatives.

Other key parameters

The company achieved total income from operations at Rs 17,273 crores in 2016-17. The net profits during the period was placed at Rs 8,316 crores. The company achieved an EPS of Rs 19.7 for 2016-17. The dividend yield is difficult to predict as the company has given one time dividend in the past. However, in 2017, the company paid Rs 27,157 crore as dividends to shareholders, which was the highest ever paid in India in a financial year.

Valuations

Shares of Hindustan Zinc are not too expensive at the current levels. Considering that zinc prices are moving higher, cost reduction processes and expansion the company can achieve an EPS of Rs 24 for 2017-18. If we assume a decent multiple of 15 times, the stock should trade at Rs 360 at the very least. At the current prices, the stock has the potential to rally. The shares of Hindustan Zinc are currently traded at Rs 307. An upside potential of 20 per cent is highly possible in the net couple of years. Buy the stock with a long term perspective in mind. Check stock of Hindustan Zinc

Disclaimer

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