Vedanta Group's Metal Stock Has Potential To Rise 14% Ahead, Motilal Sets Rs 570/Target: 1:2 Demerger Update

Vedanta Group-backed metals stock, Hindustan Zinc Ltd has the potential to rise by nearly 14% in the short term. The latest to recommend on Hindustan Zinc will be Motilal Oswal who has given a Neutral rating on the large-cap stock, and set a target price of Rs 570. Currently, Hindustan Zinc is around Rs 501 levels. The latest rating action is owing to Hindustan Zinc's quarterly earnings coming in line with estimates and its focus on improving production with tight cost control.

Hindustan Zinc is a leading metal stock and among the top dividend paying companies in the sector and large-cap basket. At the latest, as per reports, Hindustan Zinc is planning a demerger in the ratio of 1:2.

Hindustan Zinc Share Price:

After market hours of October 22, Hindustan Zinc shares ended at Rs 501.55 apiece, down by 1.2% on BSE with a market cap of Rs 2,11,920.87 crore.

The stock's price-to-equity ratio is at 24.26x. But Hindustan Zinc's return on equity is strong at 114.32%.

Motilal Oswal On Hindustan Zinc:

According to the brokerage, in 2QFY25, revenue stood at INR83b (+22% YoY/+2% QoQ) against its estimate of INR78b. The YoY growth was driven by better metal and silver volumes and zinc and silver prices, further supported by a strong dollar and marginally offset by lower lead prices.

Also, the brokerage cited that the decline in CoP during 2QFY25 was due to better grades, softened coal and input commodity prices, and better linkage coal. The management maintained its zinc CoP guidance of USD1,050-1,100/t for FY25.

HZ commenced sourcing RE power from the 180mW Serentica Renewables solar project in May'24. This increased the share of RE power in total power requirement to 14% in 2QFY25 (8.5% in 1QFY25). The rise in renewable share aided HZL in reducing the energy cost by USD9/t during the quarter, as per the brokerage.

Overall, Motilal believes that Hindustan Zinc's performance "was largely in line with our estimates. The company continues to focus on improving production with tight cost control. We retain our earnings estimates and expect HZ to maintain its focus on profitability."

On the valuation, it said, "At the CMP, HZ trades at 8.8x FY27E EV/EBITDA and we believe the current valuation prices in all positive factors. We maintain our Neutral rating on the stock with a TP of INR570 (premised on 10x EV/EBITDA on FY27 estimates)."

In Q2FY25, the company posted total revenue of 8,252 Crore, up 22% y-o-y on account of better metal & silver volumes and zinc & silver prices, further supported by a strong dollar and marginally offset by lower lead prices. It is up 2% q-o-q because of better lead & silver volumes, partly offset by lower zinc volume and metal prices.

Its net profit before exceptional items for the quarter stood at INR 2,389 Crore, up 38% y-o-y and 2% q-o-q in line with the EBITDA. Net profit before exceptional items for the half year stood at INR 4,734 Crore, up 28% y-o-y in line with the EBITDA.

Hindustan Zinc Split-Up?

As per the latest updates, Hindustan Zinc's CEO Arun Misra has reportedly revealed that the company is mulling the possibility of splitting the business into two units. The discussion is undergoing reportedly with the government. In an interview with Reuters, Misra told, "Hindustan Zinc believes in value creation through demerger and will continue pursuing this, disinvestment or no disinvestment, both ways."

Hindustan Zinc, a Vedanta Group company, is the world's second-largest integrated zinc producer and the third-largest silver producer. The company supplies to more than 40 countries and holds a market share of about 75% of the primary zinc market in India.