·
Stock coverage initiated
with buy rating, TP at Rs 660, representing ~18% upside over December 12th
closing price of ₹561.65.
·
Brokerage sees long-term
growth potential for Hindustan Zinc, citing strong cash flow expectations and increasing
earnings contribution of silver.
Mumbai: Global research firm Jefferies has
initiated coverage on Hindustan Zinc Ltd (HZL), assigning a ‘BUY’ rating with a
target price of ₹660, based on 10x EV/EBITDA multiple on Sept-FY27 EBITDA estimate.
The target implies a potential upside of ~18% from the stock’s last closing at ₹561.65, apart from an expected
dividend yield of around 4%. The firm’s view is based on HZL’s cost efficiency,
increasing contribution of silver to EBITDA, and strong cash flow expectations.
In its initiation
note, Jefferies has emphasized on HZL’s positioning as the world’s largest
integrated zinc producer and among the top five global silver producers. It has
noted that zinc and lead contribute 62% of Hindustan Zinc’s EBIT in FY25, while
silver accounted for balance 38%. The firm expects the silver segment’s EBIT
contribution to increase to 44% level by FY27E.
From a
financial perspective, Jefferies has highlighted strong cash generation and
high return on equity (ROE), with average free cash flows of ₹105 billion and
ROE of 45% over FY21-FY25. Jefferies further added that the company has a
healthy balance sheet with FY25 net-debt/EBITDA at 0.1x level. During FY26-28,
the brokerage expects continued strong free cash flow in range of ₹80-148
billion/year and a ROE of 69–85%.
As per
Jefferies, expansion into value-added products (VAPs) is a key element of
Hindustan Zinc’s medium-term strategy. VAPs accounted for 22% of sales in FY25,
a share targeted by the company to rise to 50% level by FY30, driven by higher
alloy penetration and new offerings such as zinc–aluminium–magnesium and toning
alloys. To support this, the company commissioned a 30 ktpa zinc alloy plant,
which produced 10 kt in FY25 and generated ₹930 million in EBITDA. At full
ramp-up, EBITDA from this facility is expected to nearly double, supporting
margin expansion going forward.
Jefferies has
emphasised on HZL’s cost of production remaining under control, healthy growth
in EPS and increased contribution of silver in the earning as a favourable
medium-term outlook, forming the basis of its ‘BUY’ recommendation.