Hindustan Zinc shines on higher volumes, payout hopes

Rising production and firm zinc prices to keep earnings momentum strong

Hindustan Zinc hit 52-week highs over the past week on volume growth and dividend expectations. The stock hit a 52-week high of ~296 on Wednesday before closing at ~289.5. The news of government seeking ~15,000-crore dividend from the company has sparked hopes of a good dividend yield. Business prospects have also supported Street sentiment on the stock.

The company has reported record mined metal production of 276,000 tonnes for the quarter ended December, up 44 per cent sequentially, better than expectations of 30 per cent by IIFL. Zinc, lead, and silver production increased 38, 26, and 10 per cent, respectively, over the September quarter. Since the company is changing from opencast mining to underground one, the second half of financial year is expected to be better. The company, targeting 1.2 million tonnes per annum of mined metal production, has got green nods for Sindeswar Khurd and Zawar mines expansion.

Zinc prices have continued to move up from lows of $1,450 a tonne on the London Metal Exchange to $2,700 levels over the past year, making zinc one of the best-performing base metals. Zinc prices during December quarter averaged $2,511 a tonne, up 11 per cent sequentially and 56 per cent year on year. Expectations are zinc prices will remain firm on supply concerns. Analysts at Motilal Oswal Securities have revised FY18 zinc estimates to $2,570 per tonne from $2,200 per tonne earlier. Zinc outlook, improving lead and silver prices, as well as rising production, will keep earnings growth momentum strong. Analysts at Elara Capital expect Hindustan Zinc's operating (underlying) profit to rise 32 per cent sequentially and 86 per cent year on year during the December quarter on higher prices and volumes. While they see adjusted net profits growing 21.4 per cent sequentially and 27.4 per cent year on year, analysts at Motilal Oswal Securities peg reported profit growth of 54 per cent sequentially and 62 per cent year on year.

The company remains among top picks of Kunal Motishaw at Reliance Securities. Stock prices have more than doubled from lows of ~135.8 in the past one year; you can buy the stock on dip.