On Monday, Citi updated its stance on Hindustan Zinc (HZ:IN) stock, raising the stock's price target to INR400.00 from INR325.00, while continuing to recommend a Sell.
The firm's analysis highlighted Hindustan Zinc's second-quarter EBITDA, which saw a year-over-year increase of approximately 31% due to higher zinc and silver prices, increased volumes, and reduced costs. The cost of production (CoP) excluding royalty decreased to $1,071 from $1,107 in the previous quarter.
The company's EBITDA margin improved to 50% compared to 49% in the first quarter and 46% in the same period last year. Management has confirmed their forecast for growth in refined metal production between 4-6% for the fiscal year 2025, with silver production expected to increase by 1-4% and CoP targeted at $1,050-1,100 per tonne.
Despite the price target increase, Citi reiterated its Sell rating on the stock, citing valuation concerns. According to Citi's estimates, Hindustan Zinc is trading at 11 times its expected FY26 enterprise value to EBITDA (EV/EBITDA), which is higher than the company's historical average of 8.5 times over three years and 7.5 times over five years. These projections assume zinc prices at $3,050 per tonne, with the current spot price at $3,000.
Citi's revised price target incorporates their updated forecasts for zinc, lead, and silver prices for the fiscal year 2026, which are now set at $3,050, $2,100, and $32.5 per ounce, respectively, compared to the previous estimates of $2,800 for zinc, $2,200 for lead, and $31 for silver.
The report also notes the sensitivity of Hindustan Zinc's EBITDA and fair value to fluctuations in commodity prices, stating that every $100 per tonne change in zinc-lead prices impacts EBITDA by 4% and fair value by INR17 per share. Similarly, a $1 per ounce change in silver prices affects EBITDA by 1% and fair value by INR4 per share.
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