>Hindustan Zinc: Silver boost in the price – little to look forward to

■ Action: Lack of catalysts either way

HZ has been one of the better performing metal stocks during the past two months (down 19.6% compared to the BSE metal index’s fall of 26.8%).

We believe the stock will have downside support on account of: 1) cash of INR192bn and 2) earnings visibility. However, upside will likely be capped as we expect: 1) earnings growth to taper since most of the expansion is already completed and given higher royalties on account of new mines and mineral acts and 2) we don’t expect yield on its cash and equivalents to improve for lack of investment opportunities. Maintain NEUTRAL with a target price of INR120.

Downside support, but upside capped

■ Catalysts: Not in the immediate future

The sale of the remaining stake in HZ by the government would be a key positive catalyst, in our view.

■ Valuations: Fairly valued, maintain NEUTRAL

We have valued HZ at 10x FY13E EPS of INR13. On our valuations the stock would trade at 7.6x FY13E EV/EBITDA and 1.8x FY12E P/B. Since cash contributes more than 35% of the total value, we believe there is a strong support for the stock on the downside.

■ Although zinc prices have corrected by 16% during the past two months, the impact was mitigated by a corresponding 10% depreciation of INR.

■ We have reduced our target price to INR 120 from INR 130 earlier, as our earnings estimates have come down due to higher royalties on account of new mines and minerals bill.

To read the full report: HINDUSTAN ZINC