Hindustan Zinc shares jump 4% despite fall in profits; interim dividend helps cheer Vedanta’s stock

Hindustan Zinc shares jumped 4% on Wednesday’s opening bell to trade at Rs 232 apiece, a day after the firm reported a 6.8% on-year drop in net profit during the July-September quarter. Hindustan Zinc reported a net profit of Rs 1,940 crore as against Rs 2,810 crore in the same period last year, despite a 25% on-year growth in net sales and 39.4% jump in EBITDA. The firm saw a 11% increase in total expenditure from last year and reported higher tax payout. However, Hindustan Zinc’s board approved an interim dividend of Rs 21.30 per share with the record date of October 28 which helped push the stock higher.

From Zinc and Lead, the company derived revenues worth Rs 4,249 crore while revenue from silver was at Rs 1,242 crore, both higher from the previous year. Sales of silver were 114% higher from the previous year. Post the quarterly results, management of Hindustan Zinc said that zinc demand in India has recovered to pre-Covid levels and global demand is also recovering gradually, led by China. 

“Hindustan Zinc’s second quarter EBITDA was ahead of estimates led by lower costs. Strong recovery in metal volumes poses upside risks to management guidance as well as drives upgrades to FY2021E earnings,” said analysts at Kotak Securities in a post result note. The brokerage highlighted that Hindustan Zinc is at the final stage of increasing its mined metal capacity to 1.2 mtpa from 1 mtpa although the coronavirus pandemic-led disruptions have caused a 6-9 months delay in some projects. “ We expect metal volumes to see 8% CAGR over FY2020-23E,” Kotak Securities said while pinning a ‘Buy’ call on the stock with a fair value of Rs 295 per share. 

Guidance for saleable silver production in the current fiscal year is unchanged 650t despite sales of 203t achieved in the second quarter. “Volume ramp-up, however, has been lagging guidance. Moreover, the pledging of shareholding by promoter Vedanta Ltd is an additional overhang on the stock,” said brokerage and research firm Motilal Oswal. The brokerage has a Neutral rating on the stock with a target price of Rs 215 per share. It expects the company’s EBITDA to grow at 20% CAGR over financial year 2020-2022, aided by ~9% CAGR in refined metal volumes and higher silver prices. At the end of August, Hindustan Zinc’s promoters had pledged 100% of their holding.

The massive Rs 9,000 crore dividend announced by Hindustan Zinc will also boost the parent company Vedanta Limited after its failed delisting earlier this month. According to the latest shareholding data, Vedanta holds over 274 crore equity shares of Hindustan Zinc, which translates to Rs 5,842.9 crore in dividend that it would receive. After the failed delisting, Vedanta Resources the parent of Vedanta Limited could face troubles in servicing debt obligations, which is where high dividend payments from subsidiaries like Hindustan Zinc could help. Shares of Vedanta Limited were up 4.64% on Wednesday morning. 

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