While high inventory remains a concern in the near term, it is expected that zinc prices will improve to $2,000-$2,100/tonne owing to zinc turning to a balanced supply market, says Nomura Equity Research
Volume growth along with cost optimization provides earnings visibility, says Nomura in its research report on Hindustan Zinc. At the same time, the brokerage believes that globally zinc fundamentals have improved and it expects zinc to see a balanced demand supply scenario. Zinc prices are expected to improve from the current level of $1,900/tonne to $2,000-$2,100/tonne in FY14-15F.
According to Nomura Equity Research, the catalyst factor lies in a potential stake sale of 29.5% government stake to Sterlite Industries and this could be a trigger for the stock for investors in Hindustan Zinc. While the stock was trading around Rs119 last week, Nomura has predicted a target price of Rs161 along with its ‘Buy’ recommendation.
Nomura’s sensitivity analysis shows that Hindustan Zinc FY15F EPS would change by Rs0.70/share for every $100/tonne change in zinc prices and Rs0.20/share for $100/t change in lead prices. The analysis is shown in the table below:
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