Shares of Hindustan Zinc continued their downward trajectory for the second straight session on Thursday, moving further away from their recent record highs. This decline occurred despite a significant rally in silver prices, as investor sentiment remained dampened by the ongoing offer for sale (OFS) initiated by the company's promoter, Vedanta.
Hindustan Zinc Share Price Movement
In early morning trading on the Bombay Stock Exchange (BSE), Hindustan Zinc's stock price dropped by nearly 2%, reaching an intraday low of ₹695.30. This downward pressure coincided with the second day of bidding for the OFS, which opened for retail investors today after being available exclusively to non-retail investors on Wednesday.
Details of the Hindustan Zinc OFS
Vedanta, the parent company of Hindustan Zinc, is seeking to divest a 1.59% stake in the zinc producer. This strategic move aims to capitalize on the substantial gains witnessed in metal stocks, particularly amid the sharp rally in silver prices. Vedanta has established a floor price of ₹685 per share for the OFS, representing a 5.8% discount to Tuesday's closing price of ₹727.20.
According to calculations by Reuters, this stake sale is expected to generate approximately ₹4,590 crore for Vedanta. As of December 31, Vedanta maintained a 61.84% ownership stake in Hindustan Zinc, while the Indian government held the position of second-largest shareholder with a 27.92% stake.
Analyst Perspectives on the OFS
The OFS witnessed full subscription from non-retail investors on Wednesday at an indicative price of ₹691.15, which exceeded the established base price. However, as the offer becomes accessible to retail investors today, market analysts predominantly recommend exercising caution and potentially avoiding participation.
Concerns Over Valuation and Promoter Actions
Analysts' reservations stem primarily from what they perceive as steep valuations and a pattern of repeated stake sales by the promoter. Vedanta has previously sold portions of its stake in Hindustan Zinc twice over the past two years, primarily to strengthen its own balance sheet, as noted in a Reuters report.
Harshal Dasani, Business Head at INVasset PMS, highlighted that these repeated divestments, including the current OFS, suggest a strategy focused on asset monetization rather than demonstrating long-term ownership commitment. "Such actions often cap valuation multiples and keep sentiment subdued," Dasani remarked. Consequently, he advises retail investors to approach the Hindustan Zinc OFS with careful consideration and nuanced analysis, even while acknowledging the company's strong fundamental position with significant exposure to zinc and silver markets.
Operational Strength Versus Valuation Concerns
Abhinav Tiwari, Research Analyst at Bonanza, acknowledged Hindustan Zinc's operational excellence, describing it as one of the world's strongest metal producers with industry-leading EBITDA margins, low production costs, and robust cash generation capabilities. Nevertheless, Tiwari emphasized that valuation remains a primary concern for potential investors.
"Moreover, from an entry price perspective, this discount is not deep, and therefore the investment case must rest more on fundamentals than on valuation arbitrage," Tiwari added, suggesting that the current pricing may not offer sufficient margin of safety for new investors.
Financial Performance and Market Context
Hindustan Zinc's recent financial results have been bolstered by elevated zinc and silver prices, with silver increasingly contributing meaningfully to earnings. Analysts believe these factors support positive earnings visibility over the medium term, particularly if the current commodity cycle persists.
The company reported its highest-ever quarterly profit of ₹3,916 crore, marking a 46% year-over-year increase. Notably, nearly 44% of this profit was derived from silver sales. Consolidated revenue for the quarter grew by 27% year-on-year to reach ₹10,980 crore.
Over the past year, Hindustan Zinc's share price has surged by 63%, while demonstrating an impressive 128% gain over two years. In January alone, the metal stock has appreciated by 17%, reflecting the broader momentum in commodity-related equities.
Disclaimer: This analysis is intended for educational purposes only. The views and recommendations expressed herein are those of individual analysts or broking firms and do not represent the立场 of Mint. Investors are strongly advised to consult with certified financial experts before making any investment decisions.
