Monday, September 20, 2010

Mid-Cap Pick (Economic Times).

Mid Term Pick: Hindustan Zinc.

1074, 1410

Hindustan Zinc, India's largest zinc and lead producer, has huge mine reserves of more than 25 years and is the lowest cost producer at nearly $750 per tonne. It has recently expanded its capacity to 1MTPA, making it world's largest zinc/lead producer. At CMP, it is trading at an attractive EV/PAT of 5x.

“Hindustan zinc (HZL) has reported decent set of numbers for Q1FY11. The company falls into the lowest cost curve, with mine reserves of 298.6 MT which is to last over 25 years. Due to its backward integrated operations the company is the least impacted with the recent fall in the commodity prices. We believe that the base metal prices are likely to stabilize at these levels keeping in mind the marginal cost of production. Strong balance sheet, being cash rich and debt free, provides significant cushion to the company in undertaking initiatives for organic/inorganic growth. HZL is currently available at an EV/EBITDA of 3.3x its FY12 estimates. At the current market price the stocks EV/PAT works out to be 4x, a payback period of 4 years vs a mining life of over 25 years. We thus recommend a buy on the stock with a target price of Rs 1410,” says Sushil Finance research report.

Courtesy: Economic Times.

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