CIMB Initiates Hindustan Zinc Coverage With Reduce On Weak Outlook
Hindustan Zinc is likely to face a downhill from here, says brokerage firm CIMB.
Global surplus in zinc's supply could lower the commodity's price in the current financial year, putting pressure on Hindustan Zinc Ltd.'s volume growth that may lead a hit on operational income, according to a report by brokerage firm CIMB,
Shares of the base metals explorer are currently trading at Rs 313.
Global zinc supply is in deficit since 2013, but CIMB expects a 223 kilotonne surplus in the rest of this financial year which will put a downward pressure on prices. Trailing low supplies have brought down the inventory levels, hence if the zinc supply actually goes up in future, such low inventory levels will not be able to support low prices for more than six months, the report said.
“Zinc prices have more than doubled in January 2016-November 2017 and are now close to a 10-year high" the report added.
On operational income, CIMB said that since in the past rise in earnings before interest, depreciation and amortisation stemmed from a rise in price, any further increase in Ebitda will not be attributable to rising prices as it is expected to fall, said CIMB.
Mining costs are also expected to go up in future as the company increased its mining capacity. Hindustan Zinc’s mine transformed from an open-cast operation to underground mining, which may push the total mining capacity to 80 percent by the end of the current financial year.