Buy Hindustan Zinc - CMP: Rs.120, TP: Rs.150 - Prabhudas Lilladher

Government in no perseverance to sell-out the stake at current levels: Our channel checks suggest that concerned ministry of mines and finance are well cognizant of the steep fall in stock price and resultant contraction in targeted receipt from sale. Given the cumbersome formality of parliamentary approval involved for sale, the Government is in no hurry for the sale and also looking at negotiations with Vedanta for complete stake sell-out to garner higher price.

Strong outlook for Zn and Pb: Zn is expected to remain in deficit for couple of years, primarily on account of growth in consumption outpacing the rise in production. Pb is expected to be in marginal surplus in 2013; however the trend is expected to reverse on the back of lower growth in production. We built in LME-Zn and LME-Pb at US$2000 and US$2200 in FY14E.

Valuation and outlook: Stock fell to near-1-year low, contrary to trend in LME, primarily on the concerns associated with OFSs. Slide has been so severe that stock corrected below its lowest range of EV/EBITDA band at 4x 1-year forward earnings. Backed by firm outlook on Zn and Pb, attractive valuations and strong asset quality; we maintain our "BUY" rating with TP of Rs150 (EV/EBITDA: 5.3x FY14E)

Source : Equity Bulls

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