Hindustan Zinc’s board has approved a major growth capex of Rs 12,000 crore, aimed at adding 250,000 tonnes per annum (tpa) of smelting capacity at Debari, Rajasthan, along with a 330ktpa increase in mining and milling capacity. The project is expected to be executed over FY26–FY28 and is part of the company’s long-term goal to double its production capacity.
JM Financial maintained its ‘buy’ rating and raised the target price of Rs 550, from Rs 530 earlier, while backing the company’s expansion, describing it as a “strategic step toward doubling capacity” and noting the company’s strong fundamentals.
“We remain positive on HZL given its presence in the lower end of the global cost curve facilitated by high-grade captive mines sufficient to meet requirements for decades, 100% captive power plants, [and] sizeable scale,” the brokerage said. JM Financial also highlighted the increasing contribution from silver to overall revenues.
According to JM, the company expects to increase smelting capacity from 1,129ktpa to 1,379ktpa and mined metal capacity from 1,180ktpa to 1,510ktpa. Silver refining capacity is set to rise to 830ktpa. About Rs 62 billion of the total capex is allocated to smelter development, with a per-ton cost of $2,500, significantly below the global average of $3,500, the brokerage noted.
Crucially, JM said that post-expansion, revenue could rise to Rs 400–430 billion with EBITDA in the Rs 210–220 billion range. The company expects its cost of production to fall to around USD 1,000 per tonne, aided by captive power and scale efficiencies.Motilal Oswal took a more measured view, keeping its ‘neutral’ rating with a target price of Rs 480, slightly below the current market price. The brokerage acknowledged the expansion aligns with long-term goals and improves cost competitiveness, but said much of the upside is already reflected in current valuations.“At CMP, HZL trades at 8.5x FY27E EV/EBITDA, and we believe the current valuation prices in all positive factors,” Motilal Oswal said.
Motilal expects the company’s revenue to rise from Rs 341 billion in FY25 to Rs 400–420 billion post-expansion, with EBITDA increasing from Rs 174 billion to Rs 210–220 billion. A further scale-up to 2 million tpa of refined metal capacity in phase II could push EBITDA to Rs 340–360 billion, depending on market conditions.
The brokerage also pointed out that current utilisation of existing capacity stands at 93%, indicating that the company already operates efficiently.
Promoter overhang adds to market caution
Investor sentiment also took a hit after CNBC-TV18 reported on Tuesday that promoter Vedanta is looking to offload up to Rs 7,500 crore worth of shares in Hindustan Zinc through block deals. The shares were reportedly being offered at a discount of up to 10% to the previous closing price, with DAM Capital and Citi managing the deal.
Vedanta currently holds a 63.4% stake in Hindustan Zinc. While the company has not officially confirmed the transaction, the report has raised concerns of near-term supply overhang in the stock, adding to the market’s caution around the timing of the expansion-led capex.
Also read | Vedanta to offload Rs 7,500 cr worth stake in Hindustan Zinc via block deals: Report
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
