Hindustan Zinc to acquire Vedanta's international zinc biz; stock slides 9%

The company's board approved the acquisition of Zinc International business for a cash consideration not exceeding $ 2,981 million

Shares of Hindustan Zinc (HZL) dipped 9 per cent to Rs 342.20 on the BSE in Friday's intra-day trade as investors booked profit at the counter after the company announced the acquisition of Zinc International business from Vedanta for a cash consideration not exceeding $ 2,981 million. The acquisition will help HZL ramp up from 1.2 metric tonne (MT) capacity to over 2 MT capacity, while giving access to countries in Africa, Europe, and North America.

The stock price of HZL had hit a 52-week high of Rs 383 on January 19. Prior to the announcement of the company's December quarter results, the stock had outperformed the market by surging 17 per cent in the past one month, as compared to 1 per cent decline in the S&P BSE Sensex.

"The board has approved the subscription to equity shares of THL Zinc Limited, Mauritius through HZL's wholly owned subsidiary to be incorporated overseas for a cash consideration not exceeding $ 2,981 million in a phased manner basis agreed milestones," the company said in a statement.

THL Zinc Limited comprises of shares held in Black Mountain Mining Pty Limited, South Africa (69.6 per cent) and THL Zinc Namibia Holdings (Pty) Ltd, Namibia (100 per cent) with total Reserves & Resources of about 35 MnT.

The board has also approved long term Group Captive Renewable Energy (RE) power development program up to a capacity of 250 MW for a further investment of up to Rs 438 crore.

As on December 31, 2022 (Q3), the Hindustan Zinc's consolidated gross investments and cash & cash equivalents were Rs 16,482 crore as compared to Rs 17,807 crore at the end of September, 2022.

Meanwhile, the zinc, silver and lead miner said its consolidated Q3 net profit fell 20 per cent YoY to Rs 2,156 crore in Q3 versus Rs 2,701 crore reported in the corresponding period a year ago. Revenue from operations were down 1.6 per cent YoY at Rs 7,866 crore, on account of lower LME coinciding with lower refined metal and silver volumes partially offset by favourable exchange rates and gains from strategic hedging.

EBITDA for the quarter was Rs 3,717 crore, down 15.4 per cent YoY and 15.3 per cent sequentially, primarily due to lower revenues and increased costs on account of the prevailing input commodity inflationary environment, the company said.

According to Motilal Oswal Financial Services, the management has reiterated its volume guidance for FY23 of over 1 MT (in-line with their estimates), and a gradual ramp up to 1.2 MT volume by FY24. Lower Zinc and Lead stock at warehouses should provide price support.

The management has maintained guidance on CoP and expects it to range between $1,225/t and $1,275/t. Fuel cost is expected to reduce as stock of high cost imported coal has been utilized and HZL expects better coal linkages in Q4FY23, the brokerage firm said in a result update.

"We have raised our FY24 estimates to incorporate the cost reduction benefits. At its current levels, HZ is trading at a rich valuation of 6.7x FY24 EV/EBITDA. We reiterate our 'neutral' rating on the stock for a target price of Rs 350 (6x FY24 EV/EBITDA)," MOFSL said.