Hold on Hindustan Zinc - Geojit BNP Paribas Financial Services Limited

3QFY12 numbers are broadly in line with market expectations. EBITDA level a little better than expectations and PAT lower than market estimates.

The problem of low ore grades resurfaced and the same would persist for some more time.

Raw material costs were higher than expected due to purchase of lead concentrates from external sources and the trend to continue.

Increase in coal prices would increase production cost by USD15 /ton.

Considering lower metal price assumption and higher energy cost, target price has been lowered to Rs.127 from the earlier estimate of Rs.132.

Re-rating of the stock looks unlikely before finalization of next phase of capacity expansion.

The stock may be volatile due to the upmove or downmove in lead/ zinc prices and this would be a serious risk in the counter.

Current Zinc prices are well above the marginal costs and could see a substantial downside if global economic growth falters. Lead market may be in more in balance.

Source : Equity Bulls

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