Hindustan Zinc Stock: Jefferies Sets Rs 660 Target on Silver Rally

Introduction to Hindustan Zinc's Market Performance

Hindustan Zinc Ltd (HZL), a subsidiary of Vedanta Ltd, has demonstrated strong performance in the stock market, recently touching a new 52-week high. The company's shares have gained more than 68% from their 52-week low, outperforming its parent company and broader market indices. With a market capitalization exceeding Rs 2.69 lakh crore, HZL stands as a dominant force in the non-ferrous metals sector. This robust performance has captured the attention of global brokerages, with Jefferies being the latest to issue a positive outlook on the stock, citing significant tailwinds from the commodity markets.

Jefferies Initiates Coverage with a 'BUY' Rating

Global financial services firm Jefferies has initiated coverage on Hindustan Zinc with a 'BUY' recommendation, setting a target price of Rs 660 per share. This target suggests a potential upside of over 22% from its recent closing price, inclusive of an expected dividend yield of 4%. The brokerage's positive stance is anchored in the company's strategic position to benefit from the ongoing rally in silver and zinc prices. Jefferies highlighted HZL's cost-efficient operations, noting that it operates in the first decile of the global zinc mining cost curve and the first quartile of the smelting cost curve.

The Role of Silver in HZL's Growth Story

The surge in silver prices has been a critical factor in the optimistic forecast for Hindustan Zinc. Silver prices have nearly doubled in 2025, and the market is expected to remain in a deficit for the year. HZL is one of the top five silver producers globally, with a capacity of 800 tonnes. Silver contributed approximately 38% to the company's EBIT in FY25, with zinc and lead accounting for the remaining 62%. Jefferies anticipates that silver prices could range between $16-60 in the second half of FY26 and into FY28. While HZL has hedged 37% of its 2HFY26 silver volumes at $17, the full benefit of the price rally is expected to materialize in FY27, providing a substantial boost to its EBITDA.

Financial Projections and Valuation

Jefferies projects strong earnings growth for Hindustan Zinc, forecasting an EPS increase of 22% in FY26 and 29% in FY27, followed by a 7% rise in FY28. These estimates are notably 9-31% above the current street consensus. Despite its recent stock price rally, HZL has lagged behind many of its global zinc and precious metal peers year-to-date. The stock is trading at an FY27E EV/EBITDA multiple of 9.2x, which is above its 10-year average of 7.3x. However, Jefferies argues this premium is justified by the increasing contribution of high-margin silver to the company's overall earnings.

Key Financial Metrics

To provide a clearer picture of the company's financial health, here is a summary of its key metrics:

These figures underscore HZL's strong profitability and efficient capital management, although its P/E ratio suggests a relatively high valuation compared to historical norms.

Shareholder Returns and Corporate History

Hindustan Zinc has a long history of rewarding its shareholders. Since 2003, the company has declared 39 dividends. In the last twelve months alone, it distributed a dividend of Rs 10 per share. Beyond dividends, HZL has also undertaken other corporate actions. In March 2011, the company issued bonus shares in a 1:1 ratio, effectively doubling the holdings of existing shareholders. During the same period, it also executed a 1:5 stock split, reducing the face value of each share from Rs 10 to Rs 2 to improve liquidity.

Market Position and Potential Risks

Hindustan Zinc is the world's second-largest integrated zinc producer and holds a commanding 75% market share in India's domestic zinc market. This dominant position provides a stable foundation for growth. However, investors should also consider the risks outlined by Jefferies. The primary risks include potential downturns in silver and zinc prices, a decline in mine grades, challenges related to mine renewals post-2030, and any adverse related-party transactions.

Conclusion

The 'BUY' rating from Jefferies underscores a positive outlook for Hindustan Zinc, driven by strong commodity prices, cost leadership, and a significant contribution from its silver business. The projected earnings growth and attractive dividend yield present a compelling case for investors. While the stock's valuation is above its historical average, the shifting earnings mix towards silver may justify the premium. As always, investors should weigh the potential rewards against the inherent risks of the commodity sector before making investment decisions.