Hindustan Zinc Share Price Analysis

Hindustan Zinc is the 27th biggest stock in Indian stock market in terms of its market capitalisation (Rs.1,04,661 Crore). Another feature of Hindustan Zinc which makes it my favourite is it being an almost ‘debt free’ company.

There are many debt free companies in India. But as Hindustan Zinc being in the metal space, staying debt free over long term is a big milestone. Only other company which has this attribute is NALCO. You can read my blog post on NALCO & Aluminium share price here.

The profitability quotient of Hindustan Zinc is also very unique. Out of all Top 500 stocks operating in Metal Space, I suppose Hindustan Zinc is one of the most profitable stocks. It has a ROE of 27.8% and Operating Margin of 62.27%.

Why Hindustan Zinc Attracts Attention Now?

Report generated on my stock analysis worksheet.

In last 1 month alone, Hindustan Zinc share price has fallen by more than 10%. The current price level (Rs.247) is almost close to its 52W Low Price (Rs.240). Compared to its 52W High Price, current price is already 24% down.

This is the reason why, I decided to do a more detailed analysis of this stock using my stock analysis worksheet.

Simple Moving Average Trend

Report generated on my stock analysis worksheet.

To get a better feel of the price movement of Hindustan Zinc, I thought to double check its SMA (Simple Moving Averages) trend for last 12 months. In last 3 months, even in terms of SMA, the price fall is close to 8.6% (from Rs.271 to Rs.247 levels). Like 52W Low price indicator, SMA trend is also hinting towards a possible undervaluation of this stock.

Profitability Trend

Report generated on my stock analysis worksheet.

I’ve always admired Hindustan Zinc for maintaining its high profitability levels. But now that its market price is falling, I though to recheck its profitability levels. In last 5 years, EBITDA, EBIT and PAT Margins have fallen. But ROE, ROCE, ROA, and CROIC has improved.

This is an indicator that the profitability from operations are taking a hit, as the company does not have enough pricing power. However, the company has managed to keep the shareholders value intact by improving their ROE, RoCE etc. Read more about why Warren Buffett love pricing power.

Growth Rates

Report generated on my stock analysis worksheet.

From the above metrics (profitability trends) it was clear that Hindustan Zinc is losing its competitive edge over its rivals. But the bigger question is, does this factor also affecting its future prospects? To understand this, I thought to look into its past growth rate numbers.

Free Cash Flow (FCF) growth rate of 19% in last 10 years is a good number.

Another thing which immediately props out is the rate of growth of income (9.32%) vs rate of growth of expense (12.32% p.a.). As expense is growing faster than income, hence profitability is taking a beating.

The company is able to grow its PAT in last 10 years at a modest rate of 7.06%. But this growth rate has not translated into a positive dividend and EPS growth. Please note that my stock analysis worksheet displays zero growth rate when growth trend is negative.

Long Term Price Trend

Report generated on my stock analysis worksheet.

The idea behind checking the long term price trend was to gauge retrospectively, how low is the current price level of Hindustan Zinc. You can see that, last time the price touched Rs.240 levels was way back in May’17. Hence, the present price level is not only a 52W Low price, but is also close to its 2 year low price levels. This further makes me curious about its intrinsic value.

Intrinsic Value & Overall Score

Report generated on my stock analysis worksheet.

No matter how much the price has fallen, till its purchase is justify-able from the point of view of intrinsic value, it is not worth a buy. My stock analysis tool is estimating an intrinsic value of Rs.152 for Hindustan Zinc. As present price is in Rs.245 levels, hence it is still overvalued. But in terms of the overall score, Hindustan Zinc is getting a rating of 89%+. This is a very good indicator. Read more about the concept of intrinsic value.

Conclusion

Since last 1 years, the market price of Hindustan Zinc is falling. But this is also a fact that the fundamentals of this stock has also eroded a bit.

But to justify the price fall, we must also not forget that the whole Metal Sector has underperformed in last 12 months.

This brings us to the question that, what is the right price to buy this stock?

As per my stock analysis worksheet, the right price is about Rs.152 levels. But I do not think that the price will fall to such levels. Hence, I’ll wait for another 10-12% correction. For the time being I’m adding this stock to my stock watchlist.