Global brokerage firm Jefferies has updated its outlook on major Indian metals and mining stocks, notably increasing target prices for both Hindustan Zinc (HZL) and Hindalco Industries Ltd. However, the firm clearly expresses a preference for Hindustan Zinc, citing favorable market dynamics for zinc and silver.
Hindustan Zinc: A Preferred 'Buy'
Jefferies has issued a 'Buy' recommendation for Hindustan Zinc, elevating its target price to Rs 750 from an earlier Rs 660. This new target suggests a potential total shareholder return of 31%, which includes an estimated 4% dividend yield. The positive sentiment stems from the strong performance of zinc and silver prices.
"We raise our HZL's FY27-29E EPS by 10-11 per cent factoring in higher zinc & silver prices; our estimates are now 16-23 per cent above consensus," Jefferies noted.
The brokerage highlighted that spot zinc prices are currently 15% above the June quarter average, while silver has seen a significant 23% recovery from its July lows. Consequently, Jefferies has revised its earnings estimates for Hindustan Zinc for fiscal years 2027-2029 upwards by 10-11%. Furthermore, HZL's net cash position is projected to grow substantially, from Rs 5,200 crore in FY26 to Rs 22,700 crore by FY29, despite ongoing capacity expansions.
Hindalco Industries: 'Hold' Despite Target Hike
For Hindalco Industries, Jefferies has maintained a 'Hold' rating, even as it raised the target price to Rs 1,140 from Rs 1,100. This revised target implies a 9% upside. The cautious stance is primarily attributed to the comparatively weaker performance of aluminum prices.
In stark contrast to zinc and silver, aluminum prices are reported to be 10% below their June quarter average. This divergence has led Jefferies to cut Hindalco's earnings estimates for FY27-29 by 2-3%. The company's financial leverage is also a point of concern; Hindalco's net debt surged by 74% in FY26, with an anticipated further 13% year-on-year increase in FY27 before an expected easing in FY28.
Valuation Context
From a valuation perspective, Jefferies assessed Hindustan Zinc at 7.5 times one-year forward EV/Ebitda, which is slightly below its 10-year average of 7.8 times, deeming it reasonable. Hindalco, on the other hand, trades at 1.3 times one-year forward price-to-book value, against a long-term average of 0.9 times, for a 15-18% return on equity (ROE). Its one-year forward EV/Ebitda of 6.2 times is broadly in line with its historical average.