Goldman Sachs maintains 'neutral' on Hindustan Zinc

HINDUSTAN ZINC

RESEARCH: GOLDMAN SACHS

RATING: NEUTRAL

CMP: RS 739

Goldman Sachs maintains `Neutral��� rating on Hindustan Zinc. Hindustan Zinc is one of the top five (in terms of production) and among the lowest cost producers of zinc in the world. Goldman Sachs believes its competitive edge will be further strengthened when it hikes its existing capacity by 40%, in phases, from June ���10.

High quality zinc reserves, long mine life, economies of scale and a strong balance sheet are added advantages. Goldman Sachs believes that the current high inventory level would act as a dampener for any potential significant price recovery in zinc over the medium term. It revises the FY10E-FY 12E EPS by 13%/6%/8% respectively; on account of higher LME zinc/lead price assumptions.

Further, Goldman Sachs revises their 12-month P/B-based price target to Rs 770. This increase is driven by: (1) rolling forward valuations to FY11E basis; and (2) increasing the target P/B multiple to 1.7X (from 1X earlier) based on sector relative valuation framework.