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Hindustan Zinc + Sterlite Upgraded by Citi

September 11, 2007

We had reported last month that Citigroup has initiated coverage on Hindustan Zinc Ltd [HZL] with a price target of Rs 1155. Today Citigroup has revised the target to Rs 1194.

Zinc forecasts have been maintained for FY09E & FY10E. HZL is an integrated producer that offers exposure to the robust outlook for zinc and lead. It is among the lowest-cost producers globally. Target price of Rs1,194 is arrived at by applying a P/E of 10x to FY09E earnings. This appears justified as zinc has the most robust outlook among base metals and considers the re-rating enjoyed by metal stocks in India and globally. Macquarie Research had an OUTPERFORM rating on Hindustan Zinc in Jan-2007.

Citi has also upgraded the target price of Sterlite Industries to Rs 949 from Rs 910 the back of global commodity price forecast revisions. The expected purchase of the balance government stake in HZL and Balco, and buoyant zinc and lead outlook, should lead to 39% EPS growth in FY09E.

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