Analysts Warn Retail Investors to Avoid Hindustan Zinc OFS

Hindustan Zinc's shares have recently taken a hit as Vedanta, its parent company, attempts to sell a 1.59% stake in the zinc producer. This situation arises despite the ongoing surge in silver prices, which typically would boost investor confidence. On Thursday, Hindustan Zinc's share price fell nearly 2%, reaching a low of ₹695.30 during the retail bidding process.

Vedanta has set a floor price of ₹685 for the offer for sale (OFS), which is about 5.8% lower than the closing price of ₹727.20 earlier in the week. The OFS opened to non-retail investors on January 28 and is now available to retail investors. Analysts have raised concerns over the repeated stake sales by Vedanta, suggesting that this pattern indicates a focus on monetizing assets rather than a commitment to long-term ownership.

Harshal Dasani, Business Head at INVasset PMS, points out that such actions might limit valuation multiples and keep investor sentiment subdued. This advice comes as the company, despite being fundamentally strong—showing robust EBITDA margins and cash generation—has valuation concerns that need to be carefully considered by retail investors.

Abhinav Tiwari, a Research Analyst at Bonanza, notes that Hindustan Zinc remains one of the strongest metal producers globally but emphasizes that operational strength does not negate valuation issues. The current discount offered is not deep enough to enhance the investment case significantly.

In recent earnings reports, Hindustan Zinc has shown impressive growth, with a quarterly profit of ₹3,916 crore, which is 46% higher than the previous year. Notably, around 44% of this profit came from silver sales, highlighting the importance of silver in the company’s earnings. Over the last year, the stock has appreciated by 63%, indicating strong market interest despite the current caution being advised.

In summary, while Hindustan Zinc has solid fundamentals, the repeated stake sales by Vedanta and the current market dynamics suggest that retail investors should approach the OFS with caution. Consulting with certified financial experts before making investment decisions is highly recommended.