Hindustan Zinc OFS: Analysts advise retail investors to ‘avoid' — Key reasons explained

Hindustan Zinc OFS: Hindustan Zinc shares remained lacklustre for the second day in a row on Thursday, stepping farther away from record high levels, despite the massive spurt in silver prices as the stake sale by its promoter weighed on investor sentiment.

Hindustan Zinc share price lost almost 2% to hit the day's low of ₹695.30 on the BSE in the early morning session as its offer for sale (OFS) entered the second day of bidding today.

Hindustan Zinc OFS details

Hindustan Zinc's parent, Vedanta, is looking to offload a 1.59% stake in the zinc producer to cash in on the smart surge seen in the metal stock amid the sharp silver price rally.

Vedanta has fixed the floor price for Hindustan Zinc OFS of ₹685, representing a 5.8% discount to Tuesday's closing price of ₹727.20. According to Reuters' calculations, Hindustan Zinc OFS will fetch Vedanta ₹4590 crore.

The OFS opened for non-retail investors on January 28 and will be available for retail bidding today. As of December 31, Vedanta held a 61.84% stake in Hindustan Zinc, while the Indian government is Hindustan Zinc's second-largest shareholder, with a 27.92% stake.

Hindustan Zinc OFS: Should you apply?

The OFS was fully subscribed for non-retail investors on Wednesday at an indicative price of ₹691.15, which is higher than the base price. As the offer becomes available for retail investors today, analysts largely advise avoiding the offer. Their concerns are based on steep valuations and repeated stake sales by the promoter.

Vedanta has sold portions of its stake in Hindustan Zinc twice in the past two years to help shore up its balance sheet, stated a Reuters report.

Repeated stake sales by the promoter, Vedanta Group, including the current OFS, indicate a pattern of monetising the asset rather than long-term ownership commitment, said Harshal Dasani, Business Head at INVasset PMS. "Such actions often cap valuation multiples and keep sentiment subdued."

Therefore, he believes that from a retail investor’s perspective, the Hindustan Zinc OFS warrants a cautious and nuanced reading, even as the company remains strong fundamentally with meaningful exposure to zinc and silver.

Abhinav Tiwari, Research Analyst at Bonanza, said that operationally, Hindustan Zinc remains one of the strongest metal producers globally, with industry-leading EBITDA margins, low cost of production, and robust cash generation. However, he said that valuation remains a key concern.

Moreover, from an entry price perspective, this discount is not deep, and therefore the investment case must rest more on fundamentals than on valuation arbitrage, said Tiwari.

Recent earnings of Hindustan Zinc have benefited from higher zinc and silver prices, with silver increasingly emerging as a meaningful earnings contributor.

These factors, analysts believe, support earnings visibility over the medium term, particularly if the current commodity cycle sustains. Hindustan Zinc posted the highest-ever quarterly profit of ₹ ₹3,916 crore, 46% higher YoY. The company said it derived nearly 44% of its profit from the sale of silver. Consolidated revenue during the quarter grew 27% year-on-year to ₹10,980 crore.

In the last one year, Hindustan Zinc share price has rallied 63%, while it is up 128% in two years. In January so far, the metal stock gained 17%.

How to apply to Hindustan Zinc OFS?

To apply for Hindustan Zinc OFS, navigate to the OFS or corporate action tab of your trading account.

Review the bid quantity, price and other aspects of your application. Do ensure that your bid price is higher than the floor price of the OFS.

Once done, you can place your bid for the OFS. In case of a successful application, you will receive allotment on T+1 day, while a refund will be initiated back to your bank account in case of rejection.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.