While the market has been extremely bearish in the last three weeks, there are a few stocks which have managed to do reasonably well. Hindustan Zinc (HZL) is one of such stocks which has remained steady in face of a heavy selling. In fact, there has been an improvement if one were to consider the bottom of Rs 5.70 in July this year. The stock had steadily improved to Rs 11.50 in the previous week, and is currently available at Rs 10. The trading volume has also improved in the last two months.
This improvement is mainly credited to the firm zinc prices in the international markets. On the London Metal Exchange (LME), prices have remained above $ 1200 per tonne, and being the key player in the domestic zinc industry, the company should benefit from the firm zinc prices. HZL has its own mines, and unlike other private players it does not have to import the ore. Although the quality of ore is poor in India compared to international standard, the cost for the HZL is not significant. The demand-supply scenario in the domestic market also favours the company. And with weaker rupee which has seen a sharp downtrend in the last two months also augurs well for the company's pricing policy.
The company has been able to produce good results in the recent past with focus on reduction in cost and firm zinc prices. For the first quarter ended on June 2000, gross sales stood at Rs 401.53 crore, a growth of 5.5 per cent over corresponding period's figure of Rs 380.57 crore.
At the same time, OPM improved from 13.09 per cent to 14 per cent. This improvement was mainly on account of the company's ability to maintain its cost at lower levels.
For future, the demand-supply outlook is positive whereas the zinc price is also likely to remain firm. Both these factor would ensure a better profit margins for the company. The cost cutting measures will continue to help the company. Last year it had implemented VRS scheme. Falling interest burden should also help the company as the company has become zero-debt.
While these factors are favourable and hint at a positive outlook, the stock market will continue to give the stock a meagre discounting. Hugh equity base of Rs 422.53 crore, and the PSU tag will continue to haunt the stock in the medium run. Any positive development on the disinvestment front however can result in a favourable market response.
As for the technical position, the level of Rs 7 can be considered as an important reference point, and exit should be made below this level. On the upper side, immediate hurdle is at Rs 12, and the next major resistance for the stock is at Rs 30.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.