Hindustan Zinc Ltd Upgraded to Buy on Strong Technical and Financial Performance

Quality Assessment: Exceptional Operational Efficiency

Hindustan Zinc continues to demonstrate superior management efficiency, as evidenced by its impressive Return on Capital Employed (ROCE) of 85.81%, one of the highest in the non-ferrous metals sector. This metric highlights the company’s ability to generate substantial profits from its capital base, underscoring operational excellence. The company’s debt servicing capability remains strong, with a low Debt to EBITDA ratio of just 0.15 times, indicating minimal leverage risk and a solid balance sheet.

Quarterly financials for Q3 FY25-26 further reinforce the company’s quality credentials. Net sales reached a record ₹10,980 crores, while profit after tax (PAT) surged 47.6% to ₹3,897.28 crores compared to the previous four-quarter average. Operating profit to interest coverage ratio stood at a robust 31.05 times, reflecting the company’s strong earnings relative to interest obligations. These figures collectively affirm Hindustan Zinc’s high-quality earnings and operational resilience.

Valuation: Premium Yet Justified

Despite its premium valuation, Hindustan Zinc’s price metrics remain attractive relative to its peers. The company trades at an Enterprise Value to Capital Employed (EV/CE) ratio of 15.4, which is considered expensive but justified by its superior returns and market position. The PEG ratio of 0.9 indicates that the stock’s price growth is reasonably aligned with its earnings growth, suggesting undervaluation in terms of future profit potential.

However, investors should note the company’s high ROCE of 82.4, which contributes to its elevated valuation. While this premium reflects operational strength, it also implies limited margin for valuation expansion. The stock currently trades at ₹608.95, slightly below its previous close of ₹610.75, and well below its 52-week high of ₹732.60, offering a moderate discount for entry.

Financial Trend: Strong Growth with Market-Beating Returns

Hindustan Zinc’s financial trajectory has been positive, with the company delivering market-beating returns over multiple time horizons. The stock has generated a remarkable 37.27% return over the past year, significantly outperforming the Sensex’s 7.07% gain during the same period. Over five years, the stock’s return of 107.48% dwarfs the Sensex’s 64.75%, while a ten-year return of 261.93% further cements its status as a long-term outperformer.

Sales and profit growth have been steady, with annual sales of ₹36,387 crores representing 20.23% of the non-ferrous metals industry. However, the company’s operating profit growth rate over the past five years has been a modest 5.73% annually, signalling some caution regarding long-term expansion. Despite this, the recent quarterly results and strong PAT growth of 47.6% suggest an acceleration in earnings momentum.

Hindustan Zinc holds a commanding 42.11% share of the sector’s market capitalisation, ranking second only to Vedanta. This dominant position, combined with its financial strength, supports the upgraded Buy rating.

Technicals: Bullish Momentum Drives Upgrade

The upgrade to Buy was primarily driven by a significant improvement in technical indicators, which shifted from mildly bullish to outright bullish. Key technical signals include a bullish Moving Average Convergence Divergence (MACD) on both weekly and monthly charts, and a daily moving average trend that confirms upward momentum. The weekly On-Balance Volume (OBV) indicator is also bullish, suggesting strong buying interest.

While the Relative Strength Index (RSI) on weekly and monthly timeframes shows no clear signal, Bollinger Bands indicate mild bullishness, reinforcing the positive trend. The Know Sure Thing (KST) indicator is bullish on a weekly basis, though mildly bearish monthly readings and mixed Dow Theory signals suggest some caution in the medium term.

Overall, the technical landscape supports a constructive outlook, justifying the upgrade from Hold to Buy as momentum builds in the stock price despite a minor day change of -0.29% on 9 Feb 2026.

Risks and Considerations

Despite the positive outlook, investors should be mindful of certain risks. The company’s long-term growth in operating profit has been relatively slow at 5.73% annually over five years, which may limit upside potential. Additionally, Hindustan Zinc’s valuation remains on the expensive side, reflecting its high ROCE and market leadership.

Another notable risk is the high level of promoter share pledging, with 90.28% of promoter shares pledged. This factor can exert downward pressure on the stock price during market downturns, as pledged shares may be liquidated to meet margin calls. Investors should monitor this closely as part of their risk management strategy.

Furthermore, while the stock has outperformed the BSE500 index over the last three years and one year, short-term returns have been negative in the last week (-3.16%) and month (-5.29%), indicating some near-term volatility.

Conclusion: A Compelling Buy with Balanced Risks

Hindustan Zinc Ltd’s upgrade to a Buy rating by MarketsMOJO reflects a comprehensive improvement across quality, valuation, financial trends, and technical indicators. The company’s operational excellence, strong quarterly earnings, and bullish technical momentum provide a solid foundation for future gains. While valuation remains premium and certain risks persist, the stock’s market-beating returns and dominant sector position make it an attractive proposition for investors seeking exposure to the non-ferrous metals industry.

With a Mojo Score of 71.0 and a Market Cap Grade of 1, Hindustan Zinc is well positioned to capitalise on favourable market conditions. Investors should consider this upgrade as a signal to evaluate the stock for potential inclusion in their portfolios, balancing the growth prospects against the outlined risks.

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