Hindustan zinc rises before earning concall, Should you hold?


Hindustan Zinc which is listed on NSE under ticket (NSE:HINDZINC) marked a new all time high on April 12, 2024. The stock crossed ₹408 which was its previous highest price, supported by strong volume expansion.

In past 14 days, Hindustan Zinc has surged by more than 50% after it made a low of ₹289. A downward sloping trendline can be seen which was decisively broken on 3rd of April and the stock closed above this resistance level.

This strong rally in Hindustan Zinc before its upcoming earning concall on 19th of April might be hinting improvement in earnings and profits. (Earning concall – details)

Causes of rise in demand of Hindustan Zinc’s products

Zinc is one of the main metals used in energy sector and its demand has almost tripled in the last four years. (source)

It is also a major component in rechargeable batteries which is at all time high demand right now. The demand for Zinc is expected to rise further by almost 250,000 metric tons by year 2030. (source)

Hindustan zinc is a major zinc producing company and the rise in demand of their products are taking the company to better financial positions.

Financial performance of Hindustan Zinc

High dividend paying company Hindustan Zinc has performed remarkably well this year. The company reported higher return on equity (ROE) with an increase of 15% in 2023, compared to same quarter in the year 2022.

The company also has high EBITDA margins of above 55% which attracts lots of investors. In previous financial year (2023) Hindustan Zinc reported EBITDA of 17506 crores, which is 7.9% higher than previous year.

This was the highest annual earning reported by the company in last 10 years, all thanks to the strong demand of Zinc. This high demand can be learned from an increase in their annual sales.

Chart of Hindustan Zinc's annual sales

Technically, HINDZINC is looking strong

Looking at the delivery volume of Hindustan Zinc, the stock has 2.6x higher volume this month. This means investors are carrying the stock positionally and the volume buildup suggests the stock will experience support at multiple levels if incase the stock falls. This is because multiple traders have made positions in this stock particularly at lower levels like 300, 350 , 400 (round numbers).

Hindustan Zinc has also outperformed flagship indices like Nifty 50 and Sensex. In last one week, Nifty’s performance remained almost flat, whereas Hindzinc moved up by 27.1%. The stock has also closed above its VWAP which is another positive sign. 

What will happen after the quarterly result?

Traders who made a position in Hindustan Zinc late, particularly after it reached ₹400 should be cautious. This is because stocks usually tend to decline after posting positive earnings. There can be multiple reasons like profit booking by existing investors, mean reversal, etc behind this decline. So, if you entered the stock late, you should carefully manage your stop loss.

Another reason to be carefull is that the move in Hindustan Zinc is very steep, and such moves are not considered to be healthy. Sharp upmove as such leads to sudden decline in the same manner. So during times of high volatility, less experienced traders are advised to not trade as high IV stocks are more prone to hit SL.

My opinion

Personally, I would avoide making any new position in Hindustan Zinc as the risk to reward ratio is not favourable at current level. Finding the stock near ₹360 to ₹375 levels will present us an opportunity to make new bullish position. Now for Long term investors, they should not worry since the sector will boom in the coming years and you can continue to hold the stock. You can also check targets upto 2030 for reference. 

2.9/5 - (14 votes)

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