Hindustan Zinc(BSE Code 500188)

A research analyst tracking the metals sector has turned distinctly bullish on Hindustan Zinc in the long run after the Central government okayed the sale of its 29.58 per cent stake in the company, which is controlled by the Vedanta group of metal mogul Anil Agarwal. According to the analyst, in the short term the price may rule firm as it is not known what the response will be to the government’s stake sale.

In April 2002, the government had offloaded a 26 per cent stake to the Vedanta group’s Sterlite. The Vedanta group later bought a 20 per cent stake from the market and another 18.92 per cent from the government in November 2003. Today, the Vedanta group holds a comfortable majority stake of 64.92 per cent.

Now, the government has decided to sell its entire remaining stake of 29.58 per cent, valued at around Rs 39,000 crore, with a view to pushing the government’s disinvestment drive in the current fiscal, for which a target has been set at Rs 65,000 crore from PSU disinvestment and strategic sales.

The moment the government decision was known, the market welcomed it and the share price of Hindustan Zinc rallied 7 per cent to Rs 315.90. But as Vedanta group supremo Anil Agarwal made it clear that he was not in a position to buy more than a 5 per cent stake, the share price reacted to Rs 298. Vedanta is reported to have pledged a portion of its existing holding, and is not interested in buying the government’s 29.58 per cent stake unless the shares are available at an affordable price. The government seems to have decided to sell its stake in tranches through an offer for sale. Now, the question is: Who will buy these shares and at what price when Vedanta is not ready to pick them up? It won’t serve any purpose to pick up the government stake as Vedanta has a comfortable majority holding of 64.92 per cent and is in full management control from the day it bought the first lot of government shares way back in 2002.

HNI and retail investors will be interested in buying these shares only if they are available at attractive prices as compared to the prevailing market price. At a time when the market is on the downtrend, it will be difficult for the government to offload its stake unless it is offered at lower prices.- Thus, market circles expect the price to decline when the government enters the market to sell these shares.

(CMP Rs 298.30, 52 week H/L Rs 408/279, BV Rs 81.10, FV Rs 02)

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Ashok Leyland(BSE Code 500477)

Ashok Leyland, the Chennai-headquartered Indian MNC automotive manufacturer belonging to the Hinduja group, is the second largest manufacturer of commercial vehicles in India, the third largest manufacturer of buses in the world and the tenth largest manufacturer of trucks. The company also has a manufacturing facility in Ras al Khaima (UAE), at Leeds (UK) and a joint venture with the Alteams group for the manufacture of high press-die casting extruded aluminium components for the auto and communications sectors. Though the company was doing very well on the financial front with its sales turnover moving up from Rs 20,019 crore in fiscal 2017 to Rs 29,055 crore in fiscal 2019, net profit inched up from Rs 1,223 crore to Rs 1,983 crore during this period. The pandemic hit the company very hard, with sales declining to Rs 17,467 crore and net profit slumping to Rs 240 crore in the fiscal 2021. However, the company has started recovering from fiscal 2022 with sales improving to Rs 21,688 crore and net profit moving up to Rs 542 crore.

The company will substantially benefit from two important decisions taken by the government – the imposition of export duty on steel and reduction in import duty on certain auto inputs. Both these developments will substantially reduce the cost of production for the company, which in turn will improve its margins. As a result the prospects for the current fiscal ending March 2023 are quite promising and the future outlook is all the more encouraging.

(CMP Rs 139.35, 52 week H/L Rs 154/93, BV Rs 24.90, FV Re 01)

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Ugar Sugar Works(BSE Code 530363)

A knowledgeable HNI is reported to have started accumulating Ugar Sugar stocks

The company, which set up a sugar mill in 1942 with a capacity of 500 tcd, went on raising the capacity thereafter and today its capacity is 18,000 tcd. It diversified its activities in 1967- 68 by setting up a distillery to produce high-quality premium brands like Old Castle Whisky, Gokak Falls Whisky, US Rum, Doctors Brandy and Gagarin Vodka. All these brands are well accepted in the market. As a result, the company has been going from strength to strength on the financial front. During the last five years, its sales turnover has almost doubled from Rs 649 crore in fiscal 2018 to Rs 1,137 crore in fiscal 2022. However, the profit at net level declined sharply from Rs 68.19 crore in fiscal 2018 to Rs 13.77 crore in fiscal 2020. However, margins have started improving thereafter and during fiscal 2022 the company earned a net profit of Rs 43.31 crore.

The company’s distillery business is doing very well and this inspired the management to set up a new distillery with a capacity to produce 45,000 litres of rectified spirit, including 10,000 litres of ENA per day. The company subsequently set up a co-generation power plant with a capacity of 44 MW, of which 28 MW is being sold to the grid and the balance 16 MW is being used for captive consumption. This has helped margins to expand. As the earnings are expected to rise, it will enable the company to tackle its huge debt in the coming years.

(CMP Rs 52.20, 52 week H/L Rs 87/25, BV Rs 10.82, FV Re 01)

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