On November 6, the shares of Hindustan Zinc fell sharply by over 8% as the government planned to sell a part of its stake in the company through an Offer for Sale (OFS) at a considerable discount. The government plans to sell a 2.5% stake in Hindustan Zinc at a floor price of Rs 505 per share, nearly a 10% discount from the previous closing level, raising concerns among investors.
Hindustan Zinc was trading at Rs 517.10 on the NSE as of around 10:04 a.m., while investor reactions poured in about the government’s decision.
The OFS contains the divestment of 1.25% equity, which amounts to some 5.28 crore shares, and the company offers the greenshoe option that could raise the sale by a further 1.25% if the demand arises.
Understanding the OFS Structure
The stake sale by the government is so structured that it can be accessible to both non-retail and retail investors. In the OFS, the non-retail investors can start bidding from November 6, whereas the retail investors can start bidding from November 7. The offering is made accessible through the reservation of 10% of the offer size for retail investors, with each retail investor eligible to bid for shares up to Rs 2 lakh.
The indicative price would be mentioned for the non-retail category, thus giving the investor a benchmark on which he can decide the prices at which he intends to bid. This OFS is in the backdrop of the government’s previous move to divest the entire stake in Hindustan Zinc, for which Cabinet approval was obtained way back in 2022.
Long-Awaited Government Divestment Plan
The government had long been planning to sell a stake in Hindustan Zinc. At present, the government has a 29.54% stake in Hindustan Zinc, while Vedanta is the primary promoter with a 63.42% stake. This is a part of the overall divestment agenda by the government to reduce its holding in non-strategic sectors and raise funds to improve the fiscal health of PSUs.
Based on different reports, the government had planned to shut the OFS prior to the end of fiscal year 2025. The sale will push it closer to achieving its target and also liberate it from the need to hold on to more resources in other developmental ventures and allocations.
Reduction in Parallel Stock
Interestingly, this is the second time this year Hindustan Zinc’s shareholders have been cutting their exposures. In August, the very same Vedanta was one of them, diluting a 3.17% stake in the Hindustan Zinc equity. The logic behind selling a portion of its exposure to Hindustan Zinc was to reduce the company’s debt burden on the balance sheet as the liability is mounting.
This is the latest move of the government that goes well with the earlier action from Vedanta, indicating continued restructuring of ownership at Hindustan Zinc as per the fiscal and financial requirements of its major stakeholders.
Hindustan Zinc Posts Good Financial Performance
Despite the divestment news, Hindustan Zinc has had a sound financial performance. In the September quarter, the company saw a year-on-year increase of 35% in net profit, which rose to Rs 2,327 crore from Rs 1,729 crore in the same quarter the previous year. This growth was mainly attributed to the rising zinc prices, driven by expectations of stronger demand from China and a tightening global supply.
Indeed, such fabulous earnings depict such a solid operations base of Hindustan Zinc. It is the asset per se in itself in the mining and metal sector. The business stands with healthy profitability, tremendous reserves, and high production capacity that makes long-term investors also more prone towards such business.
Future of Hindustan Zinc in Demerger Process
Hindustan Zinc management has suggested a demerger process, which would start when the government completes its stake sale. According to CEO Arun Misra, “It would simplify our structure. It would demerge zinc and silver businesses, free us to focus on our core activities, and at the same time, try and explore new growth avenues in the metals and mining space.”.
The demerger proposed would be consistent with Hindustan Zinc’s overall strategic structuring to further strengthen its leadership in the market. It may help create shareholder value by separating the entities that have specific operational and financial strategies, thereby attracting more specialized investors.
Market Impact and Investor Reactions
This is what is happening in the case of Hindustan Zinc, where the government has resolved to sell its stakes and simultaneously offer a discount. Most investors view discount OFS announcements with much caution as it can herald downward pressure on the stock within the short term. Since Hindustan Zinc’s shares have been going fairly well so far, one could observe that its fall was also noticeable. Here, the discount and its possible implication for overselling the stock in the market could be the major reasons why the investors assessed them.
Although short-term feelings may be bruised to some extent, analysts commonly believe that the long-run fundamentals of Hindustan Zinc are still in tack. The company’s hard financial performance, huge ore reserves, and persistent domestic and international demand for its zinc and silver products bet on its long-run performance.
Conclusion: A move in line with the government plan
The OFS of the government in Hindustan Zinc is not only a financial decision but also strategic and part of its wider disinvestment agenda. Through the reduction of its stakes in non-strategic sectors, the government can focus more on other critical areas of development. The divestment also represents the continuous effort of the government to encourage private sector participation while reducing its footprint in PSUs where it holds huge stakes.
A massive stake sale by the government and Vedanta into Hindustan Zinc has been a restructuring and strategic transition period. With good financial performance and a bright future, Hindustan Zinc remains a good mining sector play with long-term prospects from growing demand in zinc and silver markets. This short-term correction on the stock due to a discount in OFS is unlikely to change the long-term growth potential.
Investors who are in line with the long-term path at Hindustan Zinc and share the strategic value of the company in the metals sector will see this as an opportunity to consider the stock. Market participants, however, must stay abreast of the performance of the company and the unfolding impact of the divestment, especially considering that the company is pushing forward with its proposed demerger.
As OFS concludes, the dynamics in the market for Hindustan Zinc might be different, but the underlying strength and its importance in the industrial landscape of India make it a stock worth paying attention to.
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