Shares of Hindustan Zinc gained nearly 3 percent in early trade on August 26 after Jefferies raised its target price on the stock, supported by higher zinc and silver prices and a more favourable earnings outlook. Hindalco Industries, in contrast, declined around 1 percent after the brokerage cut its earnings estimates due to weaker aluminium prices.

Hindustan Zinc was trading at around Rs 608 per share, up 2.6 percent from its previous close of Rs 592.60. Hindalco Industries was down 0.9 percent at Rs 1,041.50. The moves came amid a mixed broader market, with the Sensex up 187 points at 77,842.84 while the Nifty 50 was down 0.05 percent at 24,322.05 around 9:18 am.

Jefferies maintained its Buy rating on Hindustan Zinc and raised its target price to Rs 750 per share from Rs 660 earlier, implying an upside of around 27 percent from the August 25 closing price. For Hindalco, the brokerage retained its Hold rating but increased its target price to Rs 1,140 from Rs 1,100, implying an upside of more than 8 percent.

The brokerage said it prefers Hindustan Zinc over Hindalco as the recent divergence in commodity prices has improved the earnings outlook for the zinc and silver producer while creating a less favourable environment for the aluminium major.

According to Jefferies, spot zinc prices are currently around 15 percent above their June quarter average, while silver prices have recovered 23 percent from their July lows. Aluminium prices, however, are around 10 percent below their June quarter average.

Reflecting the stronger commodity prices, Jefferies raised its FY27 to FY29 earnings per share estimates for Hindustan Zinc by 10 to 11 percent. The brokerage said its estimates are now 16 to 23 percent above consensus and added that Hindustan Zinc's FY28 earnings could see a further 12 percent upgrade if current spot zinc and silver prices persist.

For Hindalco, Jefferies lowered its FY27 to FY29 earnings estimates by 2 to 3 percent to account for weaker aluminium prices. The brokerage nevertheless raised its target price after rolling forward its valuation estimates to September 2028.

Jefferies also highlighted a widening divergence in the balance sheet outlook of the two companies. It expects Hindustan Zinc's net cash to increase from Rs 5,200 crore in FY26 to Rs 22,700 crore by FY29. Hindalco's net debt, meanwhile, increased 74 percent in FY26 and is expected to rise another 13 percent in FY27 before beginning to decline from FY28.

Hindustan Zinc shares had declined 1.89 percent in the previous session amid renewed expectations of a government stake sale through an offer for sale. The stock was down 3.2 percent for the year as of August 25, compared with a 6.9 percent decline in the Nifty 50.

Hindalco had ended the previous session 0.7 percent lower at Rs 1,051.05. Despite the recent decline, the stock remained up 17.4 percent so far this year, substantially outperforming the benchmark.