Recommendation - Buy
Hold for 1 years
Target: 125 Rs.
Potential upside – 29%
- CMP: 97 Rs
- BSE Code: 513599
- NSE- HINDCOPPER
- Market Capital: 8988 Cr.
- Face Value: 5
- 52 Week Low / High: 55.45/110.55
- Book Value: 15.86
- Price/Book Value: 6.13
- TTM EPS – 1.04
- P/E – 93.32
Part – 1 Company’s Information:
- Hindustan Copper Limited (HCL), a public sector undertaking under the administrative control of the Ministry of Mines, was incorporated on 9th November 1967 operating in Metals - Non Ferrous sector.
- Major activities of HCL are Exploration, Mining, Ore Beneficiation,Smelting, Refining and Casting of refined copper metal into downstream products.
- It is the only company in India engaged in mining of copper ore and owns all the operating mining lease of Copper are in the country.
- HCL is also the only integrated producer of refined copper in the country
- The company is the only operating copper ore producing mining company in India
- The Company markets copper cathodes, copper wire bar, continuous cast copper rod and by-products, such as anode slime (containing gold, silver, etc.), copper sulphate and sulphuric acid
- In normal practice, more than 90% of the sales revenue is generated from cathode and continuous cast copper rods.
- HCL has five units - one each in the States of Rajasthan, Jharkhand, Madhya Pradesh,Maharashtra and Gujarat.
Part – 2 Hindustan Copper Limited- Plants Location
- Khetri Copper Complex (KCC) at Khetrinagar, Rajasthan
- Indian Copper Complex (ICC) at Ghatsila, Jharkhand
- Malanjkhand Copper Project (MCP) at Malanjkhand, Madhya Pradesh
- Taloja Copper Project (TCP) at Taloja, Maharashtra
- Gujarat Copper Project (GCP) at Jhagadia, Gujarat
Part – 3 Hindustan Copper Limited- Products
Main Products –
Continuous Cast Copper Rod
By Products –
Part – 4 Hindustan Copper Limited- Project Status
- Malanjkhand Copper Project (M.P) : Work is under progress to expand the production capacity of Malanjkhand mine from present 2 Mtpa to 5 Mtpa by developing an underground mine below the existing open cast mine at an estimated cost of 1856.74 Crore. All the approvals are in place, Environment Clearance and approved of National Board for Wild Life has been obtained in 2014-15 and EPC contractor for implementation of the project has been appointed. Infrastructure facilities required for sinking of the shafts are in place at site. The activities are progressing to complete the project on schedule time of March 2020.
- Khetri, Kolihan and Banwas mine (Rajasthan): The proposed expansion of Khetri & Kolihan mine and development of Banwas deposit will increase ore production from existing 1.0 million tonne to 3.1 million tonne per annum.
- Surda mine expansion (Jharkhand): The plan envisages increase in the depth of the mine and enhancement of production capacity from 0.4 million tonne per annum to 0.9 million tonne per annum. On 19-20 September 2016, Expert Appraisal Committee of Ministry of Environment, Forest and Climate Change (MoEFCC) has recommended the proposal for Environment Clearance subject to clarification regarding forest clearance for forest land involved in underground mining. Matter is under scrutiny at Forest Clearance division of MoEFCC.
- Re-opening of closed mines at ICC Ghatsila (Jharkhand): Company initiated action to re-open closed mines at Singhbum Copper Belt of ICC namely, Kendadih and Rakha mines to produce 0.21 million tonne and 1.5 million tonne of ore per annum respectively.
- Chapri Sideshwar (Jharkhand): Considering the change in market scenario, the Company will implement the project through a mine-developer-andoperator route. Environmental clearance has been obtained on 1.8.2014, stage -II forest clearance obtained. Chapri- Sideshwar mine fall within the Rakha and Kedadih mining lease.
- Manufacturing of Copper through Hydrometallurgy Technology - The Company has plans to set up a plant of capacity 1.0 lakh tonne per annum to manufacture copper cathode through cost effective hydro-metallurgy technology. The site of the project has been finalized and investment in the project is ` 3025 crore. The investment proposal after approval of the Board has been sent to the Ministry to obtain CCEA approval.
- Extraction of minerals from copper ore tails (MP)- The Company has awarded contract to install and commission a commercial scale plant of capacity 3.3 million tonne per annum at Malanjkhand at cost of `200 crore to extract valuable minerals and metals from copper ore tails.
Part – 5 Hindustan Copper Limited- SWOT Analysis
Only Company having ownership of all copper mines in India
Fully developed infrastructure facilities
Fully integrated operations from mining of copper ore to pure metal
Skilled and experienced work force
Established brand value
High cost of logistics due to multi- location units
Relatively smaller sized plants
Aged equipment /old technology
Limited value added products
Scope for expansion of mine capacity
Opportunity to explore new deposits
Ready market for copper concentrate in India due to large smelting/refining capacity
High volatility of LME price of copper
Rising cost of inputs
Continuous attrition of skilled manpower
Part – 6 Hindustan Copper Limited- Shareholding Pattern:
Part – 7 Financial Focus:
Focus on - Financial Results March 2017:
- During 2016-17, the turnover of the Company was 1216.94 crore as against 1068.95 crore during FY 2015-16 registering an increase of around 13.84%.
- The Company posted a Profit Before Tax from continuing & discontinuing operation of 94.20 crore during the year as against 39.61 crore clocked during the previous year registering an increase of around 137.82%.
- The Profit After Tax from continuing & discontinuing operation during FY 2016-17 is 61.94 crore as against 37.74 crore in FY 2015-16 registering an increase of around 64.12%.
Shortfall in physical performance of the Company during 2016-17 is due to the following:
- Planned shutdown of primary crusher of Malanjkhand mine was taken up for 14 days.
- Less availability of high grade ore due to widening of open pit. Delay in U/G project requires widening of the open pit to sustain production up to 2020.
- London Metal Exchange (LME) prices of copper remained under pressure during most of the period of FY-2016-17.The average LME price during the year was 5154 USD/T against 5215 USD/T in 2015-16.
- Surda Mine (Jharkhand) operation affected due to poor performance of the contractor.
- ICC smelter furnace is in the last leg of its current campaign life. Last shutdown for major overhauling was undertaken in May, 2013. Repeated failure of the refractory and waste heat boiler of the furnace has affected the production of cathode.
Remedial actions taken by compnay to improve the performance are as under:
- Increased thrust on excavation at Malanjkhand mine to widen upper benches to sustain production upto the year 2020.
- Construction of Banwas mine at Khetri Copper Complex has been completed and production ramp up from the mine will commence in 2017-18.
- Action has been initiated for award of new contract for the operation and maintenance of Surda Mine. Thereafter the production from Surda mine will improve.
- Cathode production will improve as production ramp up from newly acquired Gujarat Copper Project (GCP) will improve further. The Kaldo furnace of the Unit will be made operational in the second quarter of fiscal year 2017-18.
Focus on - Financial Results September quarter 2017:
- For the quarter ended 30-09-2017, the company has reported a Standalone sales of Rs 519.33 Crore, up 187 % from last year same quarter Sales of Rs 180.78
- Company has reported net profit after tax of Rs 28.55 Crore in latest quarter compare to last year September 2016 quarter profit 6.77 Cr. up 321.70%.
- Strong turn around growth in Net sale plus in Net profit
- The company is eyeing to invest around Rs 5,000 crore over the next four years, making a strategic shift to value-added products.
- Hindustan Copper has signed a memorandum of understanding (MoU) with Nalco and Mineral Exploration Corp to form a joint venture for exploration and sale of minerals which boost the growth in Top line & Bottom Line
- Copper consumption to improve - The worldwide demand for copper is expected to witness a 4.7% surge every year totting up to 37.2 million metric tonnes in 2019 and the global refined copper production is expected to rise at a rate of 4.6% per year reaching 29.1 million metric tonnes by 2019
- During FY 2016-17, refined copper usage (including cathode and wirerod) is around 6.65 lakh tonnes.
- Copper consumption growth rate is likely to increase around 6 to 7% due to improvement in growth rate of manufacturing, housing & infrastructure sectors.
- The key growth drivers are in continuing demand from power and construction sectors. Electrical & power sectors account for nearly one-third (35%) of the refined copper consumption, followed by 11% by the transport (Auto and Railways) industry, 8% each by construction & consumer durables industry.
- The growing environment consciousness and emphasis on using more energy-efficient appliances would also help to protect demand for copper in India.
- India is self sufficient in refined copper production and has emerged as net exporter of refined copper
- Vertical integration will help reduction in cost and risk
- Expanding capacity to drive volumes
- Positive global growth forecast
- World refined usage is expected to increase by around 2% in 2017 and 2018.
- Sustained growth in world copper demand is expected to continue because copper is essential to economic activity and even more so to the modern technological society.
- Improvement is anticipated for the world economy for 2017 and 2018which, although modest, should support copper demand growth.
- As per ICSG forecast, it is projected that there will be a deficit of about 150,000 metric tonnes in 2017, and about 170,000 metric tonnes in 2018.
- As of now, there is a high level of deficit in the mining capacity and surplus in the refining capacity. Domestic productionof concentrate accounts for only 4% of the total requirement. Consequently, India imported around 2,748,933 tonnes of copper concentrate (about 824,000 tonnes of metal) in FY 2016-17. However, India is self sufficient in refined copper production and has emerged as net exporter of refined copper.
- Stock CMP is 97 Rs. and stock is trading at P/E 93.32 & TTM EPS 1.04, based on all above investment points, stock may touch 125 Rs. Within 1 years’ time horizon.
- Note: The articles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I might have the discussed companies in my portfolio and hence my point of view can be biased. Readers should consult registered consultants before making any investments.