Hindustan Copper LTD

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2018 Mar 15

The objective of this paper is to analyze the value of the Hindustan Copper LTD stock (BSE: 513599, NSE: HINDCOPPER) and gather details regarding the stock, on an ongoing basis.

Disclaimer: This is not a Buy or Sell recommendation. These papers on stocks are for study and knowledge purpose. Please do your own research and if necessary take appropriate professional advice from your financial advisor before you invest in these stocks.

Section 1 : Business

1 . Give a brief overview of the company's business activities
2 . Give a brief description of the industry structure and the competitive position of the company
3 . Please do a SWOT (Strength, Weakness, Opportunities and Threats) analysis of the company
4 . List the major influencing factors (current or probable future) that could affect the earnings significantly with time range (when and how long), the direction (up or down) and the estimated quantum (%) of influence on the earnings, with reasons.

Section 2 : Earning Forecast

1 . List down the Business scenario, assumptions and possible earnings forecast for the next quarter and year end.

Section 3 : Market:Value

1 . What is the estimated value of the business- Net cash flows expected to occur over the life of the business discounted at risk free interest rate / shareholders expected rate of return.

Section 4 : Technical Analysis: Stock price Forecast (long term)

1 . Stock price forecast – Give your forecast of the stock price over a period of 1 to 5 years next (please specify the year for your forecasted price) along with the reasons and assumptions for the prediction.

Section 5 : Latest Events / News relating to the company

1 . Gather and list the latest events / news relating to the company with appropriate reference source

Section 6 : Discussions

1 . Post any questions relating to this stock / company
2 . Post your responses to the questions raised with appropriate reference

Business

Hindustan Copper Limited (HCL), a public sector undertaking under the administrative control of the Ministry of Mines, was incorporated on 9th November 1967. It has the distinction of being the nation’s only vertically integrated copper producing company as it manufactures copper right from the stage of mining to beneficiation, smelting, refining and casting of refined copper metal into downstream saleable products.

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’s mines and plants are spread across five operating Units, one each in the States of Rajasthan, Madhya Pradesh, Jharkhand, Maharashtra and Gujarat.

Global Business Scenario:

As per International Copper study group (ICSG) forecast on 24th October 2017

  • After growth of almost 6% in 2016, world mine production after adjusting for historical disruption factors is expected to decline by around 3% in 2017 and grow by 2.5% in 2018
  • World refined production is expected to increase by only 1% in 2017 with growth of 2.5% expected for 2018:
  • World apparent refined usage is expected to increase by around 1% in 2017 and 2% in 2018
  • World refined copper balance projections indicate a deficit of about 150,000 t for 2017 and 105,000 t for 2018

Indian Copper Scenario:

As of 1.4.2010, total reserves are estimated (in metal terms) at 4.8 million tonnes and probable resources at 12.3 million tones. The copper reserves and resources are largely located in three copper belts, namely, Khetri copper belt in Western India, Singhbhum copper belt in Eastern India and Malanjkhand copper belt in Central India. All the operating mining leases are presently held by HCL, a state owned copper producing company. To increase production, HCL has chalked out an expansion plan to increase mine production from 3.2 million tonne per annum to 12.4 million tonnes per annum by 2018-19.

Refined Copper Production: Currently, three major players dominate the Indian Copper Industry. HCL in Public Sector, M/s Hindalco and M/s Sterlite Industries in Private Sector. HCL is the only vertically integrated copper producer in the country, while M/s Hindalco at Dahej in Gujarat and M/s Sterlite Industries in Tuticorn in Tamil Nadu have setup port based smelting and refining plants which depend on imported mineral in the form of concentrate. India has total installed capacity of 999,500 tonnes of refined copper production per annum. HCL has shut down its one of the smelter & refining plant (Khetri Plant) of annual capacity 31,000 due to economic reasons.

Refined Copper Usage: 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.

Import & Export: As of now, there is a high level of deficit in the mining capacity and surplus in the refining capacity. Domestic production of 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.

SWOT Analysis

Strength

 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

Weakness

 High cost of logistics due to multi- location units

 Relatively smaller sized plants

 Aged equipment /old technology

 Limited value added products

Opportunity

 Scope for expansion of mine capacity

 Opportunity to explore new deposits

 Ready market for copper concentrate in India due to large smelting/refining capacity

Threat

 High volatility of LME price of copper

 Rising cost of inputs

 Continuous attrition of skilled manpower

 

Earning Forecast

As per the estimates based on the assumptions given in the Excel attachment Hind copper earnings Forecast Q4 and yearly results 2017-18

The forecasted Q4 2017-18 Net profit is around Rs. 38 crores

and the forecasted 2017-18 Net profit for the year is around Rs.95.73 crores.

Market:Value

As per the assumptions and workings in the attached Excel sheet "Hind copper Estimated value of business calculation" the estimated fare value of the share is Rs.71.30

References :

http://www.hindustancopper.com/Home

http://www.icsg.org/index.php/press-releases/viewcategory/113-forecast-press-release

http://www.hindustancopper.com/Page/AnnualReport

http://www.hindustancopper.com/Page/AnnualReport