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.
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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
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.
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
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.
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