OFS | Metals
July 2, 2013
Hindustan Copper
AVOID
CMP
`73
Stretched Valuations
OFS floor price
`70
Government of India is divesting 37,119,152 shares (4.01% of equity capital) in
Hindustan Copper Ltd. (HCL). It has set a floor price of `70 for the issue. We
recommend investors to AVOID subscribing to shares due to expensive valuation.
Company overview
HCL was incorporated in 1967 to take over NMDC’s copper mines and plants.
The company’s core business includes exploration, mining beneficiation, smelting,
refining and casting of finished copper.The company has four operating units
namely Khetri Copper Complex in Rajasthan, Indian Copper Complex in Bihar
(both mining cum metallurgical complex), Malanjkhand Copper Complex in M.P.
(mining complex) & Taloja copper project in Maharastra (collaboration with
Southwire Company, US). The company's copper reserves and resources in
accordance with JORC standard are 411mn tonnes (average grade 1.05%) and
623mn tonnes (Average grade 1.04%) as on April 1, 2010, respectively, making
it the largest copper company in India.
Investment arguments
Expanding capacity to fully exploit India’s copper ore demand: India has a large
imbalance between its smelting/refining capacity as against its copper mining
capacity. Currently India’s smelting/refining capacity stands at 1MTPA for which
100MT of copper ore is required (assuming 1% cu). Currently India’s actual
copper ore production stands at 3.2MTPA which is entirely produced by HCL. So
in order to capitalize on this sustained demand, HCL plans to ramp up its
production capacity from the current 3.2MTPA to 12.4MTPA by FY2018 at a
capex of `2,500cr. The company aims to expand its Malanjkhand, Khetri, Kolihan
and Surda mines and Banwas Mine; further, it aims to re-open Rakha and
Kendadih mines and develop new mine Chapri-Sidheswar.
Single vertically integrated player in India: HCL is the only vertically integrated
player in India which has its operations span across the entire value chain. Their
core operations include mining of copper ore, concentration of copper ore into
copper concentrate through a beneficiation process and also smelting, refining
and extruding of the copper concentrate into refined copper in downstream
saleable products.
Possesses first mover advantage: Copper mining requires substantial investments
and time for greenfield projects to be set up. Also many clearances need to be
obtained from the Government for the same. This entails a lot of entry barriers in
this industry. HCL on the other hand has all its mining complexes near the major
copper ore deposits of the country. Thus any greenfield projects undertaken by
the company can rely on its existing infrastructure. Moreover, HCL has applied for
prospecting, mining and Reconnaissance Permit in the states of Rajasthan,
Jharkhand, Madhya Pradesh and Haryana.
Bhavesh Chauhan
Valuation: HCL is the only vertically integrated copper producer in India.
Tel: 022- 39357800 Ext: 6821
However, at the OFS price of `70, the stock is available at a valuation of 21.0x PE
[email protected]
and 11.9x EV/EBITDA based on FY2012 numbers, which is expensive compared
to its peers. Miners such as Coal India, MOIL and NMDC are trading in the range
Vinay Rachh
of
3-7x FY2012 EV/EBTIDA. Hence, we recommend investors to AVOID
Tel: 022- 39357600 Ext: 6841
[email protected]
subscribing to HCL issue.
Please refer to important disclosures at the end of this report
1
Hindustan Copper | FPO
Profit & loss statement (Standalone)
Y/E March (` cr)
FY2009
FY2010
FY2011
FY2012
Net Sales
1,210
1,319
1,171
1,492
% chg
(24.1)
9.0
(11.2)
27.4
Total Expenditure
1,297
1,134
790
961
EBIDTA
(88)
184
381
530
(% of Net Sales)
(7.3)
14.0
32.5
35.6
Other Income
120
53
56
88
Depreciation & Amortization
19
18
97
144
Interest
8
3
4
2
PBT
5
216
335
473
(% of Net Sales)
0.5
16.4
28.6
31.7
Extraordinary Expense/(Inc.)
(3)
1
(1)
(1)
Tax
16
61
111
149
(% of PBT)
288.1
28.3
33.1
31.6
PAT
(7)
154
226
324
% chg
-
-
46.3
43.7
Ad. PAT
(10)
155
224
323
% chg
-
-
44.9
44.3
July 2, 2013
2
Hindustan Copper | FPO
Balance sheet (Standalone)
Y/E March (` cr)
FY2009
FY2010
FY2011
FY2012
SOURCES OF FUNDS
Equity Share Capital
463
463
463
463
Reserves & Surplus
505
660
719
935
Shareholders Funds
968
1,123
1,182
1,398
Share warrants
-
-
-
-
Minority Interest
-
-
-
-
Total Loans
36
0.05
-
-
Other Liabilities
-
-
77
85
Deferred Tax Liability (net)
(54)
(57)
3
(6)
Total Liabilities
950
1,065
1,262
1,477
APPLICATION OF FUNDS
Gross Block
731
760
770
788
Less: Acc. Depreciation
522
541
557
579
Net Block
210
220
213
209
Capital Work-in-Progress
379
409
459
480
Goodwill
-
-
-
-
Investments
0
72
64
149
Current Assets
1,007
863
879
1,014
Current liabilities
646
498
371
421
Net Current Assets
361
365
508
594
Other assets
0
0
17
45
Misc Expenditure
-
-
-
-
Total Assets
950
1,065
1,262
1,477
July 2, 2013
3
Hindustan Copper | FPO
Cash flow statement (Stanalone)
Y/E March (` cr)
FY2009
FY2010
FY2011
FY2012
Profit before tax
5
216
335
473
Depreciation
19
18
21
18
(Inc)/Dec in Working Capital
(48)
(116)
30
(83)
Direct taxes paid
44
67
120
154
Others
(79)
(90)
(157)
(219)
Cash Flow from Operations
(59)
94
349
343
(Inc.)/Dec. in Fixed Assets
(53)
(28)
(18)
(20)
Free Cash Flow
(112)
66
332
323
(Inc)/Dec in Investments
0
(72)
(15)
(84)
Others
(7)
68
(80)
(10)
Issue of Equity
-
-
-
-
Inc./(Dec.) in loans
(79)
(34)
0
0
Dividend Paid (Incl.Tax)
0
0
46
46
Cash Flow from Financing
(86)
(37)
(49)
(48)
Inc./(Dec.) in Cash
(231)
(124)
169
85
Opening Cash balances
528
297
173
342
Closing Cash balances
297
173
342
428
July 2, 2013
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Hindustan Copper | FPO
Key Ratios
Y/E March
FY2009
FY2010
FY2011
FY2012
Per Share Data(`)
EPS (diluted)
-
1.7
2.3
3.3
Book Value
(17.2)
15.1
5.3
18.3
Ratios
EBITDA margin (%)
2.3
16.6
34.1
37.8
Adj. Net margin (%)
(0.6)
10.8
17.5
19.7
Net Debt/Equity
0.1
0.0
0.0
0.0
Returns %
RoE
34.6
1.1
20.6
28.5
RoCE
1.1
20.6
28.5
34.6
RoIC
10.3
11.1
16.4
20.5
Valuation Ratio (x)
P/E
-
41.9
31.0
21.0
P/BV
6.7
5.8
5.5
4.6
EV/Sales
5.3
5.0
5.4
4.2
EV/EBITDA
-
35.5
16.7
11.9
July 2, 2013
5
Hindustan Copper | FPO
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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July 2, 2013
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Hindustan Copper | FPO
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team
Fundamental:
Sarabjit Kour Nangra
VP-Research, Pharmaceutical
[email protected]
Vaibhav Agrawal
VP-Research, Banking
[email protected]
Bhavesh Chauhan
Sr. Analyst (Metals & Mining)
[email protected]
Viral Shah
Sr. Analyst (Infrastructure)
[email protected]
Sharan Lillaney
Analyst (Mid-cap)
[email protected]
V Srinivasan
Analyst (Cement, FMCG)
[email protected]
Yaresh Kothari
Analyst (Automobile)
[email protected]
Ankita Somani
Analyst (IT, Telecom)
[email protected]
Sourabh Taparia
Analyst (Banking)
[email protected]
Bhupali Gursale
Economist
[email protected]
Vinay Rachh
Research Associate
[email protected]
Amit Patil
Research Associate
[email protected]
Twinkle Gosar
Research Associate
[email protected]
Tejashwini Kumari
Research Associate
[email protected]
Akshay Narang
Research Associate
[email protected]
Harshal Patkar
Research Associate
[email protected]
Technicals:
Shardul Kulkarni
Sr. Technical Analyst
[email protected]
Sameet Chavan
Technical Analyst
[email protected]
Sacchitanand Uttekar
Technical Analyst
[email protected]
Derivatives:
Siddarth Bhamre
Head - Derivatives
[email protected]
Institutional Sales Team:
Mayuresh Joshi
VP - Institutional Sales
[email protected]
Meenakshi Chavan
Dealer
[email protected]
Gaurang Tisani
Dealer
[email protected]
Akshay Shah
Sr. Executive
[email protected]
Production Team:
Tejas Vahalia
Research Editor
[email protected]
Dilip Patel
Production Incharge
[email protected]
CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 - 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /
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July 2, 2013
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