Recommendation From Copper Sectors

January 26
23:35 2018

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.



Capacity expansion plans
Increase in demand for copper and nickel
Higher international copper prices 

Hindustan Copper Ltd. (HCL) is a Mini Ratna company with government holding of 76.05 per cent. It is the only integrated producer of refined copper in India with around five decades of experience in mining copper. The company owns all the operating mining leases of copper ore and has access to more than two-thirds of India’s copper ore reserves. HCL’s major activities include mining, smelting, ore beneficiation, refining and casting of refined copper metal into downstream products. 

HCL is in the process of raising mine capacity from the existing capacity of 3.2 MTPA to 12.4 MTPA in the next four years. The expansion would be done in its captive mines in Madhya Pradesh and Jharkhand. The company has already reopened the Kendadih mine in Jharkhand-the first of the two mothballed mines it is reviving-last week. The company is also planning to raise metal output to 1.2 lakh TPA from the current level of 35,000 TPA. The expansion would entail total investment outlay of Rs3,200 crore.The electrical and power sectors account for 35 per cent of the refined copper consumption, followed by 11 per cent by the transport (auto and railways) sector and 8 per cent each by construction and consumer durables industries. Due to improvement in growth rate of manufacturing, housing and infrastructure sectors, it is expected that copper consumption growth rate will also improve. 

The annual demand for pure nickel in India is around 45,000 tonnes. The domestic market is solely reliant on imports. HCL has started the country’s first facility to produce nickel with a capacity of 50 TPA. The nickel output is expected to increase nearly eight times after the completion of mine expansion projects located at Ghatsila in Jharkhand. 

On the financial front, Hindustan Copper posted an increase of 187.27 per cent in its revenue to Rs519.33 crore in the second quarter of financial year 2018, as against Rs180.78 crore in the second quarter of the previous year. The PBIDT of the company increased by 651 per cent to Rs65.04 crore in the second quarter of FY18, as against Rs8.66 crore in the same quarter of the previous year. The net profit of the company increased by 319.35 per cent to Rs28.60 crore in the second quarter of FY18 as compared to Rs6.82 crore in the same quarter of the previous fiscal. 

On the annual front, the revenue of the company increased by 13.32 per cent to Rs1,208.63 crore in FY17 as compared to Rs1,066.60 crore in the previous financial year. The PBIDT of the company increased by 15.84 per cent to Rs127.63 crore in FY17, as against Rs110.18 crore in FY16. The company ’s net profit increased by 63.73 per cent to Rs62.17 crore in FY17, as compared to Rs37.97 crore in the previous financial year. 

On the valuation front, the company recorded a TTM PE of 87.42x, whereas its peer Shirpur Gold Refinery posted a TTM PE of 209.35x. The company’s debt-to-equity ratio for FY17 stood at 0.32x. HCL has been maintaining a healthy dividend payout of 19.36 per cent. Considering the company’s massive expansion plans and upbeat long term outlook for copper prices in the international markets, we recommend our reader-investors to BUY the stock.