Hindustan Copper Offer for sale: Our view - Views on News from Equitymaster

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Hindustan Copper Offer for sale: Our view

Jul 3, 2013

The government is all set to sell its stake in Hindustan Copper to meet its Rs 400 bn disinvestment plan for the current fiscal year. The government currently holds 94.01% stake in copper company, is planning to sell 4.01% stake of the company. The sale would make the company compliant to the minimum 10% public holding norm of market regulator SEBI. In November 2012, the government had sold 5.58% stake in Hindustan Copper for about Rs 8.1 bn at an average price of Rs 156.56 a share.

Hindustan Copper 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) and Taloja copper project in Maharastra (collaboration with Southwire Company, US).

Hindustan Copper 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. Hindustan Copper 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.

Issue details

The FPO comprises an offer for sale (OFS) of 37.1 m equity shares of face value Rs 5 each. There is no fresh issue of equity. Hindustan Copper has fixed the issue price at Rs 70 per share. The OFS would take place through a separate window of stock exchange (Bidding) on 3rd July, 2013 from 9.15 am to 3.30 pm. The price set is at a discount of around 4% to the closing price on 2nd July, 2013. If fully subscribed, the government would get around Rs 2.6 bn through this stake sale.

Although Hindustan Copper is the only vertically integrated copper producer in India, the stock is currently trading at 4.0x its FY13 book value per share. Even at a floor price of Rs 70, it is trading at slightly lower multiple of 3.9x. We are of the view that given the company's fundamentals, it should not get a multiple of more than 3x its book value per share. Since the current valuations are much higher than our comfort levels, we recommend investors to AVOID the issue.

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Jun 18, 2021 03:37 PM


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