Hindustan Copper Ltd is one of two mining companies whose disinvestment was cleared by the government recently. Post the announcement, the company, which boasts of being the only vertically integrated company in the copper business, saw its shares on the Bombay Stock Exchange rise 9.1 per cent to Rs 513.50, the highest closing price since April 26. In an interview, CMD Shakeel Ahmed outlines the growth strategy for the company that is aspiring to increase its production four times over the next few years
The big problem for Hindustan Copper in doing the issue is 46,000 crore marketcap, there is no way investors are going to buy your stock at that kind of marketcap, what is the way around it, how do you cool down that price and the issue given that you already have a listed benchmark because it is difficult to explain such large discounts to the prevailing market price even politically?
The share is illiquid and current market price with 0.41% market floor does not represent the true value of this share. There will be lot of due diligence on this issue along with the merchant bankers, analysts and then we will arrive at a true value of this share before the issue hits the market. So at this stage I can only say that it is premature to speculate or comment on the share issue price. As you know there is a lot of process that goes into it and ultimately it is the decision of empowered group of ministers. So at this stage I can only say that no call has been taken on the share price.
For most analysts who look at your stock though fair value is somewhere around Rs 250 per share that is almost half of where the stock is trading at right now, where do you think fair value stands for Hindustan Copper because that is the kind of discount the market sees as a fair price for your stock?
At this stage I will not be able to comment on this
On the business the other concern is that while your reserves are very high, the actual production for Hindustan Copper has been quite low, the gap is very large, what kind of scale up do you see over the next few years?
Till a few years back, LME prices were low and the financial condition of the company till 2004-2005 and 2005-2006 was not very good and investments did not go into expansion of mines. Now we are quite bullish with increase in metal prices and sufficient internal accrual as well as proceeds of disinvestment we have chugged out a very good programme for future expansion of our mines. As you are aware, the proposal is to increase the mine capacity from 3.2 million tonne per annum to 12 million tonne in the next 5-6 years. That is our expansion plan.
Your point is taken that the current market price is not a fair reflection of what your valuation should be but the same problem existed with NMDC when the issue happened and while the government gave some discount, it could not give an adequate discount which the market could accept and therefore the issue did not do well, the stock is trading much below its issue price because politically it is not easy to give a large discount and explain it when there is a reference however inadequate the reference might be in the form of a market price, how do you get around that problem?
Many of these things there is a learning process and I am sure the past experiences will be taken into account while arriving at a fair price for the share.
What exactly are the global aspirations for Hindustan Copper because indications are that some of this money you raised may be spend towards global acquisitions?
We are on the lookout of good mining assets and if we are able to get good assets, we will certainly like to consider them for acquisition subject to necessary approvals. So having money in our corpus will certainly be helpful in our ambitions.
Where does it stand now in terms of timing, do you think you will do it in the month of August, has the process started or is it looking like September?
September and we plan to close it before Puja holiday. It should be end of September or early October. There is a few days delay so before Puja we hope to close the issue.
The big problem for Hindustan Copper in doing the issue is 46,000 crore marketcap, there is no way investors are going to buy your stock at that kind of marketcap, what is the way around it, how do you cool down that price and the issue given that you already have a listed benchmark because it is difficult to explain such large discounts to the prevailing market price even politically?
The share is illiquid and current market price with 0.41% market floor does not represent the true value of this share. There will be lot of due diligence on this issue along with the merchant bankers, analysts and then we will arrive at a true value of this share before the issue hits the market. So at this stage I can only say that it is premature to speculate or comment on the share issue price. As you know there is a lot of process that goes into it and ultimately it is the decision of empowered group of ministers. So at this stage I can only say that no call has been taken on the share price.
For most analysts who look at your stock though fair value is somewhere around Rs 250 per share that is almost half of where the stock is trading at right now, where do you think fair value stands for Hindustan Copper because that is the kind of discount the market sees as a fair price for your stock?
At this stage I will not be able to comment on this
On the business the other concern is that while your reserves are very high, the actual production for Hindustan Copper has been quite low, the gap is very large, what kind of scale up do you see over the next few years?
Till a few years back, LME prices were low and the financial condition of the company till 2004-2005 and 2005-2006 was not very good and investments did not go into expansion of mines. Now we are quite bullish with increase in metal prices and sufficient internal accrual as well as proceeds of disinvestment we have chugged out a very good programme for future expansion of our mines. As you are aware, the proposal is to increase the mine capacity from 3.2 million tonne per annum to 12 million tonne in the next 5-6 years. That is our expansion plan.
Your point is taken that the current market price is not a fair reflection of what your valuation should be but the same problem existed with NMDC when the issue happened and while the government gave some discount, it could not give an adequate discount which the market could accept and therefore the issue did not do well, the stock is trading much below its issue price because politically it is not easy to give a large discount and explain it when there is a reference however inadequate the reference might be in the form of a market price, how do you get around that problem?
Many of these things there is a learning process and I am sure the past experiences will be taken into account while arriving at a fair price for the share.
What exactly are the global aspirations for Hindustan Copper because indications are that some of this money you raised may be spend towards global acquisitions?
We are on the lookout of good mining assets and if we are able to get good assets, we will certainly like to consider them for acquisition subject to necessary approvals. So having money in our corpus will certainly be helpful in our ambitions.
Where does it stand now in terms of timing, do you think you will do it in the month of August, has the process started or is it looking like September?
September and we plan to close it before Puja holiday. It should be end of September or early October. There is a few days delay so before Puja we hope to close the issue.
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