Hindustan Copper Valuation Looks Stiff Despite Robust Growth Outlook
Hindustan Copper shares have dropped about 6.5% following an offer for sale by the central government, priced at Rs.514 apiece. The total mop-up is expected to be around Rs.3,000 crore, reducing the government's stake by about 6% to 60.1%. Despite this near-term pressure on the stock, strong investor participation in the OFS reflects Hindustan Copper's robust growth outlook.
The company's earnings have seen a marked improvement recently, helped by the steep increase in copper prices and limited domestic production capacity. Global copper prices have risen by 45% year-on-year to $14,500 per tonne at the London Metal Exchange (LME), supported by the demand-supply imbalance and drawdown in LME inventory.
Hindustan Copper is well-placed to benefit from the favourable copper cycle due to its sole position as India's copper ore mining company. The company targets 4.7 million tonnes of production in FY27 and aims to reach 12.2 million tonnes per annum by FY30 on completion of its expansion projects.
The expansion plan is aided by sizeable ore reserves of 157 million tonnes, and another 610 million tonnes of resources that have the potential for commercial viability. Importantly, the reserves have a higher copper content of about 1.3%, against the global average of 0.5%, leading to lower processing costs and higher profitability.
Hindustan Copper's revenue for the June quarter rose 81% year-on-year to Rs.936 crore, helped by almost 50% growth in price realisation and a 21% increase in volumes. Ebitda increased at a faster pace of 140% to over Rs.500 crore, supported by higher operating leverage and lower treatment and refining charges (TC/RC).
Anand Rathi Research expects the momentum to continue in FY27, projecting Ebitda growth of 76% on 58% revenue growth. 'With copper fundamentals being one of the strongest in non-ferrous metals, we remain confident on Hindustan Copper's future growth prospects,' it noted.
Despite a recent drop, the stock is up a whopping 130% in the past one year. At an enterprise value of about 21 times FY27 estimated Ebitda, valuation looks stiff. Investors would need to be watchful of a correction in copper prices, which can weigh on the company's earnings trajectory.