Hindustan Copper Ltd is one of two mining companies whose disinvestment was cleared by the government on Tuesday. 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, though it fell today to Rs 510.95. In an interview with Jyoti Mukul, its chairman and managing director Shakeel Ahmed outlines the growth strategy for the company that is aspiring to increase its production four times over the next few years. Edited excerpts:
By when do you plan to come out with the public issue? Do you think the market conditions are right?
We plan to come out with the issue in September and we hope that by then, the market situation will improve.
How much does the company expect to raise from the issue? Are you offering a discount to retail investors, especially since the market response for government issues has not been good?
The pricing of the issue is yet to be decided, so it is difficult to give an estimate. According to Sebi guidelines, we have to give five per cent discount to retail investors, since we are giving five per cent discount to employees. As far as response is concerned, we have to look at ways to tackle investors. For a listed company, the offer price has to be the same or less than the market price. The investor psyche is to get shares cheaper after listing, so there is an artificial beating down of shares.
Do you need to appoint independent directors before the public issue?
We have four functional directors, two government directors and five independent directors. We need to appoint one more independent director.
The government recently came out with new listing norms that require a minimum public float of 25 per cent. How will the company comply with this norm?
The government holds 99.59 per cent equity in the company, the rest being with the public and institutions. After disinvestment of 10 per cent government holding and raising of 10 per cent fresh equity, the government (promoter) holding gets diluted to 81.44 per cent. We will be short by about 6.55 per cent and that can be easily raised in one tranche.
On the back of higher production and better copper prices, the company reported a net profit in 2009-10, after a loss of Rs 10.3 crore in 2008-09. What is the outlook for the current year?
We were in profit for five years, though the profit after tax turned into a loss in 2008-09 due to the slowdown. We recorded a PAT of Rs 152 crore in 2009-10. The copper price has come down from the April high of $7,747 a tonne to $6,419 (monthly average till June 9) but it is still high compared to June 2009, when it was $5,014. Metal prices are much higher than last year and they are not likely to fall.
Have you made any change in business strategy?
Recently, we have taken the initiative of tweaking our business model. Earlier, we were selling to bulk customers, who used to sell it to smaller customers at a higher price. We used to give a discount to bulk customers. We have now positioned ourselves in such a way that smaller customers come to us directly. The changed policy has increased our per-tonne realisation. Whether one customer takes or 10 customers, my cost is the same.
Also Read
How far the company has improved its productivity?
A public sector company does not grow the way a private sector company grows. We are producing 3-3.2 million tonne for several years but we have decided to increase capacity since we needed more revenue. We plan to raise production to 12 million tonne per annum in five to six years from the existing mines. In addition, we are planning to acquire mining leases in Rajasthan, Madhya Pradesh and Jharkhand.
We have lined up Rs 4,200-crore capital expenditure. Funds from the public issue will be used for partly funding these plans. The remaining would come from internal accruals and debt. We will be making investment of about Rs 400-500 crore this year from internal accruals.
Are you looking for global acquisitions especially in countries like Afghanistan where our neighbour China has made a headstart in copper mining?
If we get good assets abroad, we will make acquisitions. There are opportunities in countries like Chile and Namibia. Afghanistan has indicated that it may come out with a new bidding round for copper and iron ore. We will like to take part in that since our financial condition did not allow us to participate in the earlier round.
Do you plan to diversify?
In copper, downstream products do not require major investment and this is why you find only small companies in this segment. In this business, the maximum value capturing is in mining. Our future strategy is to focus on mining. Still, we have set up a unit at Taloja near Mumbai that converts cathode into continuous cast rod. We have added a facility for manufacturing catenary for railway projects. Similarly, we will be supplying other value-added products to BHEL, Chittranjan Locomotive Works and other railway units.