Financial Express reported that Hindustan Copper Limited got the Board for Reconstruction of Public Sector Enterprises award in June this year for a spectacular turnaround. The company had started incurring losses from 1995 to 1996 and after 11 years in 2007 its revival plan was approved. The plan entailed a non cash assistance of INR 612 crore. Hindustan Copper is now a mini ratna PSU and is poised to go for a follow on public offering in which the government would divest 10% of its 99.5% holding.
Shakeel Ahmed CMD of Hindustan Copper spoke to FE’s Indronil Roychowdhury about how he steered the company out of trouble and the roadmap ahead. Excerpts:
Q - Hindustan Copper has got the BRPSE award this year for turnaround. What made this possible?
A - We have been making profits since 2005 but we posted a loss of INR 10 crore in FY 2009. But we bounced back from FY 2010 onwards and FY 2012 has been our best year so far. We posted a profit after tax of INR 326 crore and our production was the decade’s best. Our metal in concentrate production was 31,778 tonne, marginally higher compared with 2010 to 2011. In 2010 to 2011 our metal in concentrate production was 31,687 tonne. But our physical sales went up by 4,000 tonne, 31,491 tonne in 2011 to 2012 against 26,854 tonne in 2010 to 2011. Our price realization was also high, maximum in the Q1 and Q4. All these factors paved the way for a turnaround.
Q - Was there a sudden demand surge that boosted sales?
A - Not really. We brought about a change in strategy, because of which our sales grew. Earlier, the company used to supply only to the big players and in bulk and gave huge volume based discount. We discontinued that practice and allowed small players to pick up whatever quantity they required and didn’t offer any volume based discount. Earlier, the small players used to lift from the big players, who earned huge margins. We brought the margins in our favor and we got the best effect of it in 2011 to 2012.
Q - So would you say that the new strategy for increasing sales drove growth?
A - That was one of the factors. But we did two major things. We exited from loss making businesses and rationalized manpower which brought a lot of savings. The Khetri smelter posted an accumulated loss of INR 128 crore in FY 2007 to FY 2009 and we found no point in operating a loss making unit. So once our Khetri smelter was closed we didn’t need to import metal in concentrate for making copper cathodes. Our domestic metal in concentrate was enough to make our required cathodes and we shielded the company from an exposure to a volatility of USD 300 per tonne to 400 per tonne while the value addition in converting the cathodes to cast rods and then selling to the market was hardly worth USD 100. This saved us a lot of money. Also, we could cut down the workforce from 5,440 to 4,730 in three years. The impact of wage revision was lower because of cutting down the workforce. We would have ended up having an 85% increase in employee cost if we retained the entire workforce but for bringing down the workforce the increase in employee cost was restricted to 57%.
Q - How do you foresee this year? LME prices of copper have sharply come down and that will hurt your bottom line.
A - LME prices of copper have come down to USD 7,500 per tonne from USD 9,000 at this time a year ago but the fall in exchange rate has kept our margins steady. At a 25% depreciation of the rupee the prices for us has so far remained neutral. We expect LME copper prices to go up to a level of USD 8,000 per tonne and are at a takeoff point now. Our balance sheet should not be adversely affected as copper prices range anywhere between USD 7,000 per tonne and USD 8,000 per tonne.
Q - How do you foresee demand? Will it remain steady?
A - We really don’t have any demand side problem and the markets are always in our favour. The country has 0.9 million tonne of copper capacity and we meet only 3% of the copper industry’s total metal in concentrate needs. So there is a 97% demand supply gap. The domestic demand for metal in concentrate has gone up by 7% to 8% in the last 3, 4 years and our sales went up by 17% in the same period. We had a market share of 5% in 2008 to 2009 and that has only marginally increased despite a 17% growth in sales. So you can imagine the demand situation.
Q - The company is poised to hit the capital market, though the government is yet to come out with a date. Do you think the FPO will get its true value in the current position?
A - If you are talking about the market position, I would say that the present market price is not indicative for realizing our true value. Rather the company’s present financial state, its potential of price realization and the growth trajectory which it is into would realize it true value. We still have scope to leverage our finances, since we are a debt free company. The date for the FPO as you said has not yet been finalized as the Cabinet has not yet moved the note. But we can expect it to happen sometime in September-October this year.
Q - What is the status of your eight new mining projects?
A - We are investing INR 3,435 crore in the new mining projects to take our ore capacity from current 3.4 million tonne to 12.4 million tonne in the next 5 years. Out of 8, we have already awarded contracts for six projects and we will not take much time in awarding contracts for the two other projects. By the end of the current fiscal, work for developing all the eight projects should start. So far our plans for funding the expansion projects are through internal accruals. Plans of fund raising via external commercial borrowings have not yet fructified.
Source - Financial Express.com
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