Hindustan Copper Ltd 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 1995-1996, and after 11 years, in 2007, its revival plan was approved. The plan entailed a non-cash assistance of R612 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. Chairman and managing director Shakeel Ahmed spoke to FE?s Indronil Roychowdhury about how he steered the company out of trouble and the roadmap ahead. Excerpts:
Hindustan Copper has got the BRPSE award this year for turnaround. What made this possible?
We have been making profits since 2005 but we posted a loss of R10 crore in FY09. But we bounced back from FY10 onwards, and FY12 has been our best year so far. We posted a profit after tax of R326 crore and our production was the decade?s best. Our metal in concentrate production was 31,778 tonne, marginally higher compared with 2010-11. In 2010-11 our metal in concentrate production was 31,687 tonne. But our physical sales went up by 4,000 tonne?31,491 tonne in 2011-12 against 26,854 tonne in 2010-2011. Our price realisation was also high, maximum in the first and the fourth quarters. All these factors paved the way for a turnaround.
Was there a sudden demand surge that boosted sales?
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 favour and we got the best effect of it in 2011-2012.
So would you say that the new strategy for increasing sales drove growth?
That was one of the factors. But we did two major things. We exited from loss-making businesses and rationalised manpower, which brought a lot of savings. The Khetri smelter posted an accumulated loss of R128 crore in FY07-FY09 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 $300-400 per tonne (volatility for imports of metal in concentrate), while the value addition in converting the cathodes to cast rods and then selling to the market was hardly worth $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%.
How do you foresee this year? LME prices of copper have sharply come down and that will hurt your bottom line.
LME prices of copper have come down to $7,500 per tonne from $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 $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 $7,000 and $8,000 per tonne.
How do you foresee demand? Will it remain steady?
We really don?t have any demand-side problem and the markets are always in our favour. The country has 9 lakh 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 7-8% in the last three-four years and our sales went up by 17% in the same period. We had a market share of 5% in 2008-2009 and that has only marginally increased despite a 17% growth in sales. So you can imagine the demand situation.
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?
If you are talking about the market position, I would say that the present market price is not indicative for realising our true value. Rather the company?s present financial state, its potential of price realisation and the growth trajectory which it is into would realise 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 finalised as the Cabinet has not yet moved the note. But we can expect it to happen sometime in September?October this year.
What is the status of your eight new mining projects?
We are investing R3,435 crore in the new mining projects to take our ore capacity from current 3.4 million tonne to 12.4 mt in the next five years. Out of eight, 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.