Monday, June 21, 2010

Hindustan Copper FPO: High Value, But Astronomical Valuation?

Hindustan Copper (BSE: 513599, NSE: HINDCOPPER) lags Sterlite (BSE: 500900, NSE: STER) and Hindalco (BSE: 500440, NSE: HINDALCO) in copper production. But that is history. As the largest miner of copper ores in the country, the story going forward will definitely be different. The all-intelligent market knows this and has effected a year-to-date price performance of nearly 60% for this PSU, despite the huge pressure on metal prices which saw leader Sterlite slipping by 7%. While Government is disinvesting 10% of its stake, Hind Copper is offering another 10%, thereby making it one of the larger FPOs at around Rs. 5000 crore. With Copper Age dating back to 10,000 years, but the demand only getting huger, Hindustan Copper might be the metal and the metal company to bet. But market might express some worry regarding the pricing, as there is a lingering doubt that a part of the current market price has something to do with the low supply. The key metrics also support this view. Though an abnormal looking P/E like 150 years is nothing new for mining companies, Hindustan Copper's is almost double, at 290 years. The price-to-book of 40 times also signals huge overvaluation, that can tumble down when the supply corrects through the FPO. Though a significant turnaround in profits has happened in 2009-10, the turnaround in income is yet to happen in Hind Copper.

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