Government is busy celebrating the good start of disinvestment program for 2012-13 with 5.5% stock sale in Hindustan Copper. Hindustan Copper is a marquee firm which is the only completely integrated Copper Producer in India. Copper, incidentally is a very valuable commodity and is the back-bone of all industrial and infrastructure growth world-over. Copper prices in international market often fluctuate with the slightest movement in economic data released by countries like China which are big consumers of this commodity.
Unfortunately, Indian government decided to start the disinvestment by leaving lot of value on table for investors, and decided to do the first issue at 41% discount to the prevailing market price for Hind Copper. Hind Copper was trading at Rs 262 prior to this OFS (Offer for Sale), and OFS was decided at Rs 155 of floor price, which is good 40% discount to market price. Result was very obvious and Hind Copper stock crashed with 20% down-circuit for two days in a row and is trading at 156 today, which is same as OFS price.
At current price, total market cap for Hind Copper is at 14,400 crores, which is a good 9600 crores less than the market cap before the OFS scheme came into being. Thus, the scrip lost 9600 crores of market valuation by this OFS stock sale. Total value of this OFS offer was only about 5.5% of total stock holding or about 800 crores worth of shares were sold in this scheme. So a great example of how to lose 9600 crores to make a paltry 800 crores!
However, what has happened has already happened. Now it’s the time to look forward. Something which was trading at Rs. 262 three days back, is available at 40% discount today. Savvy investors need to relook at financials and see if it makes sense to take a dip at current valuations of Rs 156. Is Hind Copper standing in Deep Value zone right now? Let’s have a look:
Hind Copper has had a good five year track record, with 1471 crores of revenues achieved in year ending 2012. Net profit is at about 323 crores for the year and EPS stands at Rs 3.5 per share.
If one looks at ownership, retail public owns a paltry 0.3% of total shares, with bulk being in government kitty. Also, most of the OFS stock was bought by LIC, govt banks, with LIC at 350 crores and govt banks at 250 crores of investment. Retail and HNI share was less than 100 crores for this stock.
So retail ownership continues to remain low. This is a key factor which will determine the stock price zooming back to its prior levels, once the price stabilizes in a few months timeframe.
Technical speaking, support is very near at Rs 146, which is all time low. Closest resistance is at 160, 180 and 200 respectively. Between Rs 240 and Rs 280 is a price range where price stayed for more than one year, hence Hind Copper may re-enter this zone in calmer times.
For now, high risk investors can start taking a small dip. This is highly volatile time for this scrip as even today, price is down by more than 8%. However, fortune favors the brave and the stupid!
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