Hindustan Copper Right Place at the Right Time; initiating with a Buy
Production volumes for Hindustan Copper (HCP) are expected to increase more than 3.5x to 12.2m tonne by FY31 driven by extension of mining lease. Global copper supply growth on other hand is expected to be muted given operational disruptions across major copper-producing regions and rising social-environmental awareness driving lead time to develop a new copper mine to ~15-17 years. The company supplies copper concentrate (17-26% grade) to HNDL and Kutch Copper, meeting ~4% of domestic supply. As the demand for copper is expected to increase driven by new-age applications such as RE, digital infrastructure, EV, AI Data Centre and advanced manufacturing, the domestic demand is expected to more than double over the next decade. We expect 25.3%/26.8%/33% revenue/EBITDA/APAT CAGR over FY25-31 and initiate with a BUY with DCF-based TP of Rs450.
Production to surpass 12m tonne. HCP’s production stood at ~3.47m tonne in FY25 (vs. R&R of >765m tonne) and was stagnant for multiple years due to multiple regulatory delays and closure of key mines in Jharkhand. However, post addressing these challenges, it is on track to surpass 12m tonne of ore production by FY31e (including MDO operations). It plans to gradually ramp-up its flagship mine (MCP) volume to rated capacity of 5m tonnes. We believe HCP has significant potential to re-open several of its previously operational mines at Jharkhand, Rajasthan and MP, which could further augment long-term production visibility.
Front-runner in global capacity addition. Rising social-environmental awareness has driven average global lead time to develop a new greenfield copper mine ~15- 17 years. Further, operational disruptions across major copper-producing regions i.e., Chile, the DRC, Indonesia and others have further exacerbated the supply-side challenges and delayed recovery in global copper output. In an environment where the companies are factoring in such delays and incidents as a “disruption allowance”, HCP stands out as one of the few entities globally with a clear and executable roadmap for capacity expansion which improves its strategic positioning in the global copper supply chain.
Demand to go up: India’s refined copper demand is expected to surpass 2.5m tonnes over the next decade driven by transportation (~8% CAGR), urbanization (~9%), RE/clean energy (~9%), IoT (~8%) and new age sectors (~8-9%) and global copper demand is expected to increase >37m tonnes by CY35.
Valuation attractive. HCP is one of the front-runner in global copper capacity expansion and is well-placed to capitalize on this structural up-cycle in copper. Once the mines ramp-up, the revenue and EBITDA are expected to increase four-fold to Rs80.1bn and Rs30.7bn by FY31. Whilst the stock has re-rated over the last 6 months, we believe it deserves premium valuation given industry-leading EBITDA margins, RoE and high growth potential. We initiate coverage on HCP with a Buy with a DCF-based TP of Rs450 (11.2x FY28e EV/EBITDA). Key Risks. Commodity price volatility, delayed execution and depletion in ore quality.
