Hindustan Copper Soars to 52-Week High, Grows 150% in Under 10 Mths

Hindustan Copper’s Record Surge to a New 52-Week High

The 52-week high of Hindustan Copper can be a result of many factors. Its previous 52-week high, before correction, was made on 08 December 2023 at ₹ 192. It took 19 days to create a new 52-week high at ₹ 239.45 on 27 December 2023. In between, it made a low of ₹ 177.25 on 12 December 2023, implying a correction of over 7%. It may represent a change in the investors’ sentiment about the company due to improved financial condition or may represent overvaluation. Let’s go through the factors contributing to its all-time high.

Factors Contributing to a Stock’s All-Time High

Positive Earnings Reports

• Its gross profit in Q2 FY24 increased by 9.25% quarter-on-quarter because of the comparatively lower cost of goods. It made a gross profit of ₹ 248 crores.
• Its net income increased by 28.38% QOQ due to comparatively lower operating expenses and higher gross profit. It made a net income of ₹ 60.7 crores.
• In the last three years, its dividend payout ratio has continuously increased and reached 30.11%. It may increase the dividend per share on account of improving margins and lower debt.

Favorable Industry Trends

• Recycling of various metals, especially copper, is increasing. Hindustan Copper can expand in the recycling business to supplement its copper production business. It can get involved in the take-make-dispose model of the economy.
• As people become more technologically savvy, the demand for the raw materials used in the production of technology products will also increase. The demand for data transmission cables, electric vehicles, electrical appliances, etc., will increase the demand for copper. Hindustan Copper, as one of the major producers of copper in India, is well positioned to grow with the Indian economy.
• Mining and smelting processes are becoming more dependent on various technologies to create the materials in an environment-friendly and cost-effective manner. HCL can improve its operational efficiency to reduce costs through these technological advancements.

Analyst Ratings

According to Simple Wall Street, based on the discounted cash flow model, the fair value of Hindustan Copper Limited is ₹ 24.53. At the CMP of ₹ 233.25, it is 850.7% overvalued. Its price-to-earnings ratio of 70.3x makes it expensive compared to the peer average of 22.1x. Its average growth rate of 33.1% is higher than the industry growth rate of 25.9%. On the financial front, it needs to increase its short-term assets to cover its short-term liabilities.

Potential Scenarios Following an All-Time High

(Based on the chart of 1-month timeframe)

Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. The Hindustan Copper Limited was listed in January 2010, and in the same month, it reached an all-time high, which is still not broken. On observing the price chart, we observed that for almost a decade, its price was falling with the creation of lower highs and lower lows. In February 2021, it broke the previous lower high of ₹ 110.5, and after taking support in June 2022 at ₹ 81.2, it created a higher high in December 2023. We can expect the price to continue upward movement. If there is a significant correction in price, then according to the trend, it may take a long time before creating a new high.

Making Informed Investment Decisions

For any stock, reaching an all-time high is a significant milestone. Still, conducting thorough research and considering various factors is essential before making investment decisions. To make informed choices that align with your investment goals and risk tolerance, one needs to analyze the company’s fundamentals, industry trends, management’s strategy, and overall market conditions.

Company’s Financial Health

• In 2022, Hindustan Copper had a debt of ₹ 157 crores covered by a free cash flow of ₹ 571 crores and cash & equivalents of ₹ 1603 crores. Such a substantial healthy difference in debt and funds available shows the company’s commitment to financial stability.
• In the short term, it has a liability of ₹ 838 crores covered by assets of ₹ 701 crores. The assets of ₹ 2312 crores cover its long-term liabilities of ₹ 92.95 crores. It may need to keep the dividend per share below the previous year to increase its short-term assets and further reduce its debt.

Industry Outlook

• The mining industry is already facing growing pressure on an international level to reduce the damage to the environment caused by mining activity and may face stricter regulations. It may result in companies making decisions that are economically less profitable but are made necessary due to regulations.
• The Indian government may provide further support for domestic production to fulfil the demand for copper through domestic sources and reduce reliance on imports. We can see a significant increment in the amount of metals being mined in India depending on the pace of economic growth.

Market Sentiment

Upon analyzing the surge of Hindustan Copper Limited’s share price to a new 52-week high, several factors were found to be responsible. The share price was positively affected by an increase in gross profit, net income, operational efficiency and strong financial health. It is further aided by a rising dividend payout ratio along with a continuous reduction in debt. Analysts have found the stock to be overvalued based on various methods. Thus, investors need to make informed decisions before investing in the stock. HCL’s response to the Indian government’s production push and environmentally sustainable mining practices will be critical in its continued growth trajectory. Investors need to conduct detailed research, considering factors like company fundamentals, industry trends, and financial health, to make informed investment decisions.