Hindustan Copper Limited FPO: Details & Price Calculations


Although there are doubts whether HCL FPO will come in December we decided to write about two issues which are the overall guiding factors for the public issue.

Hindustan Copper Limited FPO

Government disinvestment plan :

Ever since Government has targeted 40,000 crores by way of disinvestment in PSUs, we are witnessing issue after issue of PSUs. And they are hugely successful too compared to Private company issues. The upcoming issues include FPOs of ONGC, IOL which are expected to garner huge funds for the government.

One of the most attractive upcoming issue is that of Hindustan Copper Limited. The attraction of this issue stems from the fact that it falls under minerals sector.

Hunger for minerals :

Ever since China started lapping up mineral sources around the globe, the whole world has realized that the future belongs to minerals. Many companies from China, India are now scouting the globe in search of any mineral they can lay their hands on.

In this back drop, the issues of Coal India Limited and MOIL have been huge successes. One more issue coming up in mineral sector is that of Hindustan Copper Limited. We are yet to get the details of the issue size, price band, issue date as none is finalized. However like CIL and MOIL, it too will be a huge success. I just wanted to give insight to our readers about the issue.

Based on the preliminary info available from various media, I did some basic calculations and came up with crude details about the FPO size, price band and wanted to share the same with you so that you can be prepared when the issue comes up.

Here are my basic calculations :

Input for my calculations (From media)

  1. Govt is planning to divest 10% stock and HCL will issue a new 10% additional stock.
  2. Govt plan to raise 4,000 crores through the FPO.

Now I checked for company data regarding share holding pattern. Here is that:

  • Total shares in the company are approximately 92.5 crores.

Now here are my calculations :

  • Govt divestment of 10% shares = 9.25 crore shares.
  • New 10% additional shares of the post public issue capital = 10.3 crores.
  • So total FPO issue is for 9.3+10.3=19.6 crore shares Lets say 20 crore shares.
  • Now government wants 4,000 crores for the HCL FPO.

This implies 20 crore shares for 4,000 crores. So each share is 200. Now this figure of 200 will be the higher end of price band. Or may be 210-220 to accommodate the 5% discount to retail while getting 4,000 crore.

Now I checked the graph. HCL shares were between 600-450 for the full year. Even after most of the details (% share float, money govt wants from FPO) got into public domain, it came down to 330.

Now compare CMP of 330 to FPO issue price of 200, it will be a good issue. If what ever I think is true, HCL FPO will be a super hit just like CIL, MOIL issues.

But how much people will benefit is a question. See MOIL issue. On a full 2 lakh subscription per application, people will not get a listing day profit of Rs.5,000. Same will happen to HCL FPO.

The only difference is for MOIL price is not discovered (however based on International peers the price will be 600-700). Compared to MOIL, HCL price is already discovered but the CMP is not reflective of the company value. Presently 99.59% of the stock is held by Government and a miniscule 0.41% is out in the open including Domestic / Foreign Financial institutions, Insurance majors, Mutual funds, and general public. When 20% stock gets released into markets, the price finding mechanism may vary.

[Guest post by out avid reader Altaf Khan]

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