Hindustan Copper Ltd Management Discussions.

I. Industry Structure and Development

Copper is very essential metal for economic activity and even more so to the modern society. Infrastructure development in major countries such as China and India and the global trend towards cleaner energy will continue to support growth in copper demand. Copper is one of the most recycled of all the metals. Virtually all products made from copper can be recycled and recycled copper loses none of its physical and chemical properties. Currently 17% of total refined copper production comes from recycling only.

Global Business Scenario

World mine production increased by about 2.3% during the calendar year (CY) 2018 and reached to level of 20.56 million tonnes (in metal terms). The increase in world mine production in 2018 was mainly due to constrained output in CY 2017 namely in Chile, Indonesia and the DRC. Restart of temporary closed mines in Zambia, uplift of temporary ban on export of Indonesian concentrate and closure of strike at Escondida, worlds biggest copper mine, in Chile has contributed higher mine output in CY 2018. World Copper mining capacity is estimated to reach 25.9 million tonnes copper in 2021, with 20% being SX-EW production. This will be 8.9% higher than global capacity of 23.78 million tonnes copper recorded in 2018. On a regional basis, mine production is estimated to have increased by around 10% in Africa, 3.5% in Latin America and 10% in Oceania but declined by 4% in North America and remained essentially unchanged in Asia and Europe.

World refined copper production increased by about 1.98% during CY 2018 and reached to a level of 24.02 million tonnes. In 2018, World growth was constrained by an unusually high frequency of smelter disruptions and temporary shutdowns for technical upgrades/ modernizations. The main contributor to growth in world refined production was China due to its continued expansion of capacity. Overall growth was partially offset by 34% decline in Indias output due to shutdown of Vedantas Tuticorin smelter in May, 2018 and declines in Germany, Philippines and Poland as a consequence of maintenance shutdowns and operational issues.

In 2018, the World consumption of refined copper was 24.41 million tonnes registering a growth of 2.86%. Sustained growth in copper demand is expected to continue because of progressive move towards more sustainable economy, increase in population, product innovation, economic development etc.

Indian Copper Scenario

Compared with global markets, India has limited copper ore reserve contributing about 2% of World copper reserves. Mining production is just 0.2% of worlds production, whereas refined copper production capacity is about 4% of worlds production. The size of Indian Copper Industry (consumption of refined copper per annum) is around 7.0 lakh tones, which as percentage of World copper market is only 3%.

There are three major players which dominate the copper industry in Indian markets. HCL in Public sector, Hindalco Limited and Vedanta Industries Limited in Private sector. Production in India has declined significantly due to order issued by Tamil Nadu Government for closure of Vedanta Smelter/ refinery plant at Tuticorin in May, 2018.

HCL is the only vertically integrated copper producer in the country which produces refined copper from mined ore, while M/s Hindalco Industries at Dahej in Gujarat and M/s Vedanta Industries Limited at Tuticorin in Tamil Nadu have set up port based smelting and refining plants. However, there are few installations to produce Electro-won copper but their capacities are still very low and production is inconsistent. There are more than 1000 SMEs, MSMEs and unorganized sector working in the downstream and secondary recycling of copper Industries in the country.

In the fiscal year 2018-19, the copper ore production in India was 4.12 million tonnes which is 12% higher compared to 2017-18. HCL has planned to enhance its ore production capacity from 3.4 million tons to 20.20 million tonnes in next 5 years at an estimated capex of र 5,500 crores. Metal in concentrate production of HCL was 32,439 tonnes which was 2% higher compared to 2017-18. In addition to the above, Indian government planned to explore more reserve & resource of copper ore in India.

Refined copper production in India during FY 2018-19 was approx. 4.57 Lakh tonnes (Sterlite- 0.89 Lakh tonnes, HCL- 0.16 Lakh tonnes & Hindalco- 3.51 lakh tonnes), as compared to 7.65 Lakh tonnes in FY 2017-18.

The Government of India has set its goal of increasing Electric Vehicles (EVs) to 30% of the new vehicle registered on road by 2030. Andhra Pradesh plans to add 10 Lakh EV by 2024. Kerala Finance Minister said, by 2019-20 electric buses will replace KRTC buses, starting from Thiruvananthapuram. The state has also announced tax exemption and subsidy to electric auto-rickshaws.

II. SWOT analysis

Strength

• Only Company having ownership of all copper mines in India

• Fully developed infrastructure facilities

• Fully integrated operations from mining of copper ore to pure metal

• Skilled and experienced work force

• Established brand value Weakness

• High cost of logistics due to multi- location units

• Relatively smaller sized plants

• Aged equipment /old technology

• Limited value added products Opportunity

• Scope for expansion of mine capacity

• Opportunity to explore new deposits

• Ready market for copper concentrate in India due to large smelting/refining capacity Threat

• High volatility of LME price of copper

• Rising cost of inputs

• Continuous attrition of skilled manpower

III. Segment-wise or product-wise performance

Covered in the main report.

IV. Outlook

Copper demand in India is expected to grow at 9-10% in tandem with economic growth in the country. This is due to increasing urbanization, development of industrial corridors, smart city project, housing for all Indians by 2022, National highway development project, Rail project, Defense production policy to encourage indigenous manufacture, India energy plan 2022- 100GW solar, 32GW wind, 260GW thermal & nuclear, 62 GW hydro and in addition to this there is plan for green energy corridor for transmission of renewable energy. The per capita copper consumption in India is expected to increase from the current level of 0.5 Kg to 1 kg by 2025. The per capita copper consumption of China is 6 Kg and world average is 2.7 kg.

The market for electric vehicles (EV) is expected to witness growth in coming years as government incentives continue around the world. Copper is essential to EV technology and its supporting infrastructure. The evolving market will have a substantial impact on copper demand. The increase in the electric vehicles market will significantly impact copper. The projected demand for copper due to electric vehicles is expected to increase by 1,700 kilotons by 2027.

V. Risks and concerns

The Company has laid down risk management framework keeping the Companys objectives, growth strategy and process complexities arising out of its business operations. Risk management in HCL is a continuous process of identifying, assessing and managing all the opportunities, threats and risks faced by the company to achieve its goals.

VI. Internal control systems and their adequacy

The Company has internal control systems and procedures commensurate with its size and nature of business. The Company has in place delegation of authority, policies and manuals approved by the Board.

VII. Discussion on financial performance with respect to operational performance

The financial performance for FY 2018-19 vis-a-vis FY 2017-18 is summarized below: (र in Crore)
Particulars 2018-19 2017-18
Turnover 1753.44 *1612.47
Value of Production 1709.69 1767.45
Cost of production excluding depreciation, amortization and Finance Cost & Prior Period Adjustment (Net) 1401.34 1581.51
Profit before depreciation, amortization and Finance Cost, Prior Period Adjustment (Net) & Tax 538.70 307.98
Depreciation, Amortisation 252.89 164.65
Finance Cost 55.46 21.29
Prior Period Adjustments (Net) - -
Profit/ (Loss) Before Tax from Continuing Operation 230.35 122.04
Profit/ (Loss) Before Tax from Discontinuing Operation (0.35) (0.35)
Provision for taxation -Current 91.17 46.28
-Deferred (6.68) (4.19)

*excluding excise duty of र 35.43 crore

Capital Expenditure

During the year, the expenditure on account of Replacements & Renewals (R&R) of plant & machinery, mine expansion, mine development & green field exploration stood at र 602.46 crore which was funded partially through internal resources of the Company and partly through borrowings from banks and no Government support for capital expenditure was asked for.

Contribution to Exchequer

During 2018-19, the Company contributed a sum of र 314.69 crore to the exchequer by way of duties, taxes and royalties, as against र 309.71 crore in 2017-18, as detailed below:

Particulars

Rs.in crore

2018-19 2017-18
Excise Duty/GST - 45.52
Customs Duty 0.11 57.27
Sales Tax/GST 89.23 15.20
Royalty and Cess 98.89 98.21
Income Tax 115.90 75.08
Others 10.56 18.43
Total 314.69 309.71

VIII. Material developments in Human Resources / Industrial Relations front including number of people employed

(i) Manpower

As on 31.3.2019, the manpower of the Company was 2195. Category-wise break-up is tabulated below.

Employee

Group

Category (No.)

Gen SC ST OBC Total
A 338 96 29 107 570
B 16 5 1 6 28
C 532 164 215 182 1093
D 308 125 53 18 504
Total 1194 390 298 313 2195

 

Employee Group

Special Categories (No.)

ESM PwD LDP Minorities
A 1 12 - 27
B 0 1 - -
C 7 7 153 102
D 0 6 58 15
Total 8 26 211 144

Legends: Group A & B: Executives; Group C & D: Non-Executives; Gen: General; SC: Scheduled Caste; ST: Scheduled Tribe; OBC: Other Backward Class; ESM: Ex-Servicemen; PwD: Persons with Disabilities; LDP: Land Displaced Person.

(ii) Employment of SC/ST/OBC Community and PwD candidates

The Company adheres to the prescribed Government guidelines on reservation for SC/ST/OBC/PwD categories in its recruitment activities. The representation of SC, ST, OBC and PwD employees in the total manpower of 2195 as on 31.3.2019 was 17.77 %, 13.58 %, 14.26 % and 1.18 % respectively.

(iii) Employment of Women

The Group-wise strength of women employees as on 31.3.2019 vis-a-vis the total employee strength of the Company is given below.

No. of Employees
Group Total Women
A 570 41
B 28 2
C 1093 45
D 504 75
Total 2195 163

(iv) Employee Relations

During the period, the Employee Relations continued to be harmonious and peaceful in all Units of the Company. The successful operation of various Bi-partite fora at the Apex, Unit and Shop-floor levels have contributed immensely towards smooth functioning of the Company.

A meeting of apex level Bi-partite Forum NJCC was held on 13.3.2019 at Corporate Office, Kolkata. Major issues were discussed and some were resolved.

(v) Human Resource Development

Training and Development, based on identified needs is given due priority by the Company for all levels of employees to increase employee effectiveness, employee utilization and productivity as well as to usher in a culture of innovation and creativity with emphasis on deciphering problem-solving skills. The Company selectively nominated employees for specialized training Programmes / Workshops / Seminars / Conferences organized by reputed professional organizations and Institutes. In FY 2018-19, against a training target of 5016 mandays, 9635 mandays of training was achieved.

Women employees as % of total Employees
7.19
7.14
4.12
14.88
7.43

(vi) Communal Harmony and National Integration

In the townships of the Company located at Khetri, Malanjkhand and Ghatsila as well as in other places of work, the employees of different caste, creed, region and religion live together in harmony and celebrate all religious festivals with pomp and gaiety.

(vii) Status of implementation of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

In accordance with the provision of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 & Rules made thereunder, the Company has set up Internal Complaints Committee at all its Units / Offices. A provision in this regard has also been incorporated in the Conduct, Discipline and Appeal Rules. During the year, 1 (one) complaint was received, which was addressed by the Internal Committee and the case was disposed-off.

(viii) Status of implementation of The Persons with Disability Act, 1995

The number of employees belonging to PwDs category employed in the Company as on 31.3.2019 was 12 (twelve) in Group A, 1 (one) in Group B, 7 (seven) in Group C and 6 (six) in Group D, aggregating to 26 (twenty six).

a) Recruitment: In recruitment matters the reservation for Persons with Disabilities (PwD) was adhered to as per Government of India directives and duly incorporated in advertisement published, wherever applicable.

b) Scholarship: HCL grants scholarship to employees children under a special scheme. Particular care and wide publicity is given to the scheme. It has specific provision for PwD category children with relaxed eligibility criteria.

c) Ramp: Ramps constructed at Hospital, Works and General Office to enable easy access to elevated areas in buildings and ease of mobility. Provision of wheelchairs in Hospital/main administrative offices in Units / Projects is also available.

d) Accessibility Audit of office buildings was carried out in all the five Units.

e) Conveyance Allowance: Conveyance Allowance / Transport Subsidy to Persons with Disabilities (PwD) employees were paid at higher rates than other employees as per Government Directives.

(ix) Skill Development

HCL spent 17 % of its CSR funds in FY 2018-19 for Skill Development which translates to र 35.08 lakh of total spending of र 208.16 lakh.

a) Kaushal Vikas Yojna

HCL signed an MoU on 13.7.2018 with National Skill Development Council (NSDC) to impart training, viz., Fresh Skilling for Youth and Recognition of Prior Learnings for Unskilled and Semi-skilled persons. Total 240 persons were trained of whom 60 were freshers and remaining 180 were under Recognition of Prior Learnings. 32 youths trained under Fresh Skilling of this program have so far been placed in reputed companies, e.g., at Tata Motors and others. The average salary of these trainees is around र 8000 per month.

b) Apprenticeship Training:

HCL imparted apprenticeship training to 290 persons in FY 2018-19. An amount of र 217.84 lakh was spent on the training of these apprentices in FY 2018-19.

No. of positions of apprentices were enhanced from 290 to 520 in March 2019, i.e. an increase of 79%. The engagement of apprentices was increased as per the amended provision of the Apprentices Act, 1961 and shall be applicable in FY 2019-20.

c) Skill Development Institute as an Upgraded Training Center:

A Skill Development Institute was established at Khetri Copper Complex by upgrading the existing Training Center. The 2 batches of 55 trainees in the course of "Assistant Mine Surveyor" completed classroom and practical training in December, 2018. A fresh batch of 30 trainees in the trade of Winding Engine Driver has started in March, 2019. These selected trainees shall undergo training for 14 months.

d) Digital Payments:

To maximize cashless transactions by the Internal and External customers of HCL, awareness workshops were organized for dissemination of knowledge of the benefits and modes / methodologies of cashless transactions at each Units. Bank payments of wages to all Contract Labour have been ensured. Posters and banners were displayed at prominent places too. Awareness drives in collaboration with bank officials to educate the Employees, Contract Labour, Customers and Merchants were also undertaken in all Units and offices including Corporate Office of HCL. No cash transactions were carried out in HCL. To make the campuses of HCL Cashless, 14 PoS machines have been installed at Guest House, Directors Bungalow, Hospitals, Town and General Administration, Finance Department, Cash Sections, etc. in the three mining Units of HCL.

e) Transparency

The Company has adopted the Government guidelines of doing away with the process of personal interview in Group C and D recruitment.

(x) Swachh Bharat Mission

Under the Swachh Bharat Mission following initiatives were undertaken by HCL.

a) Open Defecation Free Villages:

• In FY 2018-19, 100 number of individual household toilets were constructed in villages of East Singhbhum District of Jharkhand under the Swachh Bharat Mission.

• Work for construction of 2 Public toilet is underway in Malanjkhand area of Balaghat District (M.P.).

b) Swachhta Activities

In accordance with the Swachh Bharat Abhiyan launched by Govt. of India, intensive Swachhata Pakhwada was organized during August - October 2018. Activities were undertaken in all Units and Offices including Corporate Office. Major activities undertaken are given below.

a. Upkeep and cleaning of

i. Offices including common area premises, Plant and Mines.

ii. Residential complexes, pathways and common areas of the Units.

iii. Neighboring market, roads and parks surrounding Plant and Mines.

iv. Weeding out of old files/records, etc. in offices.

b. Conducted awareness campaign in the Units and neighborhood community.

c. Periodic inspection of school toilets to ensure their usability.

d. Counselling to villagers for use of household toilets for the purpose meant.

IX. Key financial ratios and details of significant changes therein (i.e. change of 25% or more as compared to the immediately previous financial year) along with detailed explanations thereof:

Sr. No. Key Financial Ratio FY 2018-19 FY 2017-18 Reason for significant changes (i.e. change of 25% or more)
i. Debtors Turnover (times) 7.91 13.26 Debtors as on 31.03.2019 increased considerably since bulk export sale of Metal-in- Concentrate took place at the end of March 2019, the amount of which has been realized in the month of April 2019.
ii. Inventory Turnover (times) 2.64 2.23 -
iii. Interest Coverage Ratio (times) 5.15 6.72 -
iv. Current Ratio 1.31 1.08 -
v. Debt Equity Ratio 0.95 0.68 Debt in FY 2018-19 has increased primarily as the Company has invested substantially in mine expansion, capital projects & mine development expenditure during FY 2018-19.
vi. Operating Profit Margin (%) 14.19% 6.23% Operating Profit for FY 2018-19 has increased considerably due to positive impact of higher sales volume, effect of higher dollar rupee exchange rate in sales realisation and decrease in operating expenditure.
vii. Net Profit Margin (%) 8.30% 4.87% Net Profit Margin for FY 2018-19 has increased considerably due to positive impact of higher sales volume, effect of higher dollar rupee exchange rate in sales realisation and decrease in operating expenditure.

X. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

Return on Net Worth for FY 2018-19 is 15.26% as against 9.57% in FY 2017-18. The increase in Return on Net Worth is due to increase in Net Profit for FY 2018-19 which is attributable to positive impact of higher sales volume, effect of higher dollar rupee exchange rate resulting in higher sales realization and decrease in operating expenditure.