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 copper mine production declined by about 0.7% during the calendar year (CY) 2019 and reached to a level of 20.43 million tonnes (in metal terms). The decrease in world mine production in 2019 was mainly due to reduced output in major copper producing countries. Production in Chile, the worlds biggest copper producing country, declined by around 1% due to lower copper head grades and few production disruptions. Indonesian output declined by around 45% as a consequence of the transition of the countrys two major copper mines to different ore zones leading to temporarily reduced output levels. After growth of 13% in 2018, aggregated production in the Democratic Republic of Congo (DRC) and Zambia declined by about 3% as consequence of temporary suspensions at SX-EW mines, reductions in planned production and operational constraints. Panama started producing copper in March 2019 with the commissioning of the Cobre de Panama mine and was one of the significant contributors to world mine production growth in 2019. On a regional basis, mine production is estimated to have increased by around 3% in North America,1% in Latin America and 3% in Oceania but declined by around 6% in Asia, 2.5% in Africa and 0.5% in Europe.

World refined copper production declined by about 0.6% during the CY 2019 and reached to a level of 23.94 million tonnes. The production growth was constrained by an unusually high frequency of smelter disruption, temporary shutdowns for technical upgrades/modernizations and supply interruptions. Decline of more than 50% of Indias production during FY 2019-20 compared to last year was mainly due to continued shutdown of Vedantas Tuticorin smelter since May, 2018. The decline in production was partially offset by increase in Chinese refinery output and recovering from production constraints in 2018 in countries such as Australia, Brazil, Iran and Poland.

In 2019, the world consumption of refined copper was 24.28 million tonnes registering a decline of 0.8%. 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/resources contributing about 1.5 % 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 6.6 lakh tones, which is only 3% of world copper market.

There are three major players which dominate the copper industry in Indian markets. Hindustan Copper Ltd (HCL) in Public sector, M/s Hindalco Industries and M/s Vedanta in Private Sector. Production in India has declined significantly due to the permanent closure order issued to Vedanta Smelter/ refinery plant by Tamilnadu government 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 Ltd 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 India.

In the fiscal year 2019-20, the copper ore production in India was 3.97 million tonnes. HCL has plans to increase its mining capacity from its current level ore production to 12.2 MTPA in phase-I in next 9 years and will take necessary action for further capacity enhancement of mine to 20.2 MTPA in phase -II. Metal in concentrate production of HCL in FY 2019-20 was 26,502 tonnes.

Refined copper production in India during FY 2019-20 was approximately 4.08 lakh tonnes (Sterlite- 0.77 lakh tonnes, HCL- 0.05 lakh tonnes & Hindalco- 3.25 lakh tonnes), as compared to 4.57 lakh tonnes in FY 2018-19.

II. SWOT analysis

Strength

• Only Company mining copper ore in India.

• Fully developed infrastructure facilities

• Holding mining lease of more than 80% of countrys copper reserves

• Vertically integrated operations greater business certainty

• Skilled and well-trained workforce

• Established brand value

• Wide distribution network and established customer base Weakness

• Smaller size mine deposits except Malanjkhand

• Aged equipment & old technology for value addition

• Low process efficiency

• High cost of logistics due to multi location units

• Low utilization of two plants, TCP & GCP resulting in cross subsidization

• Aged workforce Opportunity

• Growing copper demand within country

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

• Buoyancy in world copper prices

• Scope for expansion of mine capacity

• Opportunity to explore new deposits Threat

• Volatility in LME Copper price affecting turnover/profitability

• Increasing cost of inputs

• Attrition of skilled manpower

• Regulatory risks in mining increasing

• Risk in existing non-profitable business

• Non-availability of competent underground Metal mining contractor / Outsourcing agency in India

III. Segment-wise or product-wise performance Covered in the main report.

IV. Outlook

Copper demand is expected to grow at 7% -8% in India. Growing demand from power sector in view of Government laying thrust on renewable energy and increasing demand from the households for consumer durables will increase demand for copper in India. Manufacturing of electric vehicles (EV) will also augment consumption of copper as EV use four times more copper than traditional internal combustion engines. Copper is essential to EV technology and its supporting infrastructure and the evolving market will have a substantial impact on copper demand.

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 average per capita copper consumption in the world is 3.2 kg.

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 2019-20 vis-a-vis FY 2018-19 is summarized below:

Particulars 2019-20 2018-19
Turnover 803.17 1753.44
Value of Production 939.95 1709.69
Cost of production excluding depreciation, amortization and Finance Cost 1128.98 1171.19
Profit /(Loss) before depreciation, amortization, Finance Cost & Tax (188.68) 538.70
Depreciation, Amortisation 288.61 252.89
Finance Cost 60.42 55.46
Profit/ (Loss) Before Tax from Continuing Operation (537.71) 230.35
Profit/ (Loss) Before Tax from Discontinuing Operation (0.35) (0.35)
Profit/(Loss) Before Tax from continuing & discontinuing operation (538.06) 230.00
Provision for taxation -Current 8.33 91.17
-Deferred 22.96 (6.68)
Profit/ (Loss) After Tax from Continuing & Discontinuing Operation (569.35) 145.51

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 452.96 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 2019-20, the Company contributed a sum of 194.59 crore to the exchequer by way of duties, taxes and royalties, as against 314.69 crore in 2018-19, as detailed below:

Particulars

Rs in crore

2019-20 2018-19
Customs Duty 0.14 0.11
Sales Tax/GST 32.65 89.23
Royalty and Cess 75.91 98.89
Income Tax including TDS 83.40 115.90
Others 2.49 10.56
Total 194.59 314.69

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

(i) Manpower

As on 31.3.2020, the manpower of the Company was 1931. Category-wise break-up is tabulated below.

Employee

Category (No.)

Employee

Special Categories (No.)

Group Gen SC ST OBC Total Group ESM PwD LDP Minorities
A 333 83 29 99 544 A 1 16 0 29
B 21 4 0 4 29 B 0 1 0 0
C 512 LIGN=RIGHT>135 192 153 992 C 7 4 138 86
D 179 117 46 24 366 D 10 9 044 19
Total 1045 339 267 280 1931 Total 18 30 182 134

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 1931 as on 31.03.2020 was 17.56%, 13.83%, 14.50% and 1.55% respectively.

(iii) Employment of Women

The Group-wise strength of women employees as on 31.03.2020 vis-a-vis the total employee strength of the Company is given below.

No. of Employees

Women Employees as % of total Employee

Group Total Women
A 544 42 07.72
B 29 3 10.30
C 992 43 04.33
D 366 69 18.90
Total 1931 157 08.13

(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.

During the FY 2019-20, two meetings of the apex level Bi-partite Forum NJCC were held on 23.09.2019 and 24.12.2019 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, utilization and productivity as well as to usher in a culture of innovation and creativity with emphasis on deciphering problem-solving skills. In FY 2019-20, 3611 mandays of training were achieved. The Company selectively nominated employees for specialized training Programmes / Workshops / Seminars / Conferences organized by reputed professional organizations and Institutes. In FY 2019-20, the following MoU parameters w.r.t. HR between Ministry of Mines and HCL were achieved:

a) Achievement of HR parameters of continuous nature by focusing on the Talent Management and Career Progression by imparting one week training to 5% of Executives in Centre of Excellence (within India), e.g., IIT-Kharagpur, IIT (ISM)- Dhanbad, etc.

b) Upgradation of People Capability Maturity Model (PCMM) or its equivalent from second to third level.

c) Capability Development Programs for Executives to build their technical & managerial competencies for higher positions with special focus on web learning programs.

(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, no complaint was received by the Internal Committee.

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

The number of employees belonging to Persons with Disabilities (PwD) category employed in the Company as on 31.3.2020 was 16 (sixteen) in Group A, 1 (one) in Group B, 4 (four) in Group C and 9 (nine) in Group D, aggregating to 30 (thirty).

(a) Recruitment: In recruitment matters the reservation for 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 Hospitals, Works and General / Administrative Offices 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 PwD employees were paid at higher rates than other employees as per Government Directives.

fix) Skill Development

HCL spent 11.76 % of its CSR fund in FY 2019-20 for Skill Development which translates to 38.92 lakhs of total spending of 331.01 lakhs.

a) Kaushal Vikas Yojna

HCL signed an MoU on 8.11.2019 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 210 persons were trained of whom 30 were freshers and remaining 180 were under Recognition of Prior Learnings. 21 youths trained under ‘Fresh Skilling of this program were placed in reputed companies, e.g., at Tata Motors and others. The average salary of these trainees is around .8000 per month.

b) Apprenticeship Training:

HCL imparted apprenticeship training to 314 persons in FY 2019-20. An amount of 191.94 Lakhs was spent on the training of these apprentices in FY 2019-20.

Further, in FY 2020-21, HCL plans to engage 520 Apprentices, which shall enhance the percentage of apprentices to total manpower.

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. One Batch of 30 trainees in the trade of ‘Winding Engine Driver is undergoing practical training.

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 of the Units. Bank payments of wages to all Contract Labour have been ensured. 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.

(x) Swachh Bharat Mission

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

a) Open Defecation Free Villages

• In FY 2019-20, 40 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 toilets in Government school was completed 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 from 16th-31st August 2019 and in 16th-30th November 2019. Activities were undertaken in all Units and Offices including Corporate Office. Details of 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 Schools and neighborhood community.

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

Counselling to villagers on use of household toilets.

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 2019-20 FY 2018-19 Reason for significant changes (i.e. change of 25% or more)
i. Debtors Turnover 9.69 4.85 Due to reduction in Debtors at the end of the year.
ii. Inventory Turnover (times) 1.74 2.96 Reduction in Turnover due to lower sales volume as well as price during the current year.
iii. Interest Coverage Ratio (times) -7.91 5.15 Due to Loss reported during the current year.
iv. Current Ratio 0.71 1.31 Due to decrease in Current assets during the current year.
v. Debt Equity Ratio 4.21 0.95 Due to increase in Total Debt & decrease in Other Equity during the current year.
vi. Operating Profit Margin (%) -66.56% 14.19% Due to Loss reported during the current year.
vii Net Profit Margin (%) -70.89% 8.30% Due to Loss reported during the current year.

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 2019-20 is negative whereas the same was positive in FY 2018-19 due to loss incurred during the current financial year due to non-lifting of copper concentrate by the buyer owing to reasons attributable to international market and one time write off of closing stock amounting to .257.10 crore arising out of reconciliation of metal content in copper concentrate on inter-unit transfer and sales, assessment of metal loss in generation of Granulated dump slag, handling losses, old and oxidized concentrate. Further, Lean Ore and Mill Scat, containing low grade copper and presently not in use in the manufacturing process, for which a provision amounting to .183.32 crore has been made in the books of accounts. The Company has formulated the Standard Operating Procedure on Inventory Management to strengthen the reconciliation system of inventory throughout the Company.