ICRA reaffirms ratings of Hindustan Copper; maintains stable outlook

31 Oct 2022 , 12:57 PM

ICRA has reaffirmed the companys long term rating at ?[ICRA] AA+? and the short-term rating at [ICRA] A1+?. The outlook on the long-term rating is stable. The credit rating agency said that the ratings reaffirmation factors in ICRAs expectation of a stable financial performance in FY2023 on the back of commencement of Malanjkhands underground mines, which is expected to ramp up in H2 FY2023. The debt levels have also significantly reduced owing to large loan prepayments done in FY2022, which resulted in a significant improvement in debt coverage indicators. In addition, given the equity infusion of Rs. 500 crore via Qualified Institutional Placement (QIP) route in April 2021 and expectation of comfortable operating cash flows in the near term, HCL would be able to fund a substantial portion of the capex, limiting the companys long-term debt requirement. This would lend support to the capital structure and debt coverage indicators, going forward, even in a scenario of lower copper prices. Moreover, post stabilisation of the recently commenced mines, the company will benefit from the increase in its scale of operation and better grade of underground mined ores, which would support HCLs efforts in reducing its production costs. ICRA continues to favourably factor in the status of HCL as an integrated copper producer, its public sector undertaking (PSU) status and its existing relationships with banks, which provide financial flexibility in arranging debt at a competitive cost for funding the ongoing capex, if required. The ratings, however, also consider the companys exposure to fluctuation in copper prices, which results in volatility in its profitability and cash flows. ICRA also took cognisance of the large contingent liabilities of the company. Any significant devolvement of the same, impacting HCLs liquidity and financial position would be a credit negative. ICRA also notes the adverse cost structure in smelting and refining operations of the companys refineries in Jharkhand, given the vintage of the plant and the lack of economies of scale. However, at present, production from these facilities is minimal with the company focussing on selling only MIC. The stable outlook rating reflects ICRAs opinion that HCL will generate healthy cash flows, going forward, and will continue to benefit from its strong position in the domestic market, having access to quality copper mines. Hindustan Copper is engaged in the exploration, exploitation, and mining of copper and copper ore, including beneficiation of minerals, smelting, and refining. As of 30 September 2022, the Government of India holds 66.14% in the company. The companys consolidated net profit rose 25.07% to Rs 57.07 crore on a 29.44% increase in sales to Rs 346.39 crore in Q1 FY23 over Q1 FY22. The scrip fell 1.81% to currently trade at Rs 102.80 on the BSE. Powered by Capital Market – Live News