Hindustan Copper OFS may not be a big draw for retail investors: Analysts

Mumbai: Analysts are cautious about retail participation in Hindustan Copper's offer for sale (OFS), despite the nearly 10% discount to the stock's closing price, as the recent sharp rally in metal stocks and elevated valuations could limit near-term gains. While the institutional portion got more bids than the shares set aside for the category on Tuesday-the first day of the offer -analysts said the discount alone may not be sufficient to make the offer attractive to retail investors.

The stock fell 7.04% to ₹533.20 on Tuesday. The floor price for the OFS was set at ₹514 per share, a discount of about 10% to Hindustan Copper's closing price of ₹574.15 on August 24.

"Investors should not treat the discount as the sole reason to subscribe," said Siddarth Bhamre, head - institutional research at Asit C Mehta. "The more important consideration is whether the company's current valuation leaves enough upside after factoring in the recent rally in metal stocks. After the sharp rally in metal stocks, the discount may not be sufficiently attractive for retail investors, particularly when assessed against the risk-adjusted return potential from current levels."

On August 24, the government announced an OFS in Hindustan Copper, with the issue opening for non-retail investors on Tuesday.

The retail tranche of the two-day share sale will open for bids on Wednesday after the non-retail portion, including for institutions, was subscribed more than three times on Tuesday, the first day of the issue. Bids were placed for more than 8.91 crore shares against the 2.61 crore shares on the block, prompting the government to activate the greenshoe option, exchange data showed.

The OFS comprises a base offer of 3% of Hindustan Copper's paid-up equity, with an additional 3% greenshoe option, taking the total potential stake sale to 6%.

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For retail investors, it may be prudent to avoid chasing the stock purely for a quick gain and instead wait for better entry points in the secondary market. With metal stocks having rallied significantly, investors could get opportunities to deploy capital at more attractive valuations rather than locking in funds in the OFS. At the OFS floor price, the stock trades at nearly 40 times trailing earnings and 15 times book value, according to Raj Gaikar, Equity Research Analyst at SAMCO Securities. In comparison, most metal peers trade at lower valuations, he said.

"The stock has already fallen over 7%, leaving only about 3-4% between the current market price and the OFS floor," Gaikar said "Upside looks limited; allotment may also be limited, while any fall in copper prices could quickly erase the small price gap. One should not chase the OFS for a quick two-day gain."