Hindalco gains on unveiling capital allocation framework

Hindalco Industries rose 3.63% to Rs 327.30 after the company announced a capital allocation framework for growth capex, debt reduction and for shareholders returns.

On a consolidated level, the company expects to generate over $1 billion to $1.2 billion cash flow per annum post its normal working capital and maintenance capex. Allocation towards growth capex is considered at approximately $2.5 billion to $3 billion over the next five years.

The company expects consolidated gross debt to be $9.20 billion (or 3x its EBITDA) as on 31 March 2021. It was $9.86 billion (or 3.1x its EBITDA) as on 31 December 2020 as against $11.14 billion (or 3.8x its EBITDA) as on 30 June 2020 and $9.43 billion (or 2.6x its EBITDA) on 31 March 2020. The company expects to achieve a net debt/EBITDA ratio of 2.5x in less than two years.

Hindalco's Novelis unit will repay $1.1 billion of the Bridge Loan by end of fiscal 2021. Out of INR bonds of $810 million due in 2022, the company will refinance $540 million and will repay the balance $270 million in 2022.

Hindalco will also focus on higher shareholder returns. The company plans to achieve the same through increase in earnings, lower leverage and higher dividends.

The company's board of directors have approved amending the company's Dividend Distribution Policy. The company has decided to pay an 8-10% dividend from the consolidated free cash flow. The dividend will be declared out of the profits of that financial year or previous financial years after providing for past depreciation.

The board will consider various internal and external factors like free cash flow of the relevant year, stability of earnings, future capital expenditure, inorganic growth plans and reinvestment opportunities, industry outlook and stage of the business cycle for underlying businesses and any other contingency plans, the company said in a statement.

On a consolidated basis, the company's net profit soared 76.74% to Rs 1,877 crore on 19.73% increase in revenue from operations at Rs 34,958 crore in Q3 December 2020 over Q3 December 2019.

Hindalco Industries, the metals flagship company of the Aditya Birla Group, is the world's largest aluminium rolling and recycling company, and a major copper player. It is also one of Asia's largest producers of primary aluminium.

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