Shares of Hindalco, on Tuesday, rose nearly 4 per cent to hit an intra-day high of Rs 327.65 on the BSE after the firm announced plans to deleverage its balance sheet and came out with a capital allocation framework for growth Capex, debt reduction and shareholders’ returns.
"Allocation towards growth capex is considered at $2.5-3 billion over the next five years. It will be ensured that all new investments are in line with the strategic intent of the company and the return on such investments is well above the cost of capital. The company has no large inorganic growth plans through acquisitions," it said in an investor presentation. READ HERE
The company further added that there will be an enhanced focus on higher shareholder returns. This, the company plans to achieve through higher capital appreciation arising from increased earnings, lower leverage and increased dividends.
Besides that, the company expects to generate over $1-1.2 billion cash flow per annum post its normal working capital and maintenance capex.
It has decided to allocate 50 per cent of the cash flow generated towards growth capex, 30 per cent towards debt reduction, 8-10 per cent for shareholder return and the balance will be retained in Treasury.
In addition to this, the company also announced a $2.6 billion debt reduction plan by Novelis and a $0.3 billion debt reduction plan by Hindalco.
Following this announcement, Kotak Institutional Equities, in a note, said: "Hindalco has laid a five-year capital allocation roadmap which focusses on organic growth, deleveraging and shareholder payout. Dividend payout implies only a modest 1-2 per cent yield. However, growth through organic and downstream businesses reduces the risk of any upstream or large acquisition in the future. Investments to enhance ESG scores are long term positives."
The brokerage increased its EBITDA (earnings before interest, tax, depreciation and amortization) estimates by 2/3 per cent for FY2022/23E, saying that it factors timely contribution from a few on-going projects and build higher growth capex in FY2022/23E. It increased its target price on the stock to Rs 400 from Rs 375 earlier.
At 11.20 am, the stock was trading 3.50 per cent higher at Rs 326.90 as against a 1.03 per cent gain in the BSE barometer Sensex. The stock was also hovering close to the 52-week high level of Rs 328, touched in the previous session.