Hindalco’s target raised after new debt, dividend policy!
Last updated: 24 Feb, 2021 | 02:49 pm
Hindalco Industries shares have risen over the last two days, after global brokerages welcomed the company’s new capital allocation and dividend policy. The shares hit a record high of Rs 338 on NSE yesterday.
Debt reduction guidance
- Hindalco has guided for a gradual reduction in its Net Debt to 2.5 times of EBTIDA by the end of 2022.
- As a part of this plan, the company’s subsidiary Novelis will pay off a $1.1 billion bridge loan by March 2021. It has already repaid its short-term debt of $900 million by the second and third quarter of FY21.
- The company has targeted a combined $2.9 billion total debt reduction from June 2020 through CY2022.
New Capital allocation, dividend policy
- On a Consolidated level, the company is expected to generate over US$ 1-1.2 billion cash flow per annum post its normal working capital and maintenance capex.
- The company intends to allocate this for Growth Capex: 50%, Debt Reduction: 30%, and Shareholder Returns: 8-10%. The balance will be retained in the treasury.
- The company will now pay 8-10% of the consolidated free cash flow as dividends to shareholders. This is different from its earlier policy of intending to pay 10-30% of the standalone net profit. According to estimates from Emkay, dividend per share could more than double from existing Rs 1-1.2 per share to up to Rs 4 per share, due to robust cash flows going forward.
Jefferies upgrades target price
- Jefferies has raised FY22-23 EPS estimates by 5% on higher aluminum price assumptions. The brokerage expects deleveraging at a relatively slower pace than earlier anticipated.
- Higher capex and increased dividend payout reduces the extent of deleveraging in FY22-23, noted Jefferies. The company has upgraded the target price to Rs 390.
- Has welcomed Hindalco’s new capital allocation policy that aims to distribute Operating Cash Flow towards growth capex. The brokerage expects some consolidation given sharp outperformance.
- The company has an Overweight rating on Hindalco, with a target price of Rs 350.
- Noted that Hindalco is now addressing capital allocation concerns. The brokerage has raised FY22-23 PAT estimates by 9% and 24% on lower interest cost. Announcements to drive further rerating as it provides growth visibility and focus on ESG.
- The brokerage has retained a Buy call on the stock, with a target price of Rs 380.