Hindalco’s target raised after new debt, dividend policy!

Last updated: 24 Feb, 2021 | 02:49 pm

Hindalco’s target raised after new debt, dividend policy!

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.

Brokerage action

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.

JP Morgan

  • 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.

CLSA

  • 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.

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