Hindalco shares jump 4% on announcement of capital allocation framework, debt reduction plan; brokerages raise target price

Updated : February 23, 2021 12:41 PM IST

The company board also approved amending the dividend distribution policy on February 22.

The stock rose as much as 4.1 percent to its 52-week high of Rs 329 per share on BSE.

The firm further announced a $2.6 billion debt reduction plan by Novelis and a $0.3 billion debt reduction plan by Hindalco.

Shares of Hindalco rose nearly 4 percent to hit a 52-week high on Tuesday after the firm announced a capital allocation framework for Capex growth, debt reduction, and shareholders' returns.

The company board also approved amending the dividend distribution policy on February 22. It will now pay an 8-10 percent dividend from the consolidated free cash flow against its existing policy of paying 10-30 percent of the standalone net profit.

The move will lead to a higher payout as it will now consider the free cash flow of its US subsidiary Novelis while distributing dividends.

The stock rose by 4.1 percent to its 52-week high of Rs 329 per share on BSE.

In an investor presentation, the firm said the allocation towards growth capex is considered at $2.5-3 billion over the next five years. It also expects to generate over $1-1.2 billion cash flow per annum post its normal working capital and maintenance capex.

The firm further announced a $2.6 billion debt reduction plan by Novelis and a $0.3 billion debt reduction plan by Hindalco.

"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 the presentation.

The company added that there will be an enhanced focus on higher shareholder returns through higher capital appreciation arising from increased earnings, lower leverage, and increased dividends.

Following the announcements, brokerages remained bullish on the stock and raised their target prices adding to the sentiment.

CLSA reiterated a 'buy' call on the firm with a target raised to Rs 380 per share. It also raised FY22 and FY23 profit estimates by 9 percent and 24 percent, respectively on higher LME and lower interest costs. It expects further rerating as there's growth visibility and focus on ESG.

JPMorgan also welcomed a capital allocation policy with an 'overweight rating and target raised to Rs 360 from Rs 355 earlier. However, given the sharp outperformance, it sees a consolidation phase ahead.

Jefferies also had a 'buy' call on the stock with a target hiked to Rs 390 per share from Rs 350 earlier. It also raised the FY22-23 EPS estimate by 5 percent on higher aluminum price assumptions and expects deleveraging at a relatively lower pace than earlier anticipated.

Hindalco shares jump 4% on announcement of capital allocation framework, debt reduction plan; brokerages raise target price

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