MUMBAI: Shares of Aditya Birla group company Hindalco Ltd. rose 4.3% on Tuesday after it announced plans to trim its debt by a massive $2.9 billion by the end of 2022.
At 1225 pm, the stock traded 4% higher at Rs328.60 apiece on the BSE, while the benchmark Sensex was up 0.3% at 49921.71.
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“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,” according to a company presentation filed with stock exchanges after market hours on Monday.
The company’s gross debt is estimated at $9.2 billion, or 3 times its Ebitda, and the company aims to achieve a net debt/Ebitda ratio of 2.5 times in less than two years, according to the presentation.
The company 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.
Following the announcement, Motilal Oswal Financial Services, in a note, said, “Hindalco has laid out its strategy and capital allocation roadmap for the next five years. While no new capex plans were announced, the focus remains on growing the downstream business in India and deleveraging the balance sheet, supported by strong cash flows in both India and Novelis.”
“Moreover, with 75% EBITDA (earnings before interest, tax, depreciation and amortization) now coming from the non-LME business (Novelis), we see relatively higher stability in the company’s earnings. Even on our conservative LME aluminum assumption of $1,850 per tonne, the valuation is attractive at 4.9 times FY2023 enterprise value/EBITDA. We value it at ₹390 per share on FY2023 EV/EBITDA – 5times for India and 6 times for Novelis.”
The brokergae has a Buy rating on the stock.
Novelis Inc, subsidiary of Hindalco Industries Ltd, plans to repay a $1.1 billion bridge loan by March with $500 million already repaid in December quarter. The rest will be repaid in March quarter, and a short-term loan of $900 million repaid in September quarter and December quarter.
Of the $1.7 billion term loan due in 2022, $1.1 billion will be refinanced and $600 million will be repaid out of the cash flows, as it expects to generate over $1-1.2 billion cash flow per annum post its normal working capital and maintenance capex.
Hindalco will refinance $540 million of $810 million rupee bonds, due in 2022, and repay the balance $270 million.