MUMBAI: Shares of Aditya Birla group company Hindalco Ltd. rose 4.3% on Tuesday after announcing plans to reduce its debt by $ 2.9 billion by the end of 2022.
As of 12:25 p.m., the stock was trading 4% higher at Rs 328.60 each on BSE, while the benchmark Sensex was up 0.3% to 49,921.71.
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“The allocation to growth investments is estimated at between $ 2.5 billion and $ 3 billion over the next five years. Care will be taken to ensure that all new investments are aligned with the strategic intent of the business and that the return on these investments is well above the cost of capital. The company has no big plans for inorganic growth through acquisitions, ”according to a presentation from the company filed with the after-hours stock exchanges 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 to Ebitda ratio of 2.5 times in less than two years, according to the presentation.
The company added that the focus will be more on higher returns for shareholders. The company expects to achieve this goal through greater capital appreciation stemming from increased earnings, lower leverage and higher dividends.
Following the announcement, Motilal Oswal Financial Services, in a note, said: “Hindalco presented its strategy and capital allocation roadmap for the next five years. Although no new investment plan is was announced, the focus remains on growing the downstream business in India and deleveraging the balance sheet, supported by strong cash flow in India and at Novelis. “
“Additionally, with 75% of EBITDA (earnings before interest, taxes, depreciation and amortization) now coming from non-LME (Novelis) businesses, we see relatively higher stability in the company’s earnings. Even on our conservative assumption on LME aluminum at $ 1,850 per tonne, the valuation is attractive at 4.9 times enterprise value / EBITDA for fiscal 2023. ₹390 per share on the 2023 EBITDA – 5 times for India and 6 times for Novelis. “
The brokergae has a buy note on the stock.
Novelis Inc, a subsidiary of Hindalco Industries Ltd, plans to repay a $ 1.1 billion bridge loan by March, with $ 500 million already repaid in the December quarter. The remainder will be repaid in the March quarter and a short-term loan of $ 900 million will be repaid in the 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 from cash flow as it expects to generate more than 1 to 1.2 billion dollars in cash flow per year after its normal working capital and maintenance expenses.
Hindalco will refinance $ 540 million in bonds of $ 810 million rupees, due 2022, and repay the balance of $ 270 million.