Hindalco Industries Ltd.: Hindalco announces capital allocation framework, amends dividend distribution policy

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Mumbai: Aditya Birla Group’s metal flagship company, Hindalco expects to generate US$ 1-1.2 billion cash flow per annum post its normal working capital and maintenance Capex and has come out with a capital allocation framework for growth Capex, debt reduction and for shareholders’ returns.

“Allocation towards Growth Capex is considered at US$ 2.5-3.0 billion over the next 5 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 said in its investor presentation on Monday.

The company has decided to allocate around 50% of the cash generated to growth Capex, around 30% towards debt reduction, 8-10% towards shareholder returns and the rest to be retained in treasury.

The company has no large inorganic growth plans through acquisitions, and it estimates a total debt reduction from both India operations and Novelis at $2.9 billion targeted from June 2020 through the year 2022. As of 31st December 2020, the company has a total debt of $ 9.86 billion.

“There will be an enhanced focus on higher shareholder returns. This will be achieved through, higher capital appreciation arising from increased earnings, lower leverage and increased dividends,” the company said in the presentation.

The company’s board of directors have also approved amending the company’s Dividend Distribution Policy. Hindalco’s will be paying dividends from the consolidated free cash flow instead of profits.

Right after the announcement, shares of Hindalco rallied 4.5% to Rs 324 apiece. The S&P BSE Metal index is up 2.24% to quote at 13,093.76, even as the Sensex lost around 1,145 .44 or 2.25% on Monday. Among the top gainers, ’s shares jumped 6.68% and ’s shares jumped 2.8% on Monday.

The company has decided to pay an 8-10 per cent dividend from the consolidated free cash flow against its existing policy of paying 10-30% of the standalone net profit as mentioned in its annual report for the year 2019.

“The Board will consider various internal and external factors like Free Cash Flow of the relevant year, Stability of earnings, Future capital expenditure, inorganic growth plans and reinvestment opportunities, Industry outlook and stage of the business cycle for underlying businesses and any other contingency plans,” the company said in a statement.

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