Hindalco’s capital allocation strategy welcomed by investors


Organic growth, debt reduction and most importantly improving the returns of investors will be of the main focus in the road map of the five-year capital allocation laid by Hindalco a part of the Aditya Birla group. After the normal working capital and maintenance capital expenditure, the company is expected to produce more than $1-$1.2billion in cash flow per annum. The company is intending to use 50% of the generated CAPEX and 30% for reducing debt and 8-10% will be returned to the shareholders in the form of dividends. The balance after all activities which is about 10-12% will be reinvested in the business in the form of retained earnings.

Over the next 5 years, around $2.5-3 billion will be allocated towards CAPEX growth according to a statement issued by the company. From the total fund allocated for growth CAPEX, $1.5 billion will be used for expanding the capacity of Novelis Inc from the existing 4 million tonnes per annum to 4.5 million tonnes per annum. The amount left after the expansion will be channeled for the growth of the company’s downstream operations in the country.

The company will now focus on increasing shareholder returns, via higher capital appreciation through increased earnings, lower leverage, and increased dividends.

Post the announcement of the new strategy the share prices of the company increased by a significant margin of 4.5 % to Rs324 per share.

The company will now pay a dividend of 8-10% from the consolidated free cash flow.

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