Crisil Upgrades Hindalco’s Long-Term Rating to AA-plus

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Crisil Ratings has upgraded rating on non-convertible debentures of Hindalco Industries Ltd to AA-plus with a stable outlook from AA with a positive outlook.

It has also reaffirmed A1-plus rating on the company’s commercial paper programme. Crisil said the upgrade reflects steady improvement in operating performance driven by healthy aluminium demand and price outlook, improving product mix and well-defined capital allocation approach.

Better performance will support healthy operating cash accrual and faster-than-expected reduction in consolidated adjusted net leverage — ratio of adjusted net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) — to sustainably below 2.5 times by the end of fiscal 2022.

Crisil said the ratings also factor in strong resilience in operations of Hindalco’s subsidiary Novelis Inc, high cost-efficiency in Hindalco’s domestic operations and increased focus on only downstream capacities at both domestic operations and Novelis, which should result in healthy operating cash flow over the medium term.

While profitability in the domestic aluminium business is exposed to volatility in London Metal Exchange (LME) aluminium prices, the conversion nature of the company’s large downstream operations at Novelis with its increasing share in consolidated profitability lends stability to Hindalco’s aggregate profitability.

Hindalco, the flagship company of the Aditya Birla group, commenced operations in 1962 with an aluminium unit at Renukoot in Uttar Pradesh.

The company is the second-largest aluminium manufacturer in India, with capacity of 1,300 kilo tonne per annum (ktpa) of aluminium and 2,900 ktpa of alumina. It has a custom smelter with copper cathode capacity (including recycling) of 421 ktpa at Dahej in Gujarat.

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