Novelis targets debt reduction as it aims to bring leverage below 4x

Mumbai: Novelis Inc, the US-based subsidiary of Hindalco Industries, expects its net leverage to moderate to below four times by the end of the fiscal as it begins reducing debt following peak capital expenditure, senior management said on Wednesday.

Adjusted net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) stood at 4.5 times at the end of the June quarter, up from 4.1 times at the end of March.

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The leverage ratio has risen for at least five consecutive quarters as the company increased borrowings to fund the Bay Minette project in Alabama and absorb the impact of two fires at its Oswego plant.

"We expect leverage to increase very slightly from here, and after that we are on the deleveraging journey," chief financial officer Dev Ahuja said in a post-earnings call. "We are not going to borrow any more."

Novelis also entered into a new $500 million term loan in July to provide flexibility during its peak investment phase. "We expect to pivot our focus towards deleveraging as payment and capital spending winds down," Ahuja said.

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Operations at the Oswego hot mill, which was hit by fires in September and November last year, resumed in early June. In May, the company had said the fires would affect free cash flow by $1.7 billion.

With production restarting, insurance recoveries under way, progress at Bay Minette and the underlying business performing well, the company expects to return to positive free cash flow by the end of the year, Ahuja said.