Nuvama initiates Buy call on Vedanta Aluminium shares, expects profitability to exceed historical average. Here's why

Nuvama Institutional Equities initiated coverage on shares of Vedanta Aluminium Metal with a 'Buy' rating and a target price of Rs 540 per share, implying an upside potential of nearly 22% from the stock’s previous closing price.

The brokerage highlighted that Vedanta Aluminium Metal is the fastest-expanding primary aluminium company in India, with its EBITDA likely to compound at 29% over FY26–28. Nuvama believes aluminium prices are likely to remain firm until FY28 as supply tightness is likely to loosen in the second half of that year.

Aluminium prices corrected from $3,800 per ton to $3,060 per ton recently as the froth in aluminium prices fizzled out last month amid rising expectations of easing of traffic at the Strait of Hormuz and resumption of supply from West Asia, Nuvama noted. However, it is yet to be observed on the ground.


“Fundamentally, the aluminium market remains in deficit until H1 FY28, which is likely to keep aluminium prices firm. We believe full restoration of supply from West Asia shall happen by Q2 FY28, and with incremental supply from Indonesia, the world aluminium market could turn into a surplus in FY29. We are factoring in LME aluminium price of $3,200/$3,000 in FY27/28,” it said.

Also read: Vedanta Power, Vedanta Oil & Gas, other Vedanta stocks surge up to 6%. What lies ahead?

How can Vedanta Aluminium's profitability exceed historical average?

Vedanta Aluminium Metal is on the path to reducing its cost of production, which in turn shall help profitability exceed the historical average, according to the brokerage. The Vedanta Group company recorded an average hot metal CoP of $1,914 per ton over FY22–26, which is likely to fall to less than $1,600 per ton on a structural basis from FY28 onwards.

Nuvama is factoring in a $ 162-per-ton fall in hot metal CoP by FY28 from FY26. This can be achieved with a ramp-up of captive alumina (to meet around 87% of the requirement in FY28 from 62% in FY26), commencement of 9 mtpa Sijimali bauxite mine Q3 FY27 onwards (to meet 60% of the requirement in FY29E) and around 40 mtpa captive coal capacity (to be commissioned in phases from Q3 FY27 to FY29), it added.

This cost reduction shall help Vedanta Aluminium to sustain a high EBITDA of more than $1,100 per ton. “Higher volume, support of firm aluminium prices and lower cost shall drive an EBITDA CAGR of 29% over FY26–28 to $419 billion (EBITDA/t: USD1,560) in FY28. This, along with lean capex, shall boost FCF, leading to deleveraging. Net debt to decrease from Rs 375 billion in FY26 to Rs 34 billion in FY28,” the brokerage added.

Motilal Oswal on Vedanta Aluminium

Motilal Oswal Financial Services also initiated coverage on the shares of Vedanta Aluminium with a ‘Buy’ rating and a target price of Rs 540 per share, as the domestic brokerage forecast strong earnings growth and cash flow generation over the medium term.

The domestic brokerage, in its note, called the company India's largest pure-play primary aluminium company and the third-largest aluminium producer globally, excluding China. It said the company has emerged as one of the most compelling structural stories in the global aluminium space, combining industry-leading scale, extensive backward integration, and a multi-year earnings growth trajectory.

Vedanta Aluminium is uniquely positioned to benefit from both favourable industry dynamics and company-specific structural drivers, according to the domestic brokerage, which highlighted that the Vedanta Group company is approaching a significant “earnings inflection point” as it expects EBITDA to post over 18% CAGR over FY26-28.

Also read: Vedanta Aluminum shares to see 22% rally? Motilal Oswal initiates coverage with Buy, lists key tailwinds

Vedanta Aluminum share price

The shares of the company listed on stock exchanges at Rs 522 apiece on June 15 after the mega demerger of Vedanta that saw four new companies spinning out of it. The largecap company’s market capitalisation at debut stood at more than Rs 2 lakh crore, surpassing parent Vedanta’s total market capitalisation.

However, the stock then declined around 15% in less than a month to close at Rs 443.80 apiece on Thursday. The shares of the company, however, rose more than 3.5% on Friday after the bullish brokerage calls to trade at Rs 459.4 apiece.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)