The aluminium industry is seeing significant price action and one newly listed company is in the spotlight. After the demerger of Vedanta, Vedanta Aluminium Metal has emerged as a pure-play aluminium producer. In the latest report, Nuvama believes that the company could be entering a phase of faster earnings growth.
The brokerage house has initiated coverage on Vedanta Aluminium Metal with a ‘Buy’ rating. It has set a target price of Rs 540. This translates to an upside potential of nearly 22% from the current market price.
According to the brokerage report, the investment case rests on a combination of expanding production capacity, lower manufacturing costs, stronger cash flows, a healthier balance sheet and supportive global demand-supply dynamics.
So, what makes the brokerage optimistic about the stock?
The big call: Why Nuvama believes the stock has more room to grow
Nuvama in its report noted, “Vedanta Aluminium Metal – the demerged company of Vedanta – is the fastest expanding primary aluminium company in India wherein EBITDA is likely to compound at 29% over FY26–28E.”
The brokerage believes Vedanta Aluminium Metal is entering a phase where higher production, improving profitability and stronger operating efficiencies could significantly lift earnings over the next few years.
The global aluminium cycle may still be working in Vedanta’s favour
Commodity prices remain one of the biggest drivers for aluminium companies, and Nuvama expects the global backdrop to remain supportive.
As per Nuvama report, “Fundamentally, the aluminium market remains in deficit until H1FY28, which is likely to keep aluminium prices firm.”
Although aluminium prices corrected recently after expectations that supply routes through the Strait of Hormuz would normalise, the brokerage noted that actual supply conditions have not changed significantly.
It expects the global market to remain in a supply deficit until the first half of FY28. Only after additional supply from Indonesia and a gradual recovery in West Asian supplies does Nuvama expect the market to move towards surplus in FY29.
Production is expanding while peers remain largely flat
Nuvama noted, “The 435ktpa aluminium expansion at 51% subsidiary, BALCO, is in its commissioning phase, taking total group capacity to 2.8mtpa by end-FY27E.”
The report added that the company plans to further increase capacity to 3 million tonnes per annum by the end of FY28 through debottlenecking initiatives.
As per the brokerage house report, aluminium production volumes are expected to grow at nearly 8% Compound Annual Growth Rate (CAGR) between FY26-28, unlike several domestic peers that are expected to report little or no volume growth during the same period.
Lower costs could become the biggest earnings driver
The brokerage also expects profitability to improve because the company is becoming more self-reliant in sourcing key raw materials.
“The company recorded average hot metal CoP of $1,914/t over FY22–26…which is likely to fall to less than $1,600/t on a structural basis FY28 onwards,” added Nuvama in its report.
This reduction is expected to come from higher captive alumina production, the start of the Sijimali bauxite mine and increased captive coal availability.
In other words, the company is reducing its dependence on external suppliers, which could help lower costs and protect profit margins even if aluminium prices soften.
Stronger cash flows could sharply reduce debt
Nuvama also expects these operational improvements to strengthen the balance sheet.
According to the brokerage report, “Higher volume, support of firm aluminium prices and lower cost shall drive an EBITDA CAGR of 29% over FY26–28E to Rs 41,900 crore.”
The brokerage estimates that stronger cash generation and relatively lower capital expenditure could sharply reduce borrowings. Net debt is expected to decline from around Rs 37,500 crore in FY26 to nearly Rs 3,400 crore by FY28.
The report also expects the company to maintain shareholder payouts, estimating a Dividend Per Share (DPS) of Rs 15 in both FY27 and FY28.
Nuvama’s valuation view
According to the brokerage report, “We value Vedanta Aluminium at 6.5x FY28E EV/EBITDA (trading at attributable 5.4x FY28E EV/EBITDA at CMP) and a target price of Rs 540 (including INR15 DPS). Initiate at ‘Buy’.”
Based on its projections for higher earnings, expanding production capacity, structurally lower costs and a stronger balance sheet, Nuvama believes Vedanta Aluminium Metal could continue benefiting from both company-specific improvements and supportive global aluminium market conditions over the medium term.
Disclaimer: The insights and target prices mentioned above are from a third-party brokerage report and do not constitute direct investment advice, an offer, or a solicitation by Financial Express. Readers are advised to consult a SEBI-registered investment advisor before making any financial decisions, as commodity-linked equities carry distinct market volatility risks. This disclaimer has been generated using AI to support user well-being and responsible content consumption.