Vedanta Aluminium to rally 22%? Nuvama initiates ‘Buy’ with 29% EBITDA forecast

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Vedanta Aluminium has been upgraded with a 'Buy' rating recommendation and a target price of INR 540 (USD 5.63) by the brokerage firm Nuvama Institutional Equities. It indicates an upside potential of nearly 22 per cent from current levels. The brokerage believes the newly demerged aluminium producer is entering a stronger growth phase, supported by capacity expansion, structural cost reductions, improved cash generation and favourable global aluminium market fundamentals.

After the demerger of Vedanta Limited, Vedanta Aluminium is now a dedicated primary aluminium producer, ready to capitalise on rising demand and operational efficiencies.

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Capacity growth and stronger earnings highlight outlook

According to Nuvama, the company's earnings trajectory is expected to improve significantly over the medium term.

"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 noted.

The brokerage expects higher production volumes, better operating efficiencies and improving profitability to drive earnings growth over the next few years.

Commissioning of BALCO's 435,000-tonne-per-annum aluminium expansion has been a key growth driver. It is expected to raise the group's total production capacity to 2.8 million tonnes per annum (MTPA) by the end of FY27 and projected to reach 3 MTPA by FY28.

Nuvama estimates aluminium production volumes will grow at nearly 8 per cent CAGR during FY26-FY28, outperforming several domestic peers that are expected to report limited volume growth.

Support from the global aluminium market

The brokerage also forecasts industry fundamentals to remain favourable, as it “remains in deficit until H1FY28, which is likely to keep aluminium prices firm.”

Although aluminium prices eased recently following expectations of smoother shipping through the Strait of Hormuz, Nuvama believes the underlying supply-demand balance remains tight. The brokerage expects the market to remain in deficit until the first half of FY28 before gradually moving towards surplus in FY29 as additional supply comes from Indonesia and West Asia. 

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Lower production costs and stronger balance sheet

Another factor supporting the positive outlook is Vedanta Aluminium's increasing integration across the value chain.

The brokerage estimates the company's average hot metal cost of production, which stood at around USD 1,914 per tonne during FY22-FY26, could decline to below USD 1,600 per tonne from FY28 onwards.

The expected reduction is attributed to higher captive alumina production, commencement of the Sijimali bauxite mine, and increased availability of captive coal, reducing dependence on external raw material suppliers.

Nuvama projects these operational improvements, coupled with firm aluminium prices, to drive an EBITDA CAGR of 29 per cent over FY26-FY28, reaching around INR 419 billion (USD 4.37 billion).

The stronger cash flows are also expected to improve the company's balance sheet, with net debt forecast to decline from approximately INR 375 billion (USD 3.91 billion) in FY26 to nearly INR 34 billion (USD 354.72 million) by FY28.

The brokerage also expects Vedanta Aluminium to maintain shareholder returns through an estimated dividend per share (DPS) of INR 15 in both FY27 and FY28. 

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