Vedanta Aluminium’s ₹250bn setback puts its ‘crown jewel’ story to the test

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Vedanta Aluminium was seen as the “crown jewel” of Anil Agarwal’s Vedanta demerger. But less than a month after listing, it has become the weakest performer among the four newly listed entities. Since its June 15 debut, the stock has fallen 12 per cent from its listing price of INR 527, wiping out more than INR 250 billion in investor wealth.

Its demerged siblings have moved in the opposite direction. Vedanta Power has gained 9 per cent from its listing price of INR 42, Vedanta Iron & Steel has surged 84 per cent from INR 22, and Vedanta Oil & Gas has risen 10 per cent from INR 39.

The divergence raises a key question: why is Vedanta Aluminium struggling when brokerages remain positive on its longer-term outlook?

Aluminium price correction weighs on the stock

The fall in Vedanta Aluminium shares has coincided with a correction in aluminium prices after Iran and the United States agreed to a peace deal.

InCred Equities believes the aluminium market may need to be viewed through a broader framework. Unlike crude oil or coal, aluminium is a circular metal that can be recycled and returned to the supply chain, adding another layer to the traditional assessment of primary supply.

According to the brokerage, nearly 1.5 billion tonnes of aluminium remains available above ground, while almost 80 per cent of all aluminium ever produced is still part of the usable metal pool.

This means supply depends not only on primary smelter output but also on how quickly scrap can be collected, sorted, remelted and reused.

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Middle East disruption may prove temporary

InCred also expects the recent Middle East disruption to be temporary rather than structural.

Around 2.2Mtpa of primary aluminium capacity was affected. However, supplies from Qatar Aluminium and Alba could normalise relatively quickly, while only EGA’s Al Taweelah operation may face a longer outage risk.

“As the war-risk premium unwinds, London Metal Exchange (LME) aluminium prices should correct despite low inventories and some regional premium tightness,” the brokerage said.

While this creates near-term pressure, other brokerages see a different longer-term picture.

Emkay sees a global deficit through CY28

Last week, Emkay initiated coverage on Vedanta Aluminium with a Buy rating and a target price of INR 550, implying a potential upside of 15 per cent from current levels.

The brokerage believes the market has yet to fully recognise the company’s structural earnings potential. It expects the global aluminium market to remain in deficit through CY28 despite Indonesia’s planned capacity additions.

According to Emkay, new supply could be slowed by constraints around bauxite availability, alumina refining, power infrastructure and project financing. China’s aluminium production is also approaching its effective ceiling of 45 million tonnes.

At the same time, demand is expected to remain supported by power grid investment, the energy transition and the growing use of lightweight materials in automobiles.

CLSA has also initiated coverage with an Outperform rating and a target price of INR 540, implying more than 18 per cent upside from the stock’s previous closing price.

The brokerage expects incremental aluminium supply of 1.5 mt in 2026 and 1.9 mt in 2027, largely from Indonesia. It sees resilient demand from electrification and substitution-led markets supporting a tight market balance.

Lower costs could become the bigger earnings driver

Vedanta Aluminium’s longer-term story is not based only on higher metal prices. Emkay expects structural cost reductions to play a growing role in earnings.

The company is strengthening backward integration across bauxite mining, alumina refining, captive coal and power, while expanding smelting and refining capacity.

As captive bauxite and coal mines scale up and the Lanjigarh refinery moves towards full utilisation, the brokerage expects higher alumina self-sufficiency and lower cash costs.

These measures could reduce dependence on third-party raw materials, improve cash flow, support deleveraging and strengthen Vedanta Aluminium’s position on the global cost curve.

Emkay values the company at 6x FY28E EV/EBITDA. It identified weak aluminium prices, elevated energy costs, delays in integration and adverse regulatory developments as key risks.

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Copper’s rally opens another demand route

Another potential support for aluminium demand is coming from copper.

Copper prices have surged to a record high in 2026, pushing manufacturers to consider cheaper alternatives. The copper-to-aluminium price ratio has climbed above 4.2, improving aluminium’s cost advantage in applications such as electrical wiring.

Aluminium offers around 61 per cent of copper’s electrical conductivity. However, its lower cost allows manufacturers to use thicker aluminium cables where design requirements permit.

This could support aluminium demand as manufacturers look to reduce material costs.

Citi bets on growth and lower leverage

Last month, Citi initiated coverage on Vedanta Aluminium with a Buy rating and a target price of INR 560, naming it its top Indian metals pick.

The brokerage cited a favourable aluminium outlook, growth from the BALCO expansion and Vedanta Aluminium debottlenecking, higher captive alumina, domestic bauxite and captive coal, and improving leverage.

Citi expects the company to move to a net cash position by FY28.

For now, Vedanta Aluminium remains the only laggard among Vedanta’s demerged entities. But the investment debate is increasingly split between near-term pressure from weaker aluminium prices and the longer-term potential from tighter supply, lower costs, backward integration and new demand from copper substitution. How quickly the company converts these advantages into stronger earnings and cash flow could determine whether the stock recovers from its weak post-listing start.