Vedanta Ltd., flags aluminium cost pressure as West Asia tensions cloud FY27 outlook

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The concern for new pressure for FY27 has been flagged by Vedanta Ltd., which is the result of the ongoing conflict involving the US, Israel and Iran. Due to this, aluminium production costs may push up by USD 50 to USD 100 per tonne in the first half of FY27. The firm raised this concern while projecting the annual aluminium production costs, which were deemed to be between USD 1,650 and USD 1,700 per tonne.

Base metals prices saw an uptick in the quarter ending on March 31, mainly because of the supply disruption associated with the ongoing conflict in the Middle East. The firm's aluminium, which is deemed to be one of the largest in India, is said to hold around 40 per cent of its revenue stream.

Also read: Pallavi Bhatia joins Vedanta to lead HR for the aluminium division

Firm’s AL output expectation

An increase in the overall aluminium production is expected by the firm and it may reach between 2.6 and 2.7 million tonnes in FY27, up from 2.46 million tonnes in FY26. Moreover, the firm expects its alumina output to be somewhere around 4 to 4.1 million tonnes. This increase in production indicates that the firm may secure some growth irrespective of the current geopolitical cost challenges.

Strong Q4 revenue performance

Irrespective of receiving the usual cautionary advice, the firm reported a supported structured quarterly result. In this, the profit soared by 92.3 per cent year-on-year, mainly due to the strong base metal price realisations across the portfolio.

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The firm's total revenue also increased by 29.5 per cent and has reached INR 515.24 billion (USD 6.21 billion). Here, the aluminium segment contributed 17.4 per cent year-on-year. This surge is owed to both the favourable pricing trends and enhanced operational performance.

Despite crucial challenges, it is expected by the firm that the aluminium output will increase between 2.6 and 2.7 million tonnes in FY27, up from 2.46 million tonnes in FY26. Additionally, the firm's alumina production is deemed to be between 4 and 4.1 million tonnes. This shows that the operational confidence even as the geopolitical landscape brings some pricing uncertainty.

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Firm's demerger strategy

Post the firm's board of directors gave permission for a structural overhaul, the demerger came into place.

Earlier this month, the firm announced the split into four separate publicly traded entities, starting May 1. This indicates that the firm is planning to spin off its steel and ferrous metals, oil and gas, aluminium, and power sectors into independent companies. Meanwhile, the base metals division will stay with the parent company.

With this restructuring, the firm aims to unlock value by providing investors with clear and focused access to each business segment. However, the aluminium spin-off will now face a market where cost visibility for the first half of the year is more uncertain than usual.

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