Newly demerged Vedanta Aluminium shares jumped as much as 3.5% to their day’s high of Rs 468 on the BSE on Thursday after Emkay initiated coverage with a Buy rating and a target price of Rs 550 (22% upside) from current market levels.
“We believe the market is yet to fully appreciate its structural earnings potential. We remain constructive on the medium-term aluminium outlook, with the global market likely to remain in deficit through CY28 despite Indonesia's announced capacity additions, given execution bottlenecks and China's effective 45mt production cap,” the domestic brokerage said in its coverage note.
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Structural demand for metals
Emkay remains positive on Vedanta Aluminium's medium-term outlook, citing a structurally tight global aluminium market. While Indonesia's planned capacity expansion has raised supply concerns, the brokerage believes constraints related to bauxite availability, alumina refining, power infrastructure and project financing will slow the pace of capacity additions.
At the same time, China's aluminium production is approaching its effective capacity limit of 45 million tonnes, restricting fresh supply. Demand, however, is expected to stay strong, driven by investments in power grid infrastructure, the energy transition and increased use of lightweight materials in automobiles. As a result, Emkay expects the global primary aluminium market to remain in deficit through CY28, supporting higher aluminium prices and creating a favourable earnings environment for low-cost integrated producers like Vedanta Aluminium.
Cost curve improves
Emkay expects Vedanta Aluminium's next leg of earnings growth to be driven increasingly by structural cost reductions rather than aluminium prices. The brokerage said the company is strengthening backward integration across bauxite mining, alumina refining, captive coal and power, while also expanding its smelting and refining capacities. These initiatives are expected to reduce reliance on third-party raw materials, lower input cost volatility and improve operating leverage.
As captive bauxite and coal mines scale up and the Lanjigarh refinery moves towards full utilisation, Emkay believes Vedanta Aluminium will improve alumina self-sufficiency and structurally lower cash costs. Supported by disciplined capital allocation and healthy cash flow generation, these measures are also expected to aid deleveraging, improve return ratios and reinforce the company's position as one of the world's lowest-cost integrated aluminium producers.
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Favourable risk reward
Emkay values the company at 6x FY28E EV/EBITDA. The brokerage believes the market is underestimating the earnings potential from deeper backward integration, structurally lower costs and stronger free cash flow generation. It identified weak aluminium prices, elevated energy costs, delays in integration and adverse regulatory developments as key risks to its investment thesis.
Vedanta Aluminium Metal is the largest aluminium producer in India, as well as in the US, Europe, the Middle East, Australia and Africa, according to the company. It produced more than half of India’s aluminium at 2.42 million tonnes in FY25, its website said.
It operates a 5 MTPA alumina refinery in Odisha’s Kalahandi district, along with the world’s largest aluminium plant at Jharsuguda, Odisha, with a 1.85 MTPA capacity. It also operates Bharat Aluminium Company Limited (BALCO) in Chhattisgarh.
Before the market debut, ICICI Direct said that Vedanta Aluminium stood out as the most attractive entity. “This is supported by its strong contribution to group revenues and margins, along with favourable industry dynamics such as tight global supply, elevated aluminium prices, and ongoing capacity expansions driving volume growth,” it added.
ICICI Securities was also the most bullish on the aluminium business, saying the Iran-US conflict could result in a larger-than-expected aluminium supply deficit. It called Vedanta Aluminium, the group’s new “crown jewel”.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
