Shares of Vedanta Aluminium saw a notable increase after Emkay initiated coverage with a ‘Buy’ rating and a target price of Rs 550, citing promising medium-term prospects. The brokerage predicts a global aluminium deficit lasting until 2028, driven by robust demand and supply limitations. Emkay believes that structural cost reductions through backward integration will enhance earnings growth, positioning Vedanta Aluminium as a low-cost producer with an appealing risk-reward profile.
The newly demerged Vedanta Aluminium shares climbed as much as 3.5% to a daily high of Rs 468 on the BSE on Thursday, following Emkay’s coverage initiation with a ‘Buy’ rating and a target price suggesting a 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 stated in its coverage note.
Emkay maintains a positive outlook on Vedanta Aluminium’s medium-term prospects, citing a structurally tight global aluminium market. Although Indonesia’s planned capacity expansion has raised supply concerns, the brokerage notes that challenges related to bauxite availability, alumina refining, power infrastructure, and project financing will hinder the pace of capacity additions.
Simultaneously, China’s aluminium production is nearing its effective capacity limit of 45 million tonnes, which restricts new supply. Demand is expected to remain strong, driven by investments in power grid infrastructure, the energy transition, and increased use of lightweight materials in automobiles. Consequently, Emkay anticipates that the global primary aluminium market will remain in deficit through CY28, supporting higher aluminium prices and creating a favorable earnings environment for low-cost integrated producers like Vedanta Aluminium.
Emkay expects the next phase of earnings growth for Vedanta Aluminium to be increasingly driven by structural cost reductions rather than fluctuations in aluminium prices. The brokerage noted that the company is enhancing 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 dependence on third-party raw materials, lower input cost volatility, and improve operating leverage.
As captive bauxite and coal mines ramp up and the Lanjigarh refinery approaches full utilization, Emkay believes Vedanta Aluminium will enhance alumina self-sufficiency and structurally reduce cash costs. Supported by disciplined capital allocation and healthy cash flow generation, these strategies are also expected to facilitate deleveraging, improve return ratios, and solidify the company’s status as one of the world’s lowest-cost integrated aluminium producers.
Emkay values the company at 6x FY28E EV/EBITDA, asserting that the market is underestimating the earnings potential stemming from deeper backward integration, structurally lower costs, and stronger free cash flow generation. However, it identified weak aluminium prices, high energy costs, delays in integration, and adverse regulatory developments as key risks to its investment thesis.
Vedanta Aluminium Metal is recognized as the largest aluminium producer in India, as well as in the US, Europe, the Middle East, Australia, and Africa. The company reported production of over half of India’s aluminium at 2.42 million tonnes in FY25, according to its website.
It operates a 5 MTPA alumina refinery in Kalahandi district, Odisha, and the world’s largest aluminium plant in Jharsuguda, Odisha, with a capacity of 1.85 MTPA. Additionally, it manages Bharat Aluminium Company Limited (BALCO) in Chhattisgarh.
Prior to the market debut, ICICI Direct highlighted Vedanta Aluminium as the most attractive entity, supported by its significant contribution to group revenues and margins, along with favorable industry dynamics such as tight global supply, elevated aluminium prices, and ongoing capacity expansions driving volume growth.
ICICI Securities also expressed strong optimism about the aluminium sector, suggesting that the Iran-US conflict could lead to a larger-than-expected aluminium supply deficit. They referred to Vedanta Aluminium as the group’s new “crown jewel.”
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Source: economictimes
