Synopsis : Nuvama has initiated coverage on Vedanta Aluminium with a Buy rating and a ₹540 target price, implying nearly 22% upside. Here's why the brokerage believes lower costs, capacity expansion, and a sharp reduction in debt could drive the next leg of growth.
India's aluminium sector may be entering a fresh growth cycle, and one newly listed company is emerging as a key beneficiary.
Following the Vedanta demerger, Vedanta Aluminium Metal has become a pure-play aluminium producer, allowing investors to directly participate in one of India's largest primary aluminium businesses.
Now, brokerage firm Nuvama Institutional Equities has initiated coverage on the stock with a 'Buy' rating and a target price of ₹540, implying an upside potential of nearly 22% from current levels.
According to the brokerage, the company's next phase of growth will be driven by higher production volumes, structurally lower costs, improving profitability, and a significantly stronger balance sheet.
Why Nuvama Is Bullish
Nuvama believes Vedanta Aluminium is entering a multi-year earnings expansion cycle.
According to the brokerage,
"Vedanta Aluminium Metal is the fastest expanding primary aluminium company in India wherein EBITDA is likely to compound at 29% over FY26-28E."
The report expects operational improvements to translate into stronger cash generation over the next few years.
Aluminium Prices Could Stay Supportive
Commodity prices remain one of the biggest earnings drivers for aluminium companies.
Nuvama believes global aluminium fundamentals continue to remain favourable.
Although aluminium prices corrected recently amid expectations that shipping through the Strait of Hormuz would normalize, the brokerage noted that actual supply conditions remain tight.
According to the report, the global aluminium market is expected to remain in deficit until the first half of FY28, supporting firm aluminium prices.
Only after additional production from Indonesia and gradual supply normalization from West Asia does the brokerage expect the market to move towards surplus.
Capacity Expansion Continues
Production growth is another major trigger.
Nuvama highlighted that Vedanta Aluminium's 435,000 tonnes per annum expansion at BALCO is currently under commissioning.
Once operational, the company's total aluminium production capacity will rise to around 2.8 million tonnes per annum by FY27.
Management also plans to increase capacity further to nearly 3 million tonnes per annum by FY28 through debottlenecking initiatives.
As a result, aluminium production volumes are expected to grow at nearly 8% CAGR between FY26 and FY28, significantly ahead of most domestic peers, whose production growth remains largely flat.
Structural Cost Reduction Could Lift Margins
Perhaps the biggest driver of profitability is expected to be lower production costs.
Nuvama estimates that Vedanta Aluminium's Cost of Production (CoP) could decline materially over the next few years.
The brokerage noted,
"The company recorded average hot metal CoP of around $1,914 per tonne over FY22-FY26, which is likely to fall below $1,600 per tonne on a structural basis from FY28 onwards."
This improvement is expected to come from:
- Higher captive alumina production
- Start of the Sijimali bauxite mine
- Greater availability of captive coal
- Reduced dependence on external raw material suppliers
Lower costs could significantly improve operating margins even if aluminium prices remain volatile.
EBITDA Expected To Grow Rapidly
Higher production combined with lower costs is expected to translate into strong earnings growth.
Nuvama projects:
- EBITDA CAGR of nearly 29% between FY26-FY28
- EBITDA reaching approximately ₹41,900 crore by FY28
The brokerage believes this could substantially strengthen free cash flow generation.
Debt Could Collapse
One of the biggest positives highlighted in the report is the expected improvement in the balance sheet.
According to Nuvama,
- Net debt is estimated at around ₹37,500 crore in FY26
- It could decline to nearly ₹3,400 crore by FY28
This sharp deleveraging is expected to be driven by:
- Strong operating cash flows
- Lower capital expenditure after ongoing expansion projects
- Higher profitability
A healthier balance sheet could also improve the company's financial flexibility over the medium term.
Dividend Outlook
Alongside debt reduction, Nuvama expects Vedanta Aluminium to continue rewarding shareholders.
The brokerage estimates a Dividend Per Share (DPS) of around ₹15 for both FY27 and FY28.
Valuation
Nuvama values Vedanta Aluminium at:
- 6.5x FY28 EV/EBITDA
- Target Price: ₹540
According to the brokerage, the stock is currently trading at roughly 5.4x FY28 EV/EBITDA, leaving room for valuation expansion if execution remains on track.
Final Take
Vedanta Aluminium's investment story is increasingly shifting beyond just aluminium prices.
With expanding production capacity, structurally lower manufacturing costs, improving cash generation, rapid debt reduction, and supportive global aluminium fundamentals, the company appears well positioned for the next phase of growth.
Execution, however, will remain the key monitorable. Investors will be watching whether management successfully delivers the planned capacity additions, cost reductions, and debt repayment over the next two years.
Disclaimer :This article is for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any security. The views, target price, and estimates mentioned are based on Nuvama Institutional Equities' research report. Commodity-linked businesses are subject to fluctuations in global prices, demand, input costs, regulatory developments, and execution risks. Investors should conduct their own research and consult a SEBI-registered investment advisor before making any investment decisions.
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