Vedanta Aluminium Metal Ltd has received an 'Outperform' rating from CLSA, as the foreign brokerage began its coverage on the Vedanta group firm. CLSA has set a target price of Rs 540, citing a sustained aluminium upcycle and strong operational tailwinds for the company.
Aluminium Upcycle Driven by Demand and Supply Constraints
CLSA's optimistic outlook for Vedanta Aluminium is underpinned by its view of a 'higher for longer' aluminium cycle. The brokerage points to resilient demand from electrification and substitution-led end markets, coupled with constrained supply growth, creating a tight market balance.
The analysis suggests that incremental global aluminium supply is expected to remain modest, with projections of approximately 1.5 million tonnes in 2026 and 1.9 million tonnes in 2027, primarily driven by additions in Indonesia. Furthermore, concentrated and volatile upstream inputs are anticipated to elevate cost pressures and supply risks, thereby supporting a prolonged period of elevated aluminium prices.
CLSA expects Vedanta Aluminium's backward integration efforts to significantly enhance its position on the global cost curve, potentially placing it within the first decile. This, combined with visible near-term volume growth, is expected to drive strong free cash flow generation. These robust cash flows, even with aluminium LME prices at a discount to spot, are projected to support deleveraging and consistent dividend payouts.
Other Brokerages Also Bullish on Vedanta Aluminium
CLSA is not alone in its positive assessment of Vedanta Aluminium. Another foreign brokerage, Citi, recently initiated coverage with a 'Buy' rating and a target price of Rs 560. Citi highlighted several drivers, including a positive aluminium outlook, substantial growth potential, a strong focus on cost efficiency, and improving leverage.
Citi's commodities team believes the aluminium market is currently in a deficit, anticipating a sharp draw-down in inventories over the next three to six months. This could drive aluminium prices up by 15-20 percent, potentially reaching $4,000 per tonne in a base-case scenario. The firm incorporates FY27/FY28 aluminium prices at $3,400 per tonne, noting that every $100 per tonne change in LME prices impacts EBITDA by 4-5.5 percent and fair value by Rs 30 per share. Citi has named Vedanta Aluminium as its top India metals pick.
Kotak Institutional Equities also initiated coverage on the stock with a 'Buy' rating on June 17, suggesting a fair value of Rs 600. Kotak emphasized that the structural deficit in the aluminium market and elevated prices should further bolster earnings growth, while strong free cash flow is expected to drive rapid deleveraging and higher shareholder returns.
“Strong FCF generation (even after assuming aluminium LME at a discount to spot) is likely to support deleveraging and dividend payout. Our TP of Rs 540 is based on 6x FY28CL EV/Ebitda. Every $100/T change in aluminium price impacts our valuation by 7 per cent,” CLSA noted.