Brokerage firm MOFSL (Motilal Oswal Financial Services) has initiated coverage on Vedanta Aluminium Metal Ltd., setting a 'BUY' rating and a target price of Rs 540, implying a 20% upside from current levels. MOFSL describes Vedanta Aluminium as one of the most compelling structural stories in the global aluminum sector, citing its industry-leading scale, extensive backward integration, and a clear multi-year earnings growth trajectory.
The brokerage firm believes Vedanta Aluminium is uniquely positioned to capitalize on both favorable industry dynamics and specific company drivers. The company is reportedly nearing a significant earnings inflection point, with its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) projected to achieve over an 18% Compound Annual Growth Rate (CAGR) between FY26 and FY28.
Drivers for Growth and Market Position
This anticipated growth is attributed to three simultaneous factors: volume expansion, structural cost reductions, and an increasing contribution from higher value-added products (VAPs). Globally, the aluminum market is experiencing a structural tightening due to China's production caps, supply disruptions in Europe and Russia, and years of underinvestment outside China. India's robust domestic demand growth and substantial opportunities for import substitution are expected to further bolster Vedanta Aluminium's performance.
Strategic Backward Integration and Self-Sufficiency
A core element of MOFSL's positive outlook is Vedanta Aluminium's aggressive pursuit of full self-sufficiency in bauxite and coal, which are critical inputs for aluminum production. The company has secured a bauxite mine with 300 million tonnes (MT) of reserves and five coal mines with combined reserves of 1,048 MT.
- The Sijimali bauxite mine is slated to begin operations in the second half of FY27 and reach full capacity by FY28.
- Captive coal production capacity is projected to surge from the current 2.6 million tonnes per annum (MTPA) to over 40 MTPA by FY28-29.
Furthermore, the share of value-added products (VAP) is targeted to improve significantly from the current 71% to 90% over the medium term, driven by new downstream capacity additions. This enhanced VAP mix is expected to provide a notable uplift to realizations, margins, and overall return ratios.
Financial Outlook and Risks
MOFSL forecasts strong operating cash flow generation of nearly Rs 47,000 crore during FY27-28E. This robust cash flow is anticipated to adequately fund remaining capital expenditure requirements while supporting rapid deleveraging, with net debt/EBITDA expected to decline below 1.5 times. With most of the necessary capital expenditure already incurred, the balance sheet deleveraging is likely to accelerate.
However, MOFSL also highlighted key risks to its thesis, which include execution risks related to expansion projects, volatility in aluminum prices, potential input cost inflation, and various trade-related challenges that could impact the industry.