Nuvama Institutional Equities has initiated coverage on Vedanta Aluminium Metal Ltd (VAML), the recently demerged aluminium business of Vedanta, with a 'Buy' rating. The brokerage firm set a target price of Rs 540 for VAML shares, suggesting a potential 21% upside from its previous close of Rs 444.45.
According to a report released on July 12, 2026, Nuvama anticipates VAML's EBITDA to grow at a robust compound annual growth rate (CAGR) of 29% between fiscal years 2026 and 2028. This optimistic outlook is attributed to several factors, including strong earnings growth prospects, structural cost reductions, and a sustained favorable environment for global aluminium prices.
Favourable Aluminium Market Outlook
The brokerage believes that global aluminium prices will remain supported until the first half of FY28, primarily due to an expected market deficit. Despite recent price corrections, which saw aluminium retreat from approximately $3,800 per tonne to around $3,060 per tonne, Nuvama noted that a meaningful recovery in supply has yet to materialize. This keeps market fundamentals favourable for VAML.
Nuvama's analysis suggests that supply from West Asia will only fully recover by the second half of FY28, with additional production from Indonesia potentially pushing the global market into surplus by FY29. For its projections, the firm assumed average London Metal Exchange (LME) aluminium prices of $3,200 per tonne for FY27 and $3,000 per tonne for FY28.
Capacity Expansion Driving Volume
Vedanta Aluminium Metal is poised to outperform its domestic peers in production growth, propelled by ongoing capacity expansion projects. The company is currently commissioning a 435,000-tonne-per-annum (TPA) aluminium expansion at its subsidiary BALCO. This initiative is expected to boost the group's overall production capacity to 2.8 million tonnes annually by the end of FY27.
Management further plans to debottleneck operations, aiming to reach a total capacity of 3 million tonnes per annum by the end of FY28. As a result of these expansions, Nuvama forecasts VAML's aluminium volumes to grow at an 8% CAGR between FY26 and FY28, reaching approximately 2.86 million tonnes.
Backward Integration for Cost Efficiency
A significant driver for VAML's improved profitability is its strategic focus on structural cost reduction through greater backward integration across its raw material and energy supply chain. Nuvama expects the company's hot metal cost of production (CoP) to decline substantially, falling below $1,600 per tonne by FY28 from $1,749 per tonne in FY26.
This reduction is anticipated to be driven by:
- Higher utilization of captive alumina, projected to meet around 87% of the company's requirement by FY28, up from 62% in FY26.
- The commissioning of the 9 million tonne per annum Sijimali bauxite mine from the third quarter of FY27.
- Phased commissioning of nearly 40 million tonnes per annum of captive coal capacity through FY29.
Strong Financial Prospects
The combined effect of lower production costs, increased volumes, and firm aluminium prices is expected to significantly enhance VAML's financial performance. Nuvama projects the company's EBITDA to reach approximately Rs 419 billion by FY28, aligning with the 29% CAGR forecast over FY26-FY28.
The brokerage estimates that VAML will be able to sustain an EBITDA of more than $1,100 per tonne, even if aluminium prices moderate to around $2,600 per tonne, which is well above its historical average profitability. Strong operating cash flows coupled with relatively modest capital expenditure are also expected to substantially improve VAML's balance sheet. Net debt is projected to decline sharply from Rs 375 billion in FY26 to around Rs 34 billion by FY28, resulting in an estimated net debt-to-EBITDA ratio of just 0.1 times, providing considerable flexibility for future expansion and shareholder returns. Nuvama also included an expected dividend of Rs 15 per share for both FY27 and FY28 in its valuation.