Nuvama Institutional Equities has initiated coverage on Vedanta Aluminium Metal Ltd (VAML) with a 'Buy' recommendation, setting a target price of Rs 540. The brokerage values the Vedanta group stock at 6.5 times its estimated FY28 EV/EBITDA, forecasting substantial growth for the company.
The positive outlook for Vedanta Aluminium stock is underpinned by several key factors. Nuvama projects a compounded annual EBITDA growth of 29 percent for VAML between FY26 and FY28. This growth is expected to be fueled by a significant reduction in the cost of production, sustained strong aluminium prices, strategic deleveraging efforts, and an anticipated increase in dividend payouts.
Lower Production Costs and Firm Aluminium Prices
One of the primary drivers for Nuvama's optimistic view is Vedanta Aluminium's path towards structurally lower hot metal production costs. The firm anticipates the cost of production (CoP) to fall from $1,749 per tonne in FY25 to $1,587 per tonne by FY28, primarily due to enhanced backward integration. This reduction is expected to boost profitability significantly, exceeding historical averages.
Furthermore, Nuvama expects aluminium prices to remain firm until FY28, with supply tightness potentially easing only in the second half of FY28. The brokerage forecasts an average LME aluminium price of $3,200 per tonne in FY27 and $3,000 per tonne in FY28, a notable increase from the FY22–26 average of $2,553 per tonne. This stable pricing environment, combined with increasing blended realization, is crucial for VAML's revenue growth.
Strong Balance Sheet and Higher Dividends
Vedanta Aluminium is also poised for a stronger financial position, with Nuvama projecting a net debt/EBITDA ratio of 0.1 times by FY28, a sharp improvement from 1.5 times in FY26. This lean balance sheet provides considerable flexibility for future growth initiatives. The company is expected to generate significant operating cash flow of Rs 49,500 crore, which will comfortably cover the estimated capital expenditure of Rs 16,000 crore during FY27 and FY28. The resulting free cash flow of Rs 33,500 crore is likely to be allocated towards further deleveraging and higher dividend payments.
Shareholders can anticipate robust returns, with Nuvama estimating a dividend per share of Rs 15 in both FY27 and FY28. This commitment to higher dividends is a key trigger for the 'Buy' recommendation.
Volume Growth and Market Position
Vedanta Aluminium, identified by Nuvama as India's fastest-expanding primary aluminium company, is also set for volume growth. The phased commissioning of a 435ktpa aluminium smelter at its 51 percent subsidiary, Balco, by the end of FY27, is expected to drive an 8 percent CAGR in volume over FY26-28, reaching 2.86 million tonnes. This expansion, coupled with favorable market conditions, solidifies VAML's position in the industry.