Nuvama Securities has initiated coverage on Vedanta Aluminium with a price target of Rs 540, citing potential for growth through capacity expansion and lower production costs. Investors may monitor the company’s ability to reduce debt through internal cash generation and captive raw material sourcing over the next two years.
Nuvama Securities has started tracking Vedanta Aluminium Metal, a demerged entity of Vedanta, with a target price of Rs 540. The brokerage’s outlook is based on expectations that the company can improve its operational efficiency and financial health as it grows its production capacity.
Capacity Expansion and Production Goals
Vedanta Aluminium is currently working on increasing its output to 2.8 million tonnes per annum by the end of FY27. This growth is largely driven by a new 435 kilotons per annum project at its subsidiary, BALCO, which is approaching its commissioning phase. Beyond this, the company plans to use technical improvements to boost its capacity further to 3 million tonnes by FY28. These efforts are expected to support a compound annual production growth rate of 8% between FY26 and FY28, which could help the company gain a larger share in the domestic aluminum market.
Impact of Lower Costs and Debt
A central part of the company's plan is to reduce the cost of producing hot metal. Nuvama expects these costs to drop from the $1,914 per tonne average seen between FY22 and FY26 to under $1,600 per tonne by FY28. The company aims to achieve this by increasing its internal supply of key raw materials like alumina, coal, and bauxite from the Sijimali mine.
If successful, these cost savings combined with rising production volumes could lead to higher profits. The company's earnings before interest, taxes, depreciation, and amortization—a measure of operational profit—is projected to reach Rs 41,900 crore by FY28. This expected cash generation is also tied to the company's goal of significantly lowering its net debt from an estimated Rs 37,500 crore in FY26 to Rs 3,400 crore by FY28.
Risks and Investor Monitorables
While the outlook highlights growth and debt reduction, investors should remain aware of the risks inherent in the commodity sector. Aluminum prices are influenced by global supply and demand dynamics, which can be volatile and impact profit margins. Furthermore, the company’s ability to reduce its debt depends on the successful and timely commissioning of its expansion projects and the smooth operation of its new captive mines. Any delays in bringing these assets online or unexpected increases in operational costs could pressure the company’s balance sheet. Investors may track the company’s upcoming quarterly performance and management commentary regarding the status of the Sijimali mine and the commissioning timeline for the BALCO expansion.