- Target
- ₹560
- At report
- ₹413+36% printed
- Vs our close
- +28.9%
JM Financial initiates coverage on Vedanta Aluminium Metal (VAML), India's largest primary aluminium producer and newly standalone-listed post the group demerger, with a BUY and TP of INR 560 (6.5x FY28E EV/EBITDA), implying ~36% upside. The thesis centers on brownfield volume growth (BALCO expansion and Jharsuguda debottlenecking) already funded, backward integration into captive coal and bauxite structurally lowering costs, and a sharp balance-sheet deleveraging as capex moderates.
- Brownfield capacity already built lifts aluminium volumes to ~2.9mt by FY29E (a ~6% CAGR over FY26-29E) with BALCO providing the bulk of the increment, without requiring a fresh capital cycle since the projects have already absorbed the bulk of required capex
- Backward integration into captive coal (Kuraloi, Ghogarpalli, Radhikapur mines) and captive bauxite (Sijimali feeding Lanjigarh) should structurally reduce dependence on merchant alumina and coal, making the cost base and margins less exposed to input-price volatility
- EBITDA is expected to compound ~21% and adjusted earnings ~27% over FY26-29E, well ahead of ~12% revenue growth, as fixed costs are spread over a larger production base (EBITDA/t rising from USD 1,145 to USD 1,556 over FY26-29E)
- Sharp balance-sheet deleveraging expected as capex moderates to maintenance levels: consolidated net debt to decline from INR 367bn (FY26A) to a net cash position of INR -174bn by FY29E, with net debt-attributable reaching INR -80bn
- Scale advantage is significant — FY26 aluminium sales of ~2.45mt vs Hindalco's ~1.35mt and Nalco's ~0.46mt — though EBITDA/t (USD 1,145 in FY26) still trails Hindalco (USD 1,583) and Nalco (USD 1,468), leaving a cost-convergence opportunity as Sijimali and captive coal ramp up
- Strong Q1FY27 print: net sales up 11.9% QoQ to INR 213.9bn, EBITDA up 23.3% QoQ to INR 103.0bn at 48.1% margin (+440bps QoQ), adjusted PAT up 23.6% QoQ to INR 56.3bn
- Aluminium price is the dominant variable; JM's price deck sits above the FY21-26 average realised price, and reversion toward that average would render forecasts and TP unsupportable
- BALCO ramp-up concentration risk: a 12-month slippage in the energisation schedule would defer ~200kt and a material slice of FY28E earnings
- Sijimali and the bauxite chain must ramp from nil to meaningful volumes; delay would force continued reliance on imported bauxite, raising Lanjigarh's cost of production
- Captive coal execution risk: production must rise many-fold while e-auction purchases fall away; the revenue-share percentage bid for commercial coal blocks is flagged as requiring primary verification
- Capital allocation risk: by end of forecast the balance sheet carries substantial idle cash against modest payout with no committed growth programme, raising the risk of low-return deployment (acquisition/related-party transaction) given the wider Vedanta group structure
- Regulatory and environmental exposure to coal levies, revenue-share terms, carbon pricing and renewable purchase obligations, which JM flags as lacking primary disclosure to assess
- Net Sales INR 213,930 mn, up 46.0% YoY and 11.9% QoQ
- Aluminium volumes 632kt, up 4.6% YoY / 3.1% QoQ; blended realisations INR 3,578/t (+26.2% YoY)
- EBITDA INR 102,990 mn, up 134.8% YoY / 23.3% QoQ; EBITDA margin 48.1% (vs 29.9% Q1FY26, 43.7% Q4FY26); EBITDA/t INR 1,723
- Adjusted PAT INR 56,290 mn, up 216.1% YoY / 23.6% QoQ; EPS INR 14.4
- Management reaffirmed FY27 hot metal cost guidance of USD 1,650-1,700/t; purchased alumina cost trending toward USD 750/t
- BALCO brownfield energisation lifting installed capacity from 2,440kt (FY26) to 3,025kt by FY28E
- Commissioning of additional captive coal mines (Kuraloi, Ghogarpalli, Radhikapur) reducing reliance on linkage/e-auction coal
- Sijimali captive bauxite ramp-up feeding Lanjigarh, reducing purchased alumina cost (management guides an additional USD 175-200/t cost reduction over the next 3-4 quarters, ~70% from alumina/bauxite integration)
- Net debt reduction toward a net cash position, potentially supporting a valuation re-rating
| Broker estimates | Unit | FY25A | FY26A | FY27E | FY28E | FY29E |
|---|---|---|---|---|---|---|
| Net Sales | ₹ mn | 5,85,250 | 6,58,470 | 8,48,160 | 8,99,712 | 9,20,088 |
| EBITDA | ₹ mn | 1,74,260 | 2,51,420 | 3,96,422 | 4,20,086 | 4,39,946 |
| EBITDA Margin | % | 29.8 | 38.2 | 46.7 | 46.7 | 47.8 |
| Adjusted Net Profit | ₹ mn | 70,040 | 1,21,380 | 2,20,613 | 2,35,597 | 2,48,621 |
| Diluted EPS | ₹ | 17.9 | 31 | 56.4 | 60.2 | 63.6 |
| ROIC | % | 42.3 | 30.4 | 44.6 | 43.8 | 44.9 |
| ROE | % | 187.2 | 118.3 | 104.4 | 61.9 | 44.1 |
| P/E | x | 23.1 | 13.3 | 7.3 | 6.9 | 6.5 |
| P/B | x | 21.6 | 12.4 | 5.5 | 3.4 | 2.4 |
| EV/EBITDA | x | 12 | 8.3 | 5.1 | 4.4 | 3.8 |
| Net Debt/EBITDA | x | — | — | 0.6 | 0.1 | — |
| Dividend Per Share | ₹ | — | — | 15 | 15 | 15 |
Valuation: EV/EBITDA (6.5x FY28E). JM applies 6.5x FY28E attributable EBITDA of INR 352bn to derive Total EV of INR 2,285bn; after subtracting FY28 attributable net debt of INR 101bn, target market cap of INR 2,184bn divided by 3,910mn shares gives a TP of INR 560/share, implying ~36% upside. EV/EBITDA was chosen over P/E because VAML is a single-commodity cyclical producer and consolidated EBITDA diverges from shareholder earnings due to BALCO minority interest. This is an initiating coverage report; the current TP of INR 560 (previous reco also BUY) is down 9.7% from a previously referenced TP of INR 620 shown on the cover recommendation box, though no prior published estimate history is otherwise detailed in the report.
Extraction note: Vedanta Aluminium Metal (VAML) is treated as this report's single subject company mapped to companyId 'vedanta-aluminium'; perCompany is null since this is a single-name report. There is a labeling inconsistency in the source PDF's early financial summary tables: the first-appear…