Buy Vedanta Aluminium Metal Ltd For Target Rs.498 By Geojit Financial Services Ltd
BALCO expansion nearing full capacity
Vedanta Aluminium Metal produces alumina and aluminium products and serves aerospace, defence, transport and packaging sectors.
* Consolidated revenue rose 46.0% YoY to Rs. 21,393cr, supported by higher aluminium volumes, improved realizations, and the BALCO expansion ramp-up.
* Aluminium production rose 4.5% YoY to 632kt in Q1FY27 from 605kt with BALCO rising 16.7% YoY to 168kt on a new smelter ramp-up; JSG was stable at 464kt.
* Alumina production increased 41% YoY to 826kt in Q1FY27, driven by higher volumes from the 3 MTPA circuit, while cost of production rose 3% QoQ to $373/t due to FO price headwinds from the Middle East conflict.
* EBITDA grew 134.8% YoY to Rs. 10,299cr, while EBITDA margin expanded 1,820bps YoY to 48.1%, driven by revenue growth, operating leverage, cost efficiencies and improved product mix.
* Reported profit after tax climbed 205.1% YoY to Rs. 6,597cr, supported by strong operating profitability and higher EBITDA.
Outlook & Valuation
Vedanta Aluminium delivered a strong performance driven by the BALCO smelter ramp-up, record value-added product (VAP) output, and improved captive alumina utilisation from the expanded refinery circuit. Going forward, commissioning of the Sijimali bauxite mine post-monsoon, targeted hot metal cost reduction through backward integration, Kuraloi coal block operationalisation and the proposed greenfield smelter expansion will likely strengthen operational efficiency, cost competitiveness, and volume, notwithstanding ongoing geopolitical tensions. Management guided higher alumina production in the coming quarters and targets increased domestic market penetration with enhanced VAP mix towards its longterm goal. The deleveraging trajectory and robust free cash flow generation further support long-term shareholder value creation. Therefore, we assign a BUY rating on the stock with a target price of Rs. 498, based on 5.2x FY28E EV/EBITDA.
Key concall highlights
* Sijimali bauxite mine received an environmental clearance; the mining lease and consent to operate is expected within months, with production targeted to commence post-monsoon in Q3/Q4 FY27.
* The mine is expected to produce 1–2 million tonne in FY27 and ramp up to 6–7 million tonne in FY28, delivering $40–$50 per tonne cost reduction at alumina level versus imported bauxite.
* Lanjigarh alumina refinery is currently operating at 70–72% utilisation; management is targeting ramp-up to 90% capacity utilisation as the 3 MTPA circuit stabilises further.
* Management guided hot metal cost reduction of $175–$200/t over the next 3–4 quarters from the current $1,700/t, with ~70% from alumina plus bauxite integration and ~30% from captive coal linkage improvements.
* Total FY27 capital expenditure for Vedanta Aluminium guided at approximately Rs. 5,000cr, with spending allocated across growth projects and ongoing maintenance requirements.
* Management is targeting continued growth from the BALCO expansion, increased VAP mix, and domestic market penetration as key revenue and margin levers.
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