Buy Vedanta Aluminium Metal Ltd for the Target Rs 550 by Emkay Global Financial Services Ltd
VAML delivered a strong 1QFY27, reporting record-high EBITDA of Rs105bn, broadly in line with our estimates and driven by firmer aluminium (Al) prices and sustained cost discipline. EBITDA/t expanded to $1,797 as hot metal cost declined 3% qoq to $1,698/t, while the management reiterated its FY27 cost guidance of $1,650-1,700/t. We believe the medium-term cost reduction story is intact, supported by higher captive alumina integration, commencement of captive bauxite and coal mines, and the BALCO expansion, which should drive margin expansion. 2Q earnings are likely to soften sequentially due to costrelated headwinds, the lower Al prices, and the impact of hedges—these should be partly offset by higher BALCO volumes. We maintain BUY and TP of Rs550
Strong 1Q performance
VAML posted a robust 1QFY27 print, with EBITDA coming in at a record-high of Rs105bn (+23.7% qoq, +134% yoy), broadly tracking our estimates. The strong result was driven by firmer LME aluminium prices (+11.6% qoq averaging at $3,565/t), coupled with sustained cost discipline and better operating efficiencies. On per-tonne basis, EBITDA expanded meaningfully to $1,797/t, aided by 3% qoq decline in hot metal cost to $1,698/t (vs $1,742/t in 4QFY26) despite lingering Middle East-related cost pressures. Volumes were more mixed: sales at 615kt were largely flat sequentially, while production ticked up 3.1% qoq to 632kt, pointing to some inventory buildup. Alumina production declined to 826kt from 882kt in 4Q due to stabilization issues in the power plant and bauxite handling. Below the EBITDA line, reported PAT came in at Rs56.3bn, up 33.8% qoq, translating into EPS of Rs14.4. VAML also announced interim dividend of Rs8/sh.
Cost roadmap on track despite softer 2Q outlook
While Management reiterated its FY27 hot metal cost guidance of $1,650-1,700/t, we believe the structural cost reduction story is intact, driven by higher captive alumina integration through the Lanjigarh ramp-up, commencement of captive bauxite and coal mines, and continued operational efficiencies. These, along with the BALCO potline expansion, should remain key margin catalysts over the next 12-18 months. In the near term, however, 2QFY27 earnings are likely to soften sequentially due to planned monsoon-related power plant shutdowns, an 11.6% qoq decline in aluminium prices, and the impact of hedging (28% of volumes at $3,062/t). These headwinds should be partly offset by higher volumes, with BALCO expected to contribute an incremental 260-270kt during FY27. Overall, we believe these near-term pressures are largely reflected in consensus’ FY27 estimates and, therefore, do not warrant meaningful earnings revisions
Compelling risk-reward; BUY
We believe VAML offers an attractive risk-reward, with the market underappreciating the earnings potential from deeper backward integration, structurally lower costs, and stronger FCF generation. We value the company at 6.0x FY28E EV/EBITDA, maintaining our TP of Rs550, supported by improving earnings visibility, cost leadership, and favorable Al demand fundamentals.
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