Buy Vedanta Ltd For Target Rs 900 By Emkay Global Financial Services Ltd
VEDL delivered a robust Q4FY26, with EBITDA of Rs184.5bn (+21.6% QoQ), driven by strong pricing-led profitability in aluminium (Al) and zinc (Zn), which together contributed ~88% of EBITDA; FY26 EBITDA grew 28.6% YoY, with a dividend of Rs34/share announced. With the demerger nearing completion, we see this as a key value-unlocking catalyst, supported by potential re-rating of pure-play entities and improved capital allocation; we particularly see upside in Aluminium and Power, while HZ appears fairly valued, limiting near-term upside for the residual VEDL. Looking ahead, with Al/Zn QTD prices trending above Q4 levels and the management guiding for cost reductions through FY27, margin expansion visibility remains strong. We maintain BUY and TP of Rs900.
Robust Q4 led by pricing strength across key metals
VEDL reported a strong Q4FY26 EBITDA of Rs184.5bn (+21.6% QoQ), broadly in line with our estimates (+1.7% vs consensus). The sequential improvement was driven by a sharp uptick in Al and Zn profitability, with segmental EBITDA rising 21% and 28%, respectively, supported by higher average prices (Al +13%, Zn +2%, Ag +51% QoQ). Notably, Al and Zn together contributed 88% of consolidated EBITDA in Q4. For FY26, EBITDA grew 28.6% YoY, largely led by favorable commodity prices, translating into a 16% YoY increase in PAT. VEDL also announced a total dividend of Rs34/share for FY26.
Demerger in-sight
With the demerger now in its final leg, record date set for 1-May-26 and listing of the four entities expected by mid-Jun, we view this as a meaningful value-unlocking trigger for shareholders. The restructuring is expected to drive upside through
1) Potential valuation re-rating, as pure-play entities typically command a premium over diversified miners
2) Improved capital allocation backed by focused management teams for each business. We see a strong re-rating case for Vedanta Aluminium and Vedanta Power. In contrast, for HZ, current valuations already appear to factor in prevailing spot price assumptions, limiting near-term upside for the residual VEDL entity that will house HZ. Importantly, the demerger is structured with clear balance sheet discipline, with debt aligned to underlying cash flows; the Oil & Gas and Iron & Steel entities will be largely net-debt free, while leverage across other businesses remains proportionate to their earnings capacity. Shareholders will receive four additional shares for every existing share, highlighting the structural reset aimed at unlocking long-term value.
Pricing and cost tailwinds ahead; maintain BUY
With Al and Zn QTD prices tracking ~13% and ~4% above Q4 averages, respectively, alongside the management’s guidance of a steady decline in unit costs through FY27, the outlook for margin expansion remains firmly intact. We, therefore, retain a constructive stance on VEDL, with our FY27/28 EBITDA estimates largely unchanged. This translates into a demerger-based SOTP valuation of Rs900, and we reiterate BUY rating.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
