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Operational performance in line; lower finance cost and higher other income drive APAT beat

* Vedanta (VEDL) reported consolidated net sales of INR378b (+6% YoY and - 7% QoQ), in line with our estimates. The QoQ growth was driven by softer output commodity prices and lower volumes.

* VEDL’s consolidated EBITDA came in at INR99b (flat YoY and -14% QoQ), in line with our estimate of INR100b. EBITDA was driven by lower output commodity prices and volumes, partially offset by lower input costs. EBITDA margin for 1QFY26 stood at 26.2%, compared to 28.3% in 4QFY25 and 27.8% in 1QFY25.

* APAT for the quarter stood at INR32b (-12% YoY and -9% QoQ), beating our estimate of INR25b, led by lower finance cost and higher other income.

* Gross debt stood at INR803.6b, while net debt stood at INR582.2b, implying net debt/EBITDA of 1.3x in 1QFY26 vs 1.2x in 4QFY25.

Segment highlights

Aluminum:

* VEDL produced 605kt of Aluminum, registering +1% YoY growth and remaining flat QoQ, whereas Alumina production from the Lanjigarh refinery grew 9% YoY and 36% QoQ to 587kt in 1QFY26.

* Net sales stood at INR146b (+8% YoY and -9% QoQ), in line with our est.

* Reported EBITDA came in at INR44.6b (flat YoY and -4% QoQ), in line with our est. of INR44.1b during the quarter.

* The aluminum cost of production stood at USD1,765/t (+3% YoY and -12% QoQ).

Zinc India (HZL):

* Revenue stood at INR77.7b (-4% YoY and -15% QoQ), in line with our est. of INR75.7b in 1QFY26. The decline was driven by lower volumes and commodity prices, which were offset by higher silver and by-product prices with a stronger dollar.

* EBITDA came in line at INR38.6b (-2% YoY and -20% QoQ) during the quarter. EBITDA margin softened to 49.7% in 1QFY26 vs 53% in 4QFY25 and 48.5% in 1QFY25. The decline was primarily on account of weak volumes and softened commodity prices.

* Zinc COP for the quarter stood at USD1,010/t, declining 9% YoY (+2% QoQ), due to improved metal grades, better domestic coal, and renewable energy consumption.

* APAT stood at INR22.3b (-5% YoY and -25.6%) against our est. of INR21.5b.

* Mined metal for the quarter stood at 265kt (flat YoY and -15% QoQ), led by mine preparation activities being carried out.

* Refined metal production stood at 250kt (-5% YoY and -7% QoQ - Refined zinc/lead production of 202/48kt), in line with plant availability and attributed to maintenance activities.

* Saleable silver production declined 11% YoY and 16% QoQ to 149kt, majorly due to lower silver input from the SK mine and in line with lead production.

Zinc International:

* Mined metal production surged 54% YoY and 14% QoQ to 57 kt, driven by higher input treated at Gamsberg and higher BMM lead and zinc grades.

* In 1QFY26, revenue stood at INR11.5b, up 53% YoY and 4% QoQ; EBITDA came in at INR4b, up 128% YoY and 4% QoQ, led by CoP declining 21% YoY to USD1,269/t (flat QoQ) in 1QFY26.

Copper:

* Copper cathodes production stood at 44kt, up 120% YoY and 2% QoQ in 1QFY26.

* Revenue came in at INR64b (+34% YoY and +3% QoQ) in 1QFY26.

* EBITDA reported a loss of INR260m in 1QFY26, against the loss of INR570m in 1QFY25 and INR490m in 4QFY25.

Iron Ore:

* Saleable ore production stood at 1.8mt, up 38% YoY and down 14% QoQ; Pig Iron production was at 213kt, up 4% YoY and QoQ.

* Revenue stood at INR13.3b (+1% YoY and -13% QoQ), while EBITDA stood at INR2b (+11% YoY and -34% QoQ).

Highlights from the management commentary

* Despite soft global commodity prices, management remains optimistic over domestic pricing, led by strong domestic demand for aluminum and zinc.

* Power realizations at Meenakshi and Athena are expected to remain strong at INR5-5.7/unit, supported by short-term PPAs.

* Domestic market demand remains a key lever, with 75% of zinc and 65% of aluminum sales consumed within India, limiting the exposure to US tariffs.

* Vedanta expects aluminum CoP to fall below USD1,700/t in 2HFY26, aided by higher captive alumina share and low power costs. Alumina cost is likely to decline USD80-100/t over the next two quarters, driven by increased output from Lanjigarh. ~ 60% of the cost reduction will come from the increased captive mix at Lanjigarh, while the remaining 40% will be due to softer market alumina prices.

* Power cost is projected to remain at around USD500/t, though 2QFY26 may see a temporary rise due to planned maintenance at power plants.

Valuation and view

* VEDL’s 1QFY26 performance came largely in line across segments. Capex plans are progressing well and will likely lead to further cost savings.

* Management targets to maintain strong growth in earnings, led by the upcoming capacity, which will produce higher VAP products. VEDL remains firm on its deleveraging plans, and going forward, higher cash flows will support both its expansion plans and deleveraging efforts. The stock currently trades at 5x FY27E EV/EBITDA. We have maintained our estimates for FY26/27. We reiterate our Neutral rating on the stock with a SoTP-based TP of INR480.

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