Vedanta Aluminum earnings strengthen as BALCO volumes and integration support margins

Investment View and Earnings Outlook

Motilal Oswal Financial Services, in its July 30, 2026 1QFY27 results update, retained its BUY rating on Vedanta Aluminum with a target price of Rs 540, compared with the then-current market price of Rs 457. The broker believes the company’s backward integration, rising contribution from value-added products and robust domestic aluminium-demand outlook provide visibility on medium-term earnings growth and cash-flow generation.

Motilal Oswal expects Indian aluminium demand to grow at an 8-9% CAGR to 8-8.5 mt by FY30, supported by infrastructure development, electrification, automotive demand, renewable-energy investment and manufacturing growth. India’s dependence on aluminium imports also creates an import-substitution opportunity for domestic producers.

1QFY27 Financial and Operating Performance

Vedanta Aluminum reported 1QFY27 revenue of Rs 21,390 crore, up 8% year on year and 3% quarter on quarter, driven by favourable London Metal Exchange prices and higher volumes. Aluminium production increased 5% year on year and 3% quarter on quarter to 632 kt, primarily due to volumes from the new BALCO smelter. Aluminium sales stood at 615 kt.

Blended net sales realisation was US$3,679 per tonne, up 30% year on year and 8% quarter on quarter, representing a 3% premium to the US$3,571 per tonne London Metal Exchange price. EBITDA increased 134% year on year and 23% quarter on quarter to Rs 10,300 crore, supported by volume growth, value-added products, cost efficiency and favourable prices despite input-commodity inflation.

Alumina Operations and Cost Trends

Lanjigarh refinery alumina production increased 40% year on year to 826 kt in 1QFY27. Production declined from 882 kt in 4QFY26 because of temporary stabilisation issues at the power plant, red-mud filtration system and bauxite-handling facilities.

Blended cost of production was US$1,698 per tonne, down 4% year on year, helped by higher captive alumina consumption, lower coal costs and favourable currency movement. Alumina cost of production was US$373 per tonne, up 3% quarter on quarter amid fuel-price headwinds related to the Middle East crisis. Net debt to EBITDA improved to 0.9 times in 1QFY27 from 1.3 times in 4QFY26.

Integration, Mining Ramp-up and Cost Guidance

Management maintained FY27 hot-metal cost-of-production guidance of US$1,650-1,700 per tonne. However, 2QFY27 costs are expected to rise marginally because of planned monsoon power-plant shutdowns. FY27 Lanjigarh alumina-production guidance was retained at 4 mt, with material improvement expected in the second half as seasonal disruption and stabilisation issues ease.

The company expects hot-metal costs to decline by US$175-200 per tonne over the next 3-4 quarters through greater captive alumina integration, the Sijimali bauxite mine and captive coal availability. Sijimali has received its mining lease and mine-opening permission, with final consent to operate expected in 2QFY27. Management expects approximately 2 mt of bauxite from Sijimali in FY27 and about 8 mt in FY28. The Kolhar captive coal mine has also received approvals and is expected to start production in 2QFY27. Sijimali could reduce aluminium cost of production by about US$40-50 per tonne once production ramps up.

BALCO Expansion and Capital Allocation

BALCO’s remaining potline capacity is expected to be commissioned in FY27, adding 260-270 kt in FY27 and approximately 190 kt in FY28. Management guided to growth capex of about Rs 500 crore and maintenance capex of Rs 200 crore in FY27. FY28 capex is expected at Rs 350-400 crore, excluding the proposed 3 mtpa greenfield aluminium project.

The greenfield project remains at the planning stage, with land acquisition, technology-partner selection and engineering under way. Vedanta Aluminum declared its first post-demerger interim dividend of Rs 8 per share. Management also indicated that BALCO had effectively become net cash.

Broker Estimates and Valuation

Motilal Oswal raised its FY27 revenue, EBITDA and adjusted PAT estimates by 4%, 10% and 14%, respectively, while retaining its FY28 estimates.

The target price of Rs 540 is based on a sum-of-the-parts valuation applying 7.5 times FY28E attributable EBITDA of Rs 29,200 crore. This results in an enterprise value of Rs 2,20,000 crore. After deducting attributable net debt of Rs 7,500 crore and using 391 crore shares, the valuation produces Rs 540 per share. The stock traded at 5.3 times FY28E EV/EBITDA.

Key Execution Watch Points

• Resolution of stabilisation issues at the Lanjigarh refinery.
• Final approvals and ramp-up of the Sijimali bauxite mine.
• Commissioning of the remaining BALCO potline capacity.
• Progress on the Kolhar captive coal mine.
• Movements in commodity and fuel costs.