Vedanta Aluminum targets cost leadership through capacity expansion and raw-material integration

Investment View and Key Drivers

In its August 25, 2026 company update, Motilal Oswal Financial Services reiterated its BUY view on Vedanta Aluminum (VAML). The broker sees the company entering a multi-year earnings inflection point, supported by capacity-led volume growth, backward integration that reduces structural costs and a higher proportion of value-added products.

Motilal Oswal also identifies a valuation gap with peers and a supportive aluminium-market backdrop as potential drivers of a re-rating. The thesis depends materially on successful expansion and mine ramp-up, delivery of cost reductions, continued growth in the value-added-product mix and a supportive aluminium supply-demand environment.

Capacity Expansion and Production Outlook

Vedanta Aluminum operates approximately 2.9 million tonnes per annum (MTPA) of aluminium smelting capacity, comprising 1.85 MTPA at Jharsuguda and around 1 MTPA at BALCO, including the 435 thousand tonnes per annum expansion.

Ongoing BALCO commissioning and debottlenecking at Jharsuguda are expected to lift aggregate smelting capacity to about 3 MTPA by the end of FY28E. This is expected to support an estimated volume CAGR of approximately 6 per cent through FY28. Motilal Oswal's charts indicate that aluminium production could reach 2.7 million tonnes by FY28, while alumina output could approach 4 MTPA.

Backward Integration and Structural Cost Reduction

A central element of the investment thesis is vertical integration across bauxite mining, alumina refining and aluminium smelting. The Lanjigarh alumina refinery has expanded from 2 MTPA to 5 MTPA.

Vedanta Aluminum currently relies substantially on externally sourced inputs. Landed alumina cost exceeds US$430 per tonne, compared with roughly US$360 per tonne for captive alumina produced using externally sourced bauxite. Motilal Oswal expects economics to improve as the Sijimali bauxite mine and the Lanjigarh refinery ramp up.

Sijimali has reserves of 300 million tonnes and planned capacity of 12 MTPA. It is expected to commence operations in the second half of FY27. Following commissioning, the broker expects 12 million tonnes of Vedanta Aluminum's 15 million tonne bauxite requirement to be met captively, with approximately 3 million tonnes sourced from OMC.

Captive Coal and Power Advantages

Vedanta Aluminum has secured five coal mines with combined reserves of approximately 1,048 million tonnes. Motilal Oswal expects captive coal production to increase from around 2.6 MTPA currently to more than 40 MTPA by FY28-29.

Power represents nearly 40 per cent of aluminium production cost. Against this backdrop, the broker considers Vedanta Aluminum's roughly 4.5 GW of captive power capacity and long-term agreements for approximately 1.3 GW of renewable energy to be important cost advantages.

Management is targeting a further 9-12 per cent reduction in costs and hot-metal production cost of US$1,550-1,600 per tonne. Motilal Oswal believes that mine ramp-up, coal availability, operating efficiencies and scale could move Vedanta Aluminum into the top decile of the global aluminium cost curve.

Value-Added Products and Financial Outlook

The share of value-added products increased from approximately 34 per cent in FY21 to about 59 per cent in FY26. Management is targeting approximately 90 per cent over the medium term through downstream capacity expansion.

Motilal Oswal forecasts consolidated revenue, EBITDA and PAT CAGRs of approximately 11 per cent, 18 per cent and 23 per cent, respectively, over FY26-28.

EBITDA margin is projected to rise from 37.6 per cent in FY26 to 43.7 per cent in FY27E, before moderating to 42.4 per cent in FY28E. The broker expects nearly Rs 500 billion of operating cash flow across FY27-28E, sufficient to fund remaining capital expenditure, support rapid deleveraging and underpin dividend policy.

Aluminium Market Outlook

The industry case rests on structurally constrained global supply. Factors identified by Motilal Oswal include China's 45 million tonne production cap, European smelter closures, sanctions on Russian aluminium and geopolitical disruptions.

The broker expects global primary aluminium consumption to increase from approximately 74 million tonnes in CY25 to 80-85 million tonnes by CY30. Indian demand is expected to grow at 8-9 per cent annually to 8-8.5 million tonnes by FY30, supported by infrastructure, electrification, automotive, renewable-energy and manufacturing demand, as well as import-substitution potential.

Valuation and Target Price

At the report CMP, Vedanta Aluminum trades at 5.3 times FY28E EV/EBITDA. Motilal Oswal derives its Rs 540 target price using a sum-of-the-parts valuation based on FY28E estimates.

Key Risks and Execution Dependencies

The report does not provide a separate formal risk section. However, its thesis depends materially on the following factors:

• Successful commissioning and ramp-up of the BALCO expansion, Jharsuguda debottlenecking, Sijimali bauxite mine and Lanjigarh refinery.
• Delivery of the targeted 9-12 per cent cost reduction and progress towards hot-metal production cost of US$1,550-1,600 per tonne.
• Availability and ramp-up of captive coal, together with operating efficiencies and scale benefits.
• Continued increase in the value-added-product mix towards management's medium-term target of approximately 90 per cent.
• A supportive global and Indian aluminium supply-demand environment.