Vedanta Aluminium shares can rally up to 28%? Why Systematix initiated coverage on the stock
Backward integration is set to drive the newly-demerged company’s next earnings cycle, as per the brokerage’s note, following a threefold year-on-year jump in its consolidated net profit to Rs 5,629 crore in the June quarter of FY2026.
The brokerage believes that VAML is well positioned to deliver sustainable earnings growth through a combination of higher volumes, progressive backward integration and a supportive aluminium demand outlook. Successful ramp-up of BALCO, Lanjigarh, Sijimali and captive coal mines as per guidance provides scope for further earnings improvement and a potential rerating.
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The recently-listed company’s ongoing backward expansion integration across bauxite, alumina and coal is expected to structurally reduce production costs, improve raw material security and support sustainable EBITDA/t expansion.
However, VAML’s growth is anchored by the 435ktpa BALCO potline ramp-up, which should increase aluminium volumes from 2.46mt in FY26 to 2.77mt in FY28E, as per the brokerage’s note. Higher utilisation of the 5 mtpa Lanjigarh alumina refinery should raise captive alumina consumption from 61% to 81%, materially reducing dependence on externally sourced higher-cost alumina.
The brokerage estimates VAML to deliver a 39% surge in Profit After Tax, with a 29% jump in EBITDA, and a 16% rise in revenue CAGR over FY26-FY28E supported by higher volumes, structural EBITDA/t expansion and lower production costs. It values VAML at 6.5x FY28E consolidated EV/EBITDA, arriving at a target price of Rs 598/share, after adjusting for Q1FY27 ending net debt and 49% non-controlling stake in BALCO.The company expects FY27 capex of approximately Rs 7,000 crore, comprising around Rs 5,000 crore of growth capex and Rs 2,000 crore of maintenance expenditure. The company also indicated that approx. Rs 7,800 crore of residual capex on announced projects would be incurred over the next 18-24 months, primarily across BALCO, residual Lanjigarh and captive mine enhancement.
Growth capex should moderate further to Rs 3,500–4,000 crore in FY28 as the BALCO expansion project is completed and residual spending becomes predominantly mine-related. According to the brokerage, the declining capital intensity, alongside the ramp up of recently commissioned assets should drive free cash flow generation, support deleveraging and enhance return ratios.
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Power is a key component of aluminium production costs, making coal security an integral part of an aluminium producer’s value chain. Systematix expects VAML’s total coal requirement to increase from 25.8mt in FY26 to 31.1mt in FY29E, alongside the BALCO-led smelter ramp-up. Captive mine output is expected to sharply rise from 2.6mt to 19.6mt over the same period, driven by Kuraloi and Ghogharpalli mines. The resulting dependence on linkage and e-auction coal should decline from 90% in FY26 to 37% by FY29E, taking captive consumption from 10% to ~63%, as per the brokerage’s note.
The Sijimali bauxite could strengthen raw material security for the company. The mine is intended to supply the Lanjigarh refinery, which would eventually require ~15mtpa of bauxite upon 100% utilisation of 5mtpa capacity and another 3mtpa after completion of the proposed ramp up to 6mtpa. At full capacity, Sijimali could meet approximately half of its requirement and meaningfully reduce VAML’s reliance on purchased domestic and imported bauxite. The brokerage estimates captive bauxite production of 1mt in FY27E to 4mt in FY28E and 8.5mt by FY29E, raising captive consumption from 8% to 57% over the period.
Vedanta Aluminium had reported a 216% YoY surge in net profit for the June quarter of FY 2026, compared to Rs 1,781 crore in the corresponding quarter of the previous financial year. Revenue from operations rose 46% YoY to Rs 21,393 crore during the April-June quarter of FY27, from Rs 14,654 crore in the year-ago period.
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VAML is the world’s third-largest aluminium producer (ex-China), with an installed smelting capacity of 2.9mt and a domestic capacity share of ~57%.
