Vedanta, Vedanta Aluminium post strong Q1 gains as metal prices lift earnings

ET Intelligence Group: Vedanta and Vedanta Aluminium Metal have staged a strong financial performance in their first quarter after demerger, helped by buoyant commodity prices. The two companies are stepping up investments to drive future growth, with combined capital expenditure of nearly ₹12,000 crore planned for FY27. They currently trade at lower valuations compared with peers. Given a strong balance sheet and cash generation, the stocks will be on investors’ radar for the medium-to-long term.

Vedanta and Vedanta Aluminium Metal together accounted for more than 95% of the Vedanta Group’s net profit in the June quarter. Vedanta Aluminium reported a 216% year-on-year jump in net profit, outpacing the 75% growth reported by Hindalco and 91% by National Aluminium Company (Nalco).

Elevated aluminium prices boosted earnings in the June quarter. Average LME aluminium price increased 46% year-on-year to $3,565 per tonne during the quarter. Prices are expected to remain elevated in the near term, supported by US-Iran war related supply disruptions, China’s production cap and delays in commissioning new smelters. Analysts expect average aluminium prices for FY27 to remain higher than those in the previous peak cycle as resumption of Gulf supplies is likely to be slower than expected.Read more: 4 Vedanta Group stocks to see inflows worth $160 million in Nifty September rejig. What investors must know

Vedanta Aluminium plans to spend around ₹5,000 crore on capex in FY27, including ₹2,000-2,500 crore at its subsidiary Bharat Aluminium Company. According to ICICI Securities, Vedanta Aluminium Metal is in a sweet spot as it is one of the few companies in India that has near-term growth levers along with better backward integration into bauxite-alumina-coal. The company is focused on expanding aluminium volume, paring costs via backward integration, and increasing its share of value-added products. These initiatives aim to reduce cost, increase cash flows, and boost earnings visibility.
Vedanta reported a 152% year-on-year increase in net profit in June quarter, broadly in line with the 145% growth at Hindustan Zinc and 163% at Hindustan Copper, helped by elevated prices of Zinc and Copper. The outlook for Vedanta’s base metals remains supportive, with aluminium and copper prices expected to stay elevated while zinc prices are likely to remain firm. Vedanta’s growth will also be aided by higher volumes and capacity expansion across its zinc, copper and other base metal businesses. The company plans ₹7,000 crore of growth capex in FY27 with ₹5,000 crore earmarked for Zinc India and ₹2,000 crore for its other businesses. Despite the strong earnings growth, Vedanta trades at a price-earnings (P/E) multiple of 7.1, lower than 14.7 for Hindustan Zinc and 44.8 for Hindustan Copper. Vedanta Aluminium Metal, at a P/E of 11.8, is also valued below Hindalco’s P/E of 14.8 though it is at a premium to Nalco’s multiple of 10.4.