Citi has initiated coverage with a “buy” rating on Vedanta Aluminium, with a price target of ₹560. The price target implies an upside potential of 20% from Wednesday’s closing levels. The brokerage also called Vedanta Aluminium its top Metal pick within India.
After two consecutive lower circuits, Vedanta Aluminium shares ended lower for the third day in a row on Wednesday, though not in a circuit. The stock remains in the trade-for-trade segment currently, meaning no intraday trading is allowed yet.
This is the first coverage initiation on any of the four demerged entities, with the Aluminium entity taking a lion’s share of the spotlight as the biggest value creator within the group and due to the recent pressure in oil prices.
Why Is Citi Betting on Vedanta Aluminium?
Four key reasons are driving Citi’s conviction on Vedanta Aluminium. The most important one being a positive outlook on Aluminium itself.
Citi wrote in its note that it projects Aluminium prices to be at $3,400 a tonne between financial year 2027-2028, compared to the current spot prices of around $3,350.
Every $100 a tonne move in prices on the London Metal Exchange (LME) impacts the company’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) by 4.5% to 5%, and its fair value by ₹30 per share, Citi said.
The brokerage went on to highlight that the Aluminium market is currently in deficit and will sharply draw on inventories over the next three to six months, thereby driving prices higher by 15% to 20% to around $4,000 a tonne in their base case scenario.
Besides Aluminium, the other key positives highlighted by Citi for Vedanta Aluminium include the company’s growth focus with regards to its BALCO expansion and VAL debottlenecking, focusing on costs with a higher captive alumina, domestic bauxite and captive coal, and expectations of the company being in a net cash position by financial year 2028.
“What the US-Iran MoU has done is raise likely forward demand, increasing the commodities team’s bull conviction. Higher LME in a growing volume and lower cost environment should help Vedanta, in our view,” Citi’s note stated. Therefore, the brokerage has also opened a 90-day “positive catalyst watch” on Vedanta Aluminium.
After being in another lower circuit of 5% for most part of Wednesday’s trade, shares of Vedanta Aluminium saw some buying interest emerge at lower levels and the stock ended with losses of around 0.9%.
