Nuvama raises target 17% on commodity tailwinds; current market price yet to fully factor in aluminium and zinc businesses alone
Vedanta’s pending demerger into five separately listed companies is poised to unlock significant value for shareholders, with the stock’s current price not even fully accounting for its aluminium and zinc operations, according to analysis by Nuvama Institutional Equities.
The brokerage has raised its target price to Rs 806 from Rs 686, representing a potential upside of 28% from current levels around Rs 627. The upgrade comes on the back of sharply higher commodity price assumptions and the impending value unlocking through corporate restructuring.
“We are increasing FY27E/28E EBITDA by 17%/8% to factor in higher commodity prices. This would lead EBITDA to increase at a 20% CAGR over FY25-28E,” Nuvama stated in its latest report, maintaining Vedanta as its top pick in the metals and mining sector.
Commodity Price Tailwinds
The revised estimates reflect dramatically higher price assumptions for key commodities. “During FY16-26, average LME aluminium, zinc and silver prices were USD 2,170/t, USD 2,754/t and USD 22.7/ounce respectively. Amid expectation of global deficit in aluminium, zinc and silver in CY26, we expect prices to sustain much higher than historical average,” the report noted.
Nuvama has increased its aluminium price forecast to USD 3,000/2,750 per tonne for FY27E/28E from USD 2,700 earlier, while zinc prices are now pegged at USD 3,000/2,900 per tonne versus USD 2,850 previously. Perhaps most dramatically, silver price assumptions have jumped to USD 60/55 per ounce from USD 40 earlier.
“We now factor in average aluminium price of USD 3,000/2,750 (earlier USD 2,700), average zinc price of USD 3,000/2,900 (earlier USD 2,850) and average silver price of USD 60/55 in FY27E/28E (earlier USD 40/ounce),” the brokerage detailed.
Strong Operational Performance Expected
Beyond commodity prices, operational improvements are expected to drive a compounded annual EBITDA growth of 20% through FY28. “Besides higher commodity prices, cost reduction in aluminium, volume growth in International zinc, power is likely to aid VEDL post EBITDA CAGR of 20% over FY25-28E to Rs 724 billion,” Nuvama projected.
The company’s subsidiary Hindustan Zinc, which contributes approximately 40% to consolidated EBITDA, recently delivered a robust third quarter performance with EBITDA of Rs 60.5 billion. According to Emkay Global’s analysis, “Silver contributes 20-25% to HZ’s revenue and 35-40% to EBITDA.”
The silver exposure carries particular significance. “We calculate that a USD 1/oz move in silver prices has ~1% sensitivity to HZ’s EBITDA,” Emkay noted, adding that “We still believe silver exposure is underpriced and the recent runup in HZ’s and VEDL’s stock price is a reflection of the earnings upgrade potential.”
Demerger Timeline and Structure
Vedanta has cleared major regulatory hurdles in its demerger process. “NCLT has approved Vedanta’s demerger scheme (ex-power division) on 16th Dec-26 and power division received approval on 9th Jan-26. A major milestone of demerger process is through for the company,” Nuvama reported.
The company now awaits final procedural approvals from the Registrar of Companies and stock exchanges. “Depending on receiving clearances, we believe the company may opt to list separate companies in phases too. We expect the entire demerger process and listing of all companies by Q1FY27,” the brokerage stated.
Valuation Implies Free Optionality
Perhaps most striking is Nuvama’s sum-of-the-parts valuation, which suggests investors are getting significant businesses virtually free at current market prices. “Our FY28E SotP value of Rs 806/share includes Rs 408/share for aluminium and Rs 293/share for Vedanta Limited, implying CMP does not fully factor even aluminium, zinc, thus all other businesses are available virtually free at CMP,” the report emphasized.
The valuation framework has been enhanced through multiple adjustments. “We are factoring in value unlocking amid demerger by raising valuation multiple for aluminium (6.5x from 6x), valuing steel & iron ore business at replacement cost versus 5x EV/EBITDA earlier and raising power vertical value,” Nuvama explained.
The brokerage even provided a mark-to-market scenario at current spot prices: “On MTM basis (aluminium at USD 3,150/t, zinc at USD 3,200/t, silver at USD 85/ounce), FY28E EBITDA may rise to Rs 923 billion and fair value may rise to Rs 1,076.”
Dividend Expectations
Post-demerger, shareholders can expect continued dividend flows from multiple entities. “We believe it will allocate debt judiciously to each entity (at time of demerger), which can service debt at comfort. Also, we expect demerged Vedanta aluminium (including 51% stake of Balco) and Vedanta Limited (houses Hindustan Zinc, International Zinc, others) to continue paying dividends. We expect DPS of ~Rs 15 from Vedanta aluminium in FY27E/28E each, ~Rs 5 from Vedanta Limited,” Nuvama notes.
