Shares of the newly-listed Vedanta Aluminium Metal Ltd. rose over 3% on Wednesday, June 24, after global brokerage firm CLSA has initiated coveragel with a bullish "outperform" rating, setting a target price of Rs 540 per share. The target implies an upside potential of over 18% from the stock's recent closing price. The aluminium arm is a spin-off entity of the Vedanta Ltd. group. Domestic equity benchmarks moved to the day's high after swinging between highs and lows. The NSE Nifty 50 rose 150.65 points, or 0.63%, to 23,974.75, while the BSE Sensex gained 635.66 points, or 0.83%, to 76,836.34.
Shares of Vedanta Aluminium opened at Rs 453.51 against a previous close of Rs 456.61 and rose 3.4% to hit an intraday high of Rs 469 apiece on the NSE. Shares last traded 1.53% higher at Rs 453.59 apiece on the NSE. This compares to a rise of 1.05% in the Nifty 50 benchmark. The company commands a market cap of Rs 1,81,285.59 crore, as per exchange data.
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CLSA initiates coverage on Vedanta Aluminium
The global brokerage's rating on the stock was driven by an optimal blend of a global commodity upcycle and strong internal operational tailwinds. In its initiation note, CLSA highlighted that the company is ideally positioned to benefit from a "higher-for-longer" aluminium pricing environment.
The global upcycle is well-supported by resilient demand from electrification and green-energy substitution markets, combined with highly constrained global supply growth.
According to CLSA, the company has shown notable earnings torque by successfully trimming operational costs and scaling up its plant throughput. A core pillar of CLSA's positive outlook is the company's aggressive backward integration strategy.
"We expect backward integration to lift the company into the first decile of the global cost curve, along with near-term volume growth visibility," CLSA noted. Strong FCF generation is likely to support deleveraging and dividend payout.
The brokerage estimated that for every US$100 per tonne change in the global price of aluminium, Vedanta Aluminium's equity valuation shifts by 7%.
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