Natural resources conglomerate Vedanta Ltd will invest nearly half of its three-year capital expenditure plan of ₹55,000 crore in its metals business, chairman Navin Agarwal said, undaunted by the decline in their prices over the past year.
According to Agarwal, in a world looking to India as its next growth engine, there is immense demand potential for the company’s products.
Prices of base metals have declined in the last fiscal year. Copper prices fell 2.89%, aluminium 4.72%, lead 16.41% and zinc 8.66%. Vedanta, however, has had “a strong year of performance", Agarwal said at the company’s 54th annual general meeting in Mumbai on Thursday.
“We are in a sweet spot. We have a capex programme of ₹55,000 crore in the next three years. Of this, ₹25,000 crore is in base metals, primarily in zinc, another ₹20,000 crore in oil and gas, and ₹10,000 crore in aluminium," Agarwal said. “As we complete this, we expect our revenue to grow 60-70% across businesses and at least 50% in volumes. The capex will be almost entirely funded from internal accruals." During FY19, the company spent ₹10,000 crore on capex.
Vedanta, India’s biggest aluminium producer, plans to raise production by 50% to up to three million tonnes of integrated aluminium. It also aspires to become the world’s top zinc producer and among the top three silver producers.
“Vedanta’s capital allocation policy is decided based on very conservative estimates of base metal prices and the minimum hurdle rate for internal rate of return is 20%. The company is focusing on reducing its cost of production," Agarwal said. “Looking ahead, we are excited by the prospects in our businesses which include: ramp-up in zinc, lead and especially silver production from Hindustan Zinc and the benefit of a full year’s production from our Gamsberg Zinc mine in South Africa; increased production from our oil and gas business as the first phase of our projects comes on stream, and continued structural changes to our cost structure in the aluminium business while increasing volumes," Agarwal said.
Vedanta expects that the Union budget’s target of investing ₹100 trillion in infrastructure over the next five years will aid urbanization and industrialization, with significant demand for natural resources. In 2018-19, Vedanta posted revenue of ₹93,373 crore with an earnings before interest, taxes, depreciation and amortization (Ebitda) margin of 31% at ₹24,961 crore. Free cash flow increased 47% to ₹11,553 crore.
“As against a global economic growth at a steady 3%, our country’s gross domestic product is estimated to grow by 7.3% in 2019 and 7.5% in 2020, making us one of the few large emerging economies. The world is looking at India to play the role of the lead growth engine, a role China played for almost three decades. The demand potential for our resources such as oil and gas, zinc-lead, silver, aluminium, iron ore and steel, and copper is immense. Your company will be instrumental in addressing the growing demand in India and the region," said Agarwal.
India currently has a resources import bill of $465 billion. Agarwal said India’s geology is similar to that of Brazil, Australia and South Africa, where the natural resources sector contributes 8-10% of the gross domestic product (GDP). In India, the corresponding figure is around 4%.
At present, India imports around 80% of its oil & gas requirements amounting to $150 billion. As India’s largest private oil and gas producer, Agarwal said, Vedanta aims to double its current contribution of 27% of nation’s production. Currently, Vedanta is also the largest private acreage holder in the country with the acquisition of 53 new blocks under the new licensing policy. The company is investing around $3 billion for an expansion programme in Rajasthan’s Barmer block, largely focused on increasing recoveries.
Srinivasan Venkatakrishnan, CEO, Vedanta Resources said the company will see an uptick in oil output this year. “Last year, it went up by 2%. This year, we are guiding between 200,000-220,000 barrels of oil and gas per day. And that will stretch to 450,000 barrels per day with our existing concessions in the Mangala, Bhagyam and Aishwarya fields. That’s a 7-8% growth this year. The 450,000 barrels target will be reached progressively from onshore, offshore and oil and gas," said Venkatakrishnan.
The company plans to re-open the Thoothukudi copper smelter in Tamil Nadu because, Agarwal said, it’s much-needed for the local economy. The plant which generated about $200-250 million in profit was shut more than a year back after police firing on protesters killed 13 people.
Commenting on Vedanta’s share prices falling by 33% in one year, Agarwal said, “We are focusing on our performance, which is in our hands." Vedanta shares closed at ₹163.70 on the BSE on Thursday, up 2.31% .