Internal accruals to fund $8-bn investment in various verticals: Vedanta

On a consolidated basis, for the fiscal year ended March 31, 2018, Vedanta had cash reserves of Rs 631.36 billion (approximately $9.03 billion)

Vedanta’s proposed $8-billion (Rs 560-billion) investment in various verticals will largely be financed through “internal accruals”, with the metals and mining major expecting a four- to five-fold jump in its margins in the next three years. The company plans to scale up its oil and gas, steel, aluminium, copper, and zinc businesses in India.  

“Our internal accruals are huge. The financing for the $8-billion investment will be internal, but some loans we can always take. Every year we will be generating $20 billion Ebitda (during the investment period), which should be enough to invest,” Anil Agarwal, chairman of Vedanta Resources, said. Currently, the earnings before interest, tax, depreciation and amortisation (Ebitda) are in the range of $4-5 billion a year, he told reporters during a recent visit to the city.

On a consolidated basis, for the fiscal year ended March 31, 2018, Vedanta had cash reserves (excluding revaluation reserves) of Rs 631.36 billion (approximately $9.03 billion). Its Ebitda registered a 19 per cent jump at Rs 254.70 billion ($3.64 billion) during the year.

With the fresh investment, the company is looking to boost its production capabilities, which will help improve its economies of scale and, hence, Ebitda. The majority of this investment will be spent on the oil and gas business, which operates under group company Cairn Oil & Gas. Currently, it produces around 200,000 barrels every day and Agarwal intends to scale it up to 500,000 barrels in the next two years. Besides, once its new blocks in Assam, Rajasthan, Gujarat, and Tamil Nadu commence production, another half a million barrels can be produced per day.

Vedanta has lined up a gross capex of $2.3 billion in the first phase to increase production in its existing locations of Rajasthan, Andhra Pradesh and Gujarat, while the new blocks will entail an investment of another $ 4-5 billion. 

In August this year, under the country’s first round of oil and gas auctions under the Open Acreage Licensing Policy (OALP-I), Vedanta won 41 blocks out of a total of 55 on offer.

“The number one priority is oil and gas, then is aluminium; third is zinc and silver,” Agarwal said.

The company plans to increase the aluminium production capacity from the current 2 million tonnes (mt) to 3 mt, and alumina’s production capability to 6 mt. 

Despite uncertainty over operations at Sterlite Copper, Vedanta will be ramping the capacity from the current 400,000 tonnes to 800,000 tonnes. For the zinc and silver business, the capacity will increase from the current 1.2 mt to 2 mt at an investment of $ 1 billion. It will also be spending another $300 million to scale up capacity at Electrosteel Steels from the current 1.5 mt to 2.5 mt.