Vedanta to Focus on `Purse Strings' Amid Aluminum Expansion

(Bloomberg) -- India's biggest aluminum producer Vedanta Ltd. is prioritizing controlling costs as it embarks on expanding capacity, according to the chief executive officer.

“Any expansion plans, we will do it with the strictest capital discipline and balance sheet focus,” according to Srinivasan Venkatakrishnan, who was the CEO of Johannesburg-based AngloGold Ashanti Ltd. for five years before taking the helm at Vedanta in 2018. “We will control the purse strings quite tightly.”

Vedanta plans to double alumina capacity at its refinery in the eastern state of Odisha to 4 million tons over the next 2.5 years and raise aluminum smelter production capability by 30% to 3 million tons “at an all-in cost of less than $1,500 a ton,” Venkatakrishnan said in an interview by phone.

“Every business has to earn its right to spend the capital before we spend the capital ,” he said. “Hence, we said let's first drive the cost down before we actually go ahead with the expansion.”

Owned by billionaire Anil Agarwal, Vedanta plans to spend 550 billion rupees ($7.8 billion) to boost output across its businesses as it seeks to tap into the demand created by India's ambitions of upgrading its infrastructure. Capital expenditure for the aluminum unit is estimated at $100 million in the year ending March, Venkatakrishnan said.

The company has been able to bring aluminum production expenses from $2,200 a ton last year to about $1,764 largely due to lower alumina prices and higher coal supply security, he said. “We are targeting coal security of around 90% of our requirement from around 72% now and that would see our cost come down.”

Metal producers in India have taken a hit to their earnings as consumption in the South Asian nation slows and companies face mounting strain from a liquidity crisis. That's been compounded by the impact of the bitter and protracted U.S.-China trade war on commodities globally. Vedanta reported a slump in profit in the April-June quarter, while net income more than halved at India's second-biggest steel mill, JSW Steel Ltd.

“I see the current slowdown as an opportunity,” Venkatakrishnan said. “We will use this opportunity to pull the costs down even further, improve efficiencies and widen margins, so that when the prices start to rally, you can actually cream the extra benefit that comes in and apply a fat chunk of it for a larger purpose.”

The company produces not only aluminum, but also copper, zinc, iron ore, oil and gas, silver and steel. It directly contributed about 0.4% to India's gross domestic product in fiscal 2017-18 through revenues from its operations, according to the Institute for Competitiveness.

To contact the reporters on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net;Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, ;Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Alpana Sarma, Keith Gosman

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