From a scrap dealer in Patna to a mansion in London's posh Mayfair, Anil Agarwal, chairman of the $6.5 billion Vedanta Resources, has come a long way. In 1986, Agarwal got into jelly-field cables by setting up a Rs 7-crore factory by buying a plant in Illinois, US, and shipping it back to India to reduce costs. Thus, Sterlite Industries was born. Agarwal then entered copper using the same time-tested formula--keeping costs in tight rein. He also picked up the ailing Madras Aluminium, Bharat Aluminium Company (Balco) and Hindustan Zinc to create a large conglomerate focussed on base metals. Agarwal has now lined up Rs 20,000 crore in investments in India over the next three years. His first diversification from metals is marked by a big-ticket entry into independent power generation. An integrated steel plant is next on his agenda. The Forbes billionaire listed Agarwal defines his key strengths as vision, entrepreneurship and a risk-taking ability.
Excerpts from an exclusive interview with FE's Papiya De.
You have lined up huge investments in India, but so have many other players in the metals industry. How optimistic are you about your projects being on track?
I am very positive on the India story. Vedanta has already spent over Rs 10,000 crore in the last two years in creating global scales. We have now committed a further Rs 20,000 crore on new projects in alumina, aluminium, commercial power, zinc and copper. Work is in full swing at all our projects and we expect to complete all projects on time and within budgeted costs. We have established our capabilities in creating global scales at lower than benchmark capital costs and time.
Will you also look at growing through the inorganic route?
Absolutely! Our aluminium and zinc businesses were acquired under the government of India privatisation programme. Both Balco and Hindustan Zinc have been great examples of turnarounds and growth. In November 2004, we acquired the largest company in Zambia, Konkola Copper Mines (KCM), which has one of the largest copper deposits in the world. We would look at acquiring companies in areas of our core strength and where we believe we can create value by turning around inefficient businesses and adding significant growth in these acquired businesses.
We would look at spending around $2 billion to acquire more mines in east Europe and also in Latin America. We want to minimise our raw material costs.
There seems to be a rush to value-added businesses. Be it Tata Steel or Hindalco, the mega acquisitions have been towards that goal. When do you plan to enter this segment?
Our strength lies in our ability to set up large projects at competitive cost; we have a tremendous capability to manage costs. We believe our strength lies upstream. Backward integration is the way forward for us. We are setting up an alumina project is Orissa and we are also looking at acquiring mines in east Europe, Latin America and India.
We want to be a fully-integrated player in basic metals.
What steps have you taken to ensure that Sterlite and other Vedanta companies remain competitive?
The Vedanta group is very focussed on cost competitiveness and wants to be in the first quartile of the cost curve for every business that it owns. Already, the group's Indian copper business is the lowest cost smelter currntly in the world.
Our zinc business has the third-lowest cost and we have the third-largest zinc mine in the world. The group is on track to become one of the lowest cost integrated aluminium companies globally. The operating mantra is, “If all have to die, we must be the last to die”.
We undertake global benchmarking for each element of cost. We build our own power plants to ensure cheap and reliable sources of power. We are the second-largest power producer in India. We are also de-bottlenecking existing capacities to drive higher production. We are expanding capacities to reach global scales. We want to build a million tonne each in copper, aluminium and zinc.
What are the key growth drivers for the group?
India has the potential to become a major resource powerhouse on the lines of Australia, Canada and South Africa - we have among the largest high quality sources of bauxite, iron ore and coal in the world. Only 4% of the landmass of the country has been explored. The per capita consumption of base metals in India (aluminium, copper, zinc and lead) is one-sixth of China and one-20th of the UK and USA. High growth in demand (10-12% a year) of these base metals continues.
Vedanta as a group is entering new businesses related to the group's existing core strengths in mining and setting up/managing large greenfield projects like commercial power generation, coal mining and iron ore.
What are some of the key challenges you face?
Skilled manpower, which is a big challenge in the western world today, is India's greatest advantage. India produces over 5 lakh engineers every year. We recruit over 800 engineers every year to support growth. Improved government regulation and policies in the metals and mining sector, combined with a speedy approval process, will be the key to open up investment in this sector. The sector can attract over $50 billion in FDI.
Erstwhile state-run Balco is cited as a test case to support privatisation?
Balco is a clear turnaround story. We have changed the town of Korba completely. From a mere 1 lakh tonne, Balco now has a 3.5-lakh tonne capacity and we have also put up a 580 mw captive power plant. Harvard University is doing a case study on the turnaround of Balco. When we picked up Balco it was brass; we have turned it into gold.
You seem very keen to pick up the residual stake in Balco. Would you also be interested in picking up stake in Hindustan Zinc?
Yes, definitely. We can exercise our call option when it becomes effective on April 11. We are keen to pick up the remaining 49% in Balco. We expect the government to decide on it soon.