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    Vedanta has 15-30% margin in all sectors and the lowest cost of production: Anil Agarwal

    Story outline

    • I am producing 30% oil of the country and almost 100% of zinc.
    • If the Tuticorin plant is shut down for the whole year, we will have a $100-million loss.
    • We don't even have 10% of the consumption that we should have
    Tuticorin plant shutdown could cost $100 million: Anil Agarwal
    Anil Agarwal, Founder and Chairman, Vedanta, discusses metal prices, Tuticorin plant closure, delisting from London bourse and other issues with ET Now.

    Edited excerpts:

    A correction is playing out in metal prices and 8% to 20% crack has been seen in base metals. Do you think the 2017 rally in metals and especially base metals has halted?

    Definitely, there is a correction. No new mines are coming up. Whenever China sneezes, everybody catches a cold and I see an overhaul in the industry. A price correction has taken place but the oil prices have jumped almost 30-35%. That balances out the natural resource sector. Aluminium price is around $2200 per MT, copper was at around $6500-7000. I am looking the zinc price to be around 2600 to 3000 Rand and these are the prices we have to factor in our manufacturing so sometime it is nice for our consumers in India to get the benefit of this.

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    Currently, are metal prices above your cost of production or in some key categories, have they fallen below your cost of production?

    No, not at all. We have fairly good margins. We have a margin of about 15% to 30% in all our sectors and we are one of the lowest cost producers in aluminium, copper, zinc, iron ore as well as oil and gas. The belt is absolutely tightened. I have always said that everybody is going to die but we are going to die last! That is the kind of cost we control.

    Just taking that point forward, the glut in inventories in individual metals has made a comeback even for zinc. Is this due to more players making a comeback taking advantage of the higher prices?

    Yes, sometimes, the trading companies hedge and book the profit. But the demand is still great in India. We are an India play. I am very bullish on India, I focus on the India subcontinent. India, Nepal, Bangladesh, Pakistan, Sri Lanka and Burma put together have 25% population of the world and we are the only resource company to cater to that in a proper way.

    So, I am very focussed there. I am looking at the entire sector and by and large see double digit growth in all these areas. It is something very challenging for us to put up a project step by step and run it because fundamentally, the entire Indian sub continent is import based. Above the ground, we keep focus but below the ground we think that we have to import whether it is oil and gas, copper, uranium, iron ore or coal we think that we should import it.

    India’s geological wealth is one of the best in the world and as Indians if we want to survive, eradicate poverty and create jobs, we have to look at how can we produce more and more. The entire world is going through the economic competition, whether it is China or America. Narendra Modi’s focus was always on the economic front and so I am very positive as far as consumption is concerned. We do not have even 10% of consumption that we should have, compared with a China. We have to increase our production step by step to bring prosperity in our country. I am very happy that I am producing 30% oil of the country. I am very pleased that I am producing almost 100% of zinc.

    I want to talk about the point that you were earlier making -- when China sneezes the world catches a cold. What are the indications that are getting from China right now, are there signs of a slowdown? Is it worrisome for metals and more importantly is there a divergence between global prices and Indian prices or are they much correlated?

    Commodities are always correlated but from China, you will never find news coming out about any Chinese company, unlike in India, where all kinds of news comes out on insolvency or environment or anything. The government is very conscious there because they know the investor class is very sensitive.

    The market cap of all the Chinese companies remain there because the government keeps very close eye on these companies and I am sure India is going through the same process. We have to look at it internally and progress. There is no slowdown in consumption in China. But sometime, due to the corrections, you have to accept 10% to 15% plus and minus prices in the metals.

    We also understand that the income tax department is selling shares of Vedanta. I believe shares of Cairn were there with Vedanta shares. What is going on with that income tax transaction? Will they be selling the residual 2-2.5% stake in the open market or are promoters likely to pick it up?

    That was very unfortunate. It had to do with retrospective tax payment. But we have to look at the bigger picture. Cairn is one of the finest companies. Cairn Energy is the parent company. Sometimes, people get confused between Cairn Energy and Cairn. They are two separate companies. Vedanta has nothing to do with the Cairn Energy. The government has attached those shares and the income tax department has decided to sell the share and they have sold about 1% share. They may be looking to sell another 2% share. It is a great opportunity for any investor to come in because the kind of number which we are coming out with. The company’s performance is phenomenal. We are a cash rich company. Our balance sheet will be great. We will have one of the best profits for this year for Vedanta.

    It is very unfortunate that the shares are being sold but it could be an opportunity for investors.

    Another opportunity that your company is sizing up and what investors are very keen on is your plan on scaling up in the steel sector in India. You have acquired Electrosteel. Are you going to bid for other such stressed assets in India? Also, would you be looking at coal mining as another business stream?

    I am very focussed. It is all India, India, India for me. I am a fighter and I am looking at how can I contribute to the country. I cannot go to the front or border to fight but I am definitely going to produce more oil for this country because I produce at $6. I am going to produce more copper. I am going to produce more iron ore because my prime minister wants 300 million tonnes steel to be produced in India.

    We have a phenomenal geology. Some time, foreign investors have questions in their mind before they come to India and I have always said initially there will be hiccups, but this is the best country because we have the finest geology. We have best of human resources. We have sea on three sides and the best weather and democracy. With this, we have 25% population of the world. This will be the best place for anybody to come and start business. So as far as our plan is concerned, we are looking to produce 50% oil of this country.

    What has been the financial hit so from Tuticorin smelter being shut down? How are you meeting your orders for refine copper and what loss can it bring to the company per se?

    You are more than welcome to ask that question. For 22 years, we have been running the Tuticorin plant. are one of the best revenue collectors for the state government. We have 3,000-4,000 direct employees and about 50,000 people indirectly involved. I am clarifying again that we have no environmental incidence. Nothing was going on in the plant. There was a protest in general for the expansion of the plant. The protest was about 6 kilometre away from our plant and it is very unfortunate that this incidence has taken place. And it is very unfortunate that India has to import copper.

    Copper does not come from the sky. It has to be processed and 50 companies in the world process this copper. We are one of them and I can claim and say that we are one of the finest technological companies to produce copper. Any world agency can come and verify and go through all the screening and they will find that our plant is digital and one of the best plants. It is very unfortunate the vested interests want to sell the copper. They want to sell iron ore and they are taking advantage of our democracy to shut this plant. But I believe in the government. I believe in the judiciary.

    What losses have you incurred so far because of the smelter shutdown?

    Overall, this is about 2% of our balance sheet. Overall, there will be a profit loss of about $200 million and if the plant is shut down for the whole year, we will have a loss of about $100 million.

    Are you working with the worst case scenario of the smelter being permanently shut down? What is your backup plan if that happens?

    These are the national assets. Whether it is the government, whether it is an individual, everybody is angry with the way this plant was shut down. I believe in destiny, I believe in almighty God. Whatever happens, we will accept.

    On this plant, copper, fertiliser industries are dependent. They are now importing copper at three times the price. This is not fair. We cannot remain poor forever. You can verify the plant, you can go through everything. The investors will be shaken. Tamil Nadu was one of the best places to put up the industry because it has the infrastructure, a tremendous culture and education and the human resource and the natural resource. I am one of the largest investor in Tamil Nadu and I have full belief that this will not affect my balance sheet but this was the first plant of my career. But we are only 10% affected. Other people are 90% affected and they are talking.

    You are looking at delisting Vedanta resource from London because you want to work on a simpler holding structure? In your India business, the holding structure is easy to understand but it is not very simple?

    I was very India centric. About 16 years back, I went to UK and the Indian government has supported me for my listing in UK. I have raised $33 billion in UK, brought in most of the money to India and built the oil company, built the aluminium company, built a copper company, built the iron ore company and created tremendous assets and jobs. Last year, we have paid Rs 60,000 crore tax to the Indian government.

    Every investor of our London listing is so happy. I am paying almost close to 30% premium for the shares. So everything is win-win. It was not required at this point of time, the purpose was served. We have to simplify the process. India is very mature. The Indian stock exchange, the SEBI, everything is phenomenally good. So we decided to delist our Vedanta Plc. Vedanta Ltd definitely has a very clean structure except we have a subsidiary of Hindustan Zinc where we have around 70% share. Government has the intention to give another 20-25% share and whenever they give, we will take it and then we can merge it together and make it one Vedanta Ltd.

    But at this point of time I am very comfortable to run both the companies together.






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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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