Tom Albanese, CEO of Vedanta Ltd and London-listed Vedanta Resources Ltd, is optimistic that the good days of metal and oil companies are finally here which would see the returns on investments to go up in the current fiscal. Soon after FY16 results, Albanese spoke to Aditi Divekar and Dev Chatterjee on the road ahead for Vedanta post-merger with oil producer, Cairn India Ltd and its investments plans, and the bottlenecks facing the metals industry. Excerpts.
The company has performed better-than-expected in the fiscal 2017 mainly due to a rally in metal prices and a special dividend announced by Hindustan Zinc… how do you see the company will perform in the coming year?
The company has done well in the March quarter which is better than expected by the analysts. The reaction in the stock markets is reflecting that. The gross debt of the company has reduced by Rs 4,000 crore during the year and the next the net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) at 0.4 times is the lowest and strongest among Indian and global peers. The return on capital employed is now at 14 per cent and if we continue the same growth trajectory this fiscal; it would cross 20 per cent. The good performance is mainly due to ramp up in production, focus on cutting debt and very good performance by Hindustan Zinc. In the current fiscal, we plan to invest $1 billion – mainly in Hindustan Zinc, our Zinc facility in South Africa and about $250 million in Cairn India.
For the last few years, Vedanta is keen to pick up its residual stake in both Balco and in Hindustan Zinc Limited. With the government planning to disinvest its shares, do you see any movement in this regard?
We have not received any indication from the Indian government that they would like to sell their shares in these companies. We had earlier indicated that we are interested in buying back their stake. The government has been a very good partner for us in these two companies and even if they remain invested, it’s ok with us.
Your Lanjigarh project in Odisha is operating at almost half of its capacity. How do you plan to resolve the crisis to get cheap bauxite for the project?
The Lanjigarh plant is meeting its bauxite requirements from Odisha Mining Corporation and from other states and imports. We realised that the bauxite from other states is not of good quality. The Lanjigarh project is operating at far lower level which is not in national interest apart from failing to create new jobs in the region. We are in continuous dialogue with Odisha government to get better quality bauxite from other sites. The government has realised that access to raw material is important for the company and is taking steps.
How do you plan to deleverage your balance sheet going ahead considering that the company has Rs 71569 crore of gross debt as on march this year?
The cash generated in this quarter is equivalent to our EBITDA and post Cairn merger, we will have about Rs 48,000 crore of liquidity. This is strong level to make an opening with and with this we plan smart capital allocation. A part of this would be used to deleverage high-cost debt, where interest is above 9-10 percent. Then another portion would be allocation for growth in certain businesses and third would be return-to-shareholders via the investor friendly dividend policy. This policy will bring us in line with other global companies and making us an Indian multinational mining company.