Corporate File

The acquisitive ambitions of Anil Agarwal

Suresh P. Iyengar | Updated on: May 22, 2022
Way forward: Vedanta has managed to resolve differences with the govt on Hindustan Zinc

Way forward: Vedanta has managed to resolve differences with the govt on Hindustan Zinc

Despite a huge war chest to enter new business areas and buy stressed assets, the hurdles faced by existing businesses cast a shadow

From being a metal trader at the age of 19 to becoming a mining, metals and energy magnate, Anil Agarwal has built his business empire through a series of ambitious acquisitions over the past few decades. This includes a 2001 deal to take control of government-owned Bharat Aluminium Company in one of the first tests of India’s efforts to offload state holdings, a majority stake in Hindustan Zinc in 2002, and 58.5 per cent stake in Cairn India for $8.67 billion in 2011. Now, at 68, the promoter of the Vedanta group has placed a fresh $20-billion bet to not only scale up existing businesses, but also enter new areas including semiconductor manufacturing and 5G network solutions. 

At the centre of Agarwal’s new bets is the belief that India is on the cusp of a major economic growth that will throw up vast opportunities for private capital. “In the current geo-political development, India has emerged as a sweet spot. Every country has imposed sanctions on Russia and nobody wants to do business with China. America has been looking for alternative sources of supply. Both India and Indian people are in favour. Indians have become trustworthy partners in every field. India is the only country to have 20 per cent young population. But time is of essence. India has all the potential to become a developed country,” Agarwal told Business Line

The blueprint

To ensure that Vedanta group is ready to take advantage of the opportunities, Agarwal has placed three big bets. The first is to ramp up its existing businesses across aluminium, zinc, and oil and gas businesses. For instance, Cairn Oil & Gas will spend as much as $4 billion over the next three years to more than triple its production. It plans to drill more wells to explore new oil and gas reserves across its 51 blocks in the country.

The second part of the group strategy is to go after stressed assets being sold by the Government under the disinvestment programme and also private companies that are under insolvency.  In 2018, Vedanta Group acquired the stressed asset of Electrosteel Steels for ₹5,320 crore and made its entry into the steel business. Now, Agarwal is chasing companies like Videocon, Shipping Corporation of India and Bharat Petroleum Corporation Ltd. 

The third and the biggest bet being placed by Agarwal is on technology. Vedanta is the first company to make an announcement to invest up to $20 billion (₹1.5 lakh crore) in semiconductor manufacturing after the government unveiled a $10-billion ( ₹76,000-crore) production-linked scheme to boost the electronic chip and display ecosystem in the country.

Following the tie-up with electronics manufacturing giant Foxconn, the company now expects to roll out display units for mobile phones and electronics devices by 2024, and electronic chips from Indian manufacturing plants by 2025. Sterlite Technologies is the other company that Agarwal believes has a huge potential going forward. STL, which has been a strong player in the optical fibre business for many years, is now looking at new opportunities in the 5G telecom networking space, to compete with the likes of Nokia and Ericsson, as it is one of the indigenous companies that has developed homegrown 5G-ready solutions using open source technologies. 

Challenges abound

However, the worry is that some of his previous plans have gone awry.  Last December, Agarwal had announced plans to create a war chest of $10 billion, with an eye on the Indian government’s disinvestment programme. But this fund remains on paper. Agarwal says the government’s divestment pipeline has dried up, so there’s no point talking about this fund at the moment.  Last year, Agarwal surprised many by announcing his bid value of $12 billion to acquire the entire 53 per cent government stake in oil and gas major BPCL, which was slated for disinvestment. But the government scrapped the entire BPCL disinvestment programme. Similarly, Vedanta group firm Twin Star had emerged as the top bidder to acquire the stressed assets of Videocon Industries but this has hit a wall after some bankers moved NCLAT against the deal, stating that the Vedanta offer would lead to a haircut of 96 per cent on a defaulted loan of ₹64,983 crore. Last September, Agarwal joined the race to buy a stake in Shipping Corporation of India and Hindustan Copper, which were being divested by the government. Here, too, the entire process is in limbo. To add to the woes, Vedanta Group’s iron ore mining in Goa and copper production plant in Thoothukudi have remained shut for the last four years. 

Son of the soil

But despite these bottlenecks, Agarwal is unfazed. “For doing business in India, you need to have a lot of patience. In India, the father starts and the son executes. In these kinds of delays, other corporates would have run out of the country but we are sons of the soil. We can undergo the pain,” he says. “The company will grow and can definitely make $50 billion revenue”

Agarwal’s confidence is built on his past failures. Agarwal bought his first company, Shamsher Sterling Cable Company, in 1976 with great ambition, but the next 10 years were the toughest years of his life. Over the next few years he started nine new businesses in various fields: magnetic wires, different cables, aluminium rods, multiplexes with Warner Brothers.  But all of them failed, one after the other. “Today, when I look back, I realise that I was put through those testing times by the cosmos so I could be better prepared to handle the biggest achievement of my life — Vedanta. In order to succeed, you must first learn to fail,” Agarwal said. 

Funding new projects

Will Vedanta be able to finance the new plan, given the stress in existing businesses? Mohit Nigam, Head (PMS), Hem Securities, said funding should not be a problem for the Vedanta Group as they make profit of over $10 billion annually and, if needed, they can also raise debt from the market. Thanks to the sharp rally in metal prices, Vedanta Group has managed to reduce its consolidated debt to ₹53,109 crore as of March-end against ₹57,028 crore. Jitendra Upadhyay, Senior Equity Research Analyst, Bonanza Portfolio, said Vedanta group has announced interim dividend of ₹11,710 crore ($1.56 billion), of which $1.02 billion would be received by holding company Vedanta Resources. The dividend will help them repay large debt maturities of $4 billion for this fiscal. 

Published on May 22, 2022
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