New Vedanta CEO Venkatakrishnan optimistic on future for Indian group

Vedanta CEO Srinivasan Venkatakrishnan Pic: Martin Rhodes

VEDANTA had potential to become one of the world’s largest resource companies, said its newly appointed CEO, Srinivasan Venkatakrishnan.

Drawing on an interview with PTI, Bloomberg News quoted Ventakakrishnan to have said: “If you look at diversified companies, they come with a bright and strong heritage. Vedanta has a strong heritage in terms of India. Exxon has roots as an American company, BP as a UK company. Likewise, Vedanta, I believe, can grow broader than India without compromising on the growth in India, and becoming one of the largest resource companies”.

Vedanta is due to start production at a big zinc mine in South Africa later this year and Venkat said opportunities in Africa are huge. “[Anil] Agarwal [executive chairman of Vedanta] is the single biggest foreign investor in South Africa,” said Venkatakrishnan. “Outlook is bright. I am very optimistic in terms of future,” he said.

Venkatakrishnan was previously CEO of AngloGold Ashanti.

5 COMMENTS

  1. Dear Fellow Readers,

    I am fan of Venkat. I think he is one of the most hardworking exec that i have ever encountered. The gent actually sends emails on a Saturday at 23H00 and the next Sunday at 05H00. If readers doubt my bona fide, read about his work ethic as described by Sam Jonah ( Remaking of Ashanti) in his book.

    It was a career decision for him to join Vedanta , and it sorely needs someone of his caliber. The following are on his IN-tray :
    1. Improving profitability : The group generates a meagre FCF= $800M on a Rev line > $15B, in whats a strong commodity price market of FY18 ( March 2017- March 2018). That cannot be sustainable when you have a ND = >$9,4Bn. You just cannot pay down the debt with such poor profitability.

    2. Resolve dithering M&A Strategy : Vedanta has done silly deals, to put it diplomatically , in the last 10 yrs. Konkola Mines are a mess and do not fit in on any portfolio of a MCap >$12B Mining company. The deal for Gamsbergs & Skorpion deal was just embarrassin. Vedanta paid $1,5B for these assets in 2010, to date ( after 8yrs) , it has realised only cum.FCF= ±$600M, and yet there is a reinvestment related to Gamsberg of some $400M. At current Zn = $2500/t , tis project is a put option for materially higher ( > $3500/t) Zn price.

    3. Zinc India Potential : If there is a jewel in the crown of Vedanta, it is its stake in Hindustan Zinc. I believe these assets are delivering below potential. At >900t/yr production, I see EBITDA potential north of $3Bn ( currently ±$1,8Bn ) , if modernised and under proper stewardship. It just leaves a lot to be desired. Even Glencore’s Kazzinc are nowhere near these Indian Zn-Ag-Pb mines in orebody potential , yet their operating margins are superior. Sure, they Operate at Tier-1 EBITDA margins of >50% , but this should be >80%.

    4.Debt-laden Vedanta : The group carries a lot of debt. The Interest bill for FY18 was >$1,45Bn ( FY17 : $1,34Bn) on the EBITDA = $4015M. That’s more than 30% towards this cash leakage. Furthermore its carrying loans of $11,3Bn ( FY17 :$13,8Bn) , thus cost of borrowings is 9,7%/yr ( I borrow for much less than that!). The tenures are demanding too with FY19 = $1,6Bn , then 1-3yrs = $4,6Bn , more than 3 yrs = $6,7Bn. Vedanta had cash of $800M as of March 2018 (FY18 end). Volcan (Mr Agarwal) himself has more than $3Bn of debt related to Anglo stake to work about. The normal ND:EBITDA is 2,7x, at this favourable time in the cycle. Can you imagine when the commodity cycle were to go sour? None of the major diversified trade at that leverage ratio!

    5. Organisation Structure : The vedanta group resembles the 1990’s Anglo American. There is just too much there for one to properly discern. It is just too gabbled up , including its strategy. The Oil & Gas have potential and a lot was invested to get them , including even the deal with Cairn. So it will be a tough sell to Mr Agarwal for any proposal to divest. I propose integrating this division more into the group and less autonomy. Zinc International ( Gamsberg et al) should be put on a strict capital allocation treadmill, they should fund their way and pay dividends. Indian Iron Ore are a lost course, and distraction, and should be divested. Konkola should be sold to the Chinese soonest and Cu India should be retained. A more focused Vedanta ( Zinc , Cu , Oil&Gas & Al) should emerge. A case can be made to bundle Zinc International ( Gamsberg etc) with Cu Zambia ( Konkola etc) together, and let the spectators ( list on JSE) have a filled day! ( Get the palookas at PIC to take a majority stake !).

    Other than the above, Venkat will surely join the Anglo BoD as Mr Agarwal rep , and then you have the old AGA tigers ( Cutifani, O’Neill & Venkat) together again on the Invest Comm. I wish the senior managers at Anglo well and good health!

    Truly Yours ,
    GS

      • Dear David,

        Thanks for the compliment. But pls do carry negative analysis about your sponsors as well , else miningmx.com will be a mouthpiece of Mineral Council’s cabal. Miningmx should be a source of unbiased news about mining (warts and all). You still have not published my comment on Mathunjwa taking on Implats.

        Truly yours
        GS

      • Hi GS

        Miningmx’s business case is objective content. All sponsors know this and so far I haven’t had many questions regarding objectivity.
        As for the Mineral Council ‘cabal’ … Well, let me introduce you to some Journalism 101 that we learnt back at university. Guerilla or freedom fighter? Cabal or lobby group? It’s all in the word choice which is probably why your comments on Mathunjwa didn’t pass muster. Knowing you, you probably said something that might be deemed defamatory, inflamatory i.e. edging precariously close to hate speech.

        Whilst I’m atop the soapbox: in terms of positioning, Miningmx is firmly pro-business; about this, I make no apologies.

        Regards

        David

  2. Dear David,

    I never use hate speech or inflammatory words. True, i call “a spade a spade”. And my comments of what Mathunjwa should do to Implats are well within reason. I am pro-business , hence my comments & analysis for the benefit of other members, and theirs on my inputs. Dialogue is what needs to be encouraged else we will misconstrue one another.

    In all my comments on miningmx , my facts withstand scrutiny. Hence once made, there is little comeback & you receive calls from “powers that be” seeking to silence me. Implats have mismanaged the process badly, did not follow due processes , and are seeking to impose 1980’s baaskap on its workers. Blacks must reject this new Apartheid tactic , its outdated & extremely demeaning! There is a price for that , ask Lonmin ! Or better ask RSA President ( Mr Ramaphosa)!

    Yours Truly,
    GS

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