Vedanta Ltd’s capacity expansion will be done while keeping the goal of cost control at the forefront of the process. Such was the message delivered by the firm’s CEO Srinivasan Venkatakrishnan in an interview with financial media earlier this week.
“Any expansion plans, we will do it with the strictest capital discipline and balance sheet focus,” Venkatakrishnan told Bloomberg. “We will control the purse strings quite tightly.”
India’s premier aluminium producer will increase production at its Odisha refinery by double by 2022, bumping output to 4 million metric tons per annum. Aluminium capacity is to increase by almost one-third over that time as well to 3 million metric tons per annum, said Venkatakrishnan. with a goal of US$1,500 or less.
“Every business has to earn its right to spend the capital before we spend the capital,” opined Venkatakrishnan. “Hence, we said let’s first drive the cost down before we actually go ahead with the expansion.”
Vedanta has already gone a great distance in the direction of low production costs, cutting the per-ton cost of production from US$2,200 last year to a low of US$1,764 earlier this year thanks to lower alumina prices and a more stable supply of coal.
“We are targeting coal security of around 90% of our requirement from around 72% now and that would see our cost come down,” he explained.
Despite struggling against tepid demand and a global commodities downturn resulting from trade tensions between Washington, D.C. and Beijing, Venkatakrishnan believes Vedanta’s recent bottom-line struggles present an opportunity for cutting costs.
“I see the current slowdown as an opportunity,” he concluded. We will use this opportunity to pull the costs down even further, improve efficiencies and widen margins, so that when the prices start to rally, you can actually cream the extra benefit that comes in and apply a fat chunk of it for a larger purpose.”