Hoping to complete merger by December, January: Anil Agarwal, Vedanta

In an interview to ET Now, Anil Agarwal, Founder Chairman, Vedanta, shares talks about the Cairn-Vedanta merger offer. Edited excerpts:

ET Now: One thing that dominates the analysts results report is the fact that although the deal may go through this time, it is time definitely better for the shareholders but still many say it is negative for Cairn shareholders. Your thoughts on that?

Anil Agarwal: I think it is more positive for the Cairn shareholders. The way we have sweetened the deal, the way it looks like, because they will get a completely diversified share, remaining only for the oil.

Oil is always a little bit risky. But when you have a diversified portfolio where you have copper, aluminium, zinc, iron ore and oil and gas together, it has better comfort. It has better valuation and we all over the world feel that this is the better than remaining with the single commodity exposure.

ET Now: In this case, we have a company, Vedanta, which has got huge debt and there is another company Cairn which has got loads of cash, I mean is that why the marriage was so important to start with?

Anil Agarwal: Peers, they have similar debts. It is a very normal situation. This is tremendous track record and merging these two together makes a very win-win position.

It is 60% owned by Vedanta and 40% owned by the others and everybody is coming together to make this company as a company out of India, one of the most resourced company out of India that is how we look at it.

ET Now: The merger you first announce the merger almost a year back and we have seen the kind of resistance that you faced from institutional shareholders what makes you so confident that the deal will go through this time around?

Anil Agarwal: We are doing the right thing. It is definitely up to the shareholders because shareholder voting will take place, we are doing everything in the interest of the shareholder and how we can make them comfortable if you are creating value we feel that the tremendous value will be created by doing this.

ET Now: Any word from the government by when they are looking to divest their stake in Hindustan Zinc?

Anil Agarwal: We had no dialogue recently. Government is definitely looking forward to divest and as and when they will be ready we will be ready too.

ET Now: When it comes to Cairn Plc, what is the kind of word that you are getting from them in terms of the merger, because we know for a fact that they were not very comfortable with Cairn India becoming more than oil play, they were more comfortable with Cairn being oil only player to start with?

Anil Agarwal: They own 10% of the company, we own 60% and we are running the company. We understand how we can create more value and we have done everything possible to make sure everybody is happy. I have no doubt in my mind that what we have done is the best for all the shareholder.

ET Now: The crude cycle is also turning for the good I mean what is the sort of an outlook you have for crude prices by the year end?

Anil Agarwal: Crude will remain between 50, 55, 60. This is the range all over the world. But for India it is very important. India should produce at least 50% of their requirement of crude, and that is the biggest thing in Cairn. We are looking to increase the production of crude and gas.

ET Now: Vedanta’s cash flows will definitely improve post the merger deal. What is the kind of deployment that you are looking at going forward?

Anil Agarwal: We have always had three baskets. This will be a cash generation company altogether, because aluminium is doing very good, copper is doing well, iron ore, as you have seen we have opened up; this year will be a very good for the iron ore, zinc will be doing extremely well, oil and gas will do well.

Putting this together, we will have good cash generation and we will be looking some expansion, some we will it for reserve, that is how are we looking. At the moment we have nothing in hand to acquire anything, but we have a plant to invest about $2 billion investment for the capital expenditure.

ET Now: Post the merger deal, if it finally goes through, the capex figures will definitely be reworked, what is the kind of money that you are looking to deploy into capex?

Anil Agarwal: About $2 billion to $2.5 billion, we have to look at again but about $2 billion.

ET Now: So the capex will remain similar even after the deal is completed?

Anil Agarwal: Yes, at the moment this is the plan, but it may change.

ET Now: Give us a sense of your plans when it comes to aluminium and zinc, what is the kind of cash deployment you are looking at in those businesses?

Anil Agarwal: See, aluminium is the metal for the country. We produce about three million ton of metal, India should produce 20 million of metal because this is one aluminium which is replacing steel, which is non-corrosive material, it is green metal... Whether it is the automobile sector, electrical sector, aerospace, construction, aluminium will be used and you need lot of SMEs to use the aluminium.

SMEs are also need of the hour so for us we will be producing about 1.3 million ton of aluminium and we will have around $400-500 million EBITDA this year for the aluminium. Zinc, we have said that we will be producing over a million ton and with the EBITDA of about $1.2 billion.

ET Now: In fact, when it comes to aluminium you are among the lowest cost producers of aluminium how do you maintain that competitive edge going forward?

Anil Agarwal: India is a place where you have bauxite, you have coal, you have good cost of people. Through combination of that we will maintain our cost in aluminium.

ET Now: Coming back to the mergerm what are the next few steps that you will need to take to complete the merger process?

Anil Agarwal: I think the court will convene the meeting in the first week of September and once the meeting is convened, then the process will take another about one and a half to two months time. I believe by December, January we should complete.