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We have one of the world's best balance sheets: Anil Agarwal

The founder and chairman of Vedanta speaks to Forbes India on diversifying into semiconductors, making the company debt-free, and his succession plans

Manu Balachandran
Published: May 12, 2023 01:54:53 PM IST
Updated: May 12, 2023 04:37:12 PM IST

We have one of the world's best balance sheets: Anil AgarwalAnil Agarwal, chairman and founder of Vedanta Resources, is in the midst of setting up what could be India’s first semiconductor plant in partnership with Foxconn, as and when government approvals come by. Image: KT Watson

In India’s business annals, Anil Agarwal most certainly holds some distinction. 

A former scrap dealer, who shifted to Mumbai from Patna, Agarwal’s story is the quintessential rags-to-riches one. Today, he lords over the $16 billion Vedanta Resources, a diversified conglomerate with interests across manufacturing zinc, aluminium, oil and gas, iron ore, steel and power among others, making it one of the largest natural resources conglomerates in the world.

Agarwal now wants more. He is in the midst of setting up what could be India’s first semiconductor plant in partnership with Foxconn, as and when government approvals come by. Vedanta has set up two subsidiaries, Vedanta Foxconn Semiconductors Limited (VFSL), which will set up a fab foundry to manufacture 28 nanometre (nm) and 40 nm wafers (slices of semiconductor material used to make integrated circuits), and Vedanta Displays Limited (VDL) that will make glass panels for applications such as TV, IT, automobiles and smartphones.  

The entire project is estimated to cost Rs1.54 lakh crore, with the central government providing a 50 percent subsidy to both projects, as part of its $10 billion (Rs76,000 crore) Indian Semiconductor Mission package to promote semiconductor manufacturing in India.  

The plans to diversify also come amidst a difficult time for the London-headquartered company, with concerns about its high debt and a recent face-off with the Indian government. New Delhi did not allow Agarwal to sell Vedanta’s zinc assets to Hindustan Zinc Ltd, a company that Vedanta owns with minority shareholding from the government. That deal would have helped Vedanta Group fill its coffers by as much as $2.98 billion.  

In a Zoom interview with Forbes India from London, where he resides, Agarwal opened up about his decision to foray into semiconductors, the partnership with Foxconn, bottlenecks in India, succession plans and more importantly, Vedanta’s debt situation. Edited excerpts.

Q. What prompted Vedanta to join the fray in setting up a semiconductor business?
In the last 50 years, whenever I go to the US or the West, I wonder why India, which has everything, is not better than them. I have always wondered how can I contribute. But I will never do anything to just make money. Money is always the by-product. I wanted to do something which is not being made in India, which will make India better.

Also read: Inside Vedanta's gigantic semiconductor ambitions

Once the government announced the semiconductor plan, with Foxconn it was a mutual alignment, where they wanted somebody who has a clean room experience. This (policy) can only happen because of Prime Minister Modi's thinking. Only two or three countries make semiconductors and what we have is a daring policy.  

The whole idea is that once you have semiconductors and glass displays, people can make automobile components, and laptops, among others. We have 1.4 billion people and half of the people are around 25 years old. Everybody needs a job and if they have access to information, they will find their livelihood. A laptop is a window to the world. But you can't afford to buy it at Rs 1.5 lakh. It has to be Rs 20,000 or so. And there are two components in that, which are chips and glass. We are a jugadu nation and the whole world fears that. Once we have the fundamental technology in hand, we can build things cheap.  

Q. Would that mean that you might consider moving into manufacturing laptops or mobile phones?
I'm a very focused man, and now I am only looking at cracking the hard part. Then we'll see.  

Q. Was the decision to buy AvanStrate in 2018 with an eye to foray into semiconductor manufacturing? (Vedanta bought AvanStrate, a Japanese manufacturer of LCD glass substrates, in 2018).
There are only three companies in the glass business, and because the future in India is only in two or three sectors. Seventy percent of our imports are between natural resources and electronics. For electronics, the basic raw material is chips and glass. So I thought that if I can hold on to AvanStrate, I'll have a foundation to build on.  

We have one of the world's best balance sheets: Anil Agarwal

Q. But setting up a semiconductor plant requires a lot of expertise. How did you stitch the partnership with Foxconn?
Young Liu, the chairman at Foxconn, was looking for somebody enthusiastic, who can take quick decisions. He may have thought that a big company will take time, but here is a company they can directly talk to and who is already in the business. At first sight, we talked, and we shook hands to move forward.  

And then, we said that there should be one leader. There cannot be two drivers in a car. One can be the navigator, and he suggested that because you are the son-of-the-soil you drive the car. We'll sit by the side, and we'll take equity partnership and full responsibility for technology. Us being son-of-the-soil, we know the local rules and regulations, and can hire people.  

Q. Have all the requirements laid out by the government been met? Or do you still have some more work to do before you can start work on setting up the plant?
As soon as the government announced the scheme, we tied up with Foxconn, made a scheme and gave it to the government. The government asked us to find a location and we have announced Gujarat.  

But there is paperwork. When one licence comes, they (the government) say two more licences are required. So that will go on. I don’t have an answer. According to me, we are going ahead. But we are definitely confident of meeting our revenue targets. (Vedanta foresees revenues from its semiconductor business starting in 2027 and by 2025 in its display business.)

Also read: India woos semiconductor makers in quest to become key player

Q. To fund this massive project of almost $20 billion under current circumstances is not very easy. While the government will provide some subsidies, how are you looking to fund the remaining? 
Today, across the world, $3 trillion of funds is available and not even 20 percent has been deployed for infrastructure or semiconductors. We just had a little fundraise for Serenitica (a renewable energy company backed by Vedanta which raised $250 million from KKR), and we had ten times more funds available with a huge premium.  

For the current project, we will put our 30 percent equity, which we are very comfortable with. For the rest, there will be a queue of people because these kinds of projects are not there in the world, especially with Foxconn, David Reed, and all the top technicians coming.  

Funding will never be a problem. I don't want to be greedy, that I want 30 multiple or 40 multiple. Whatever is the right multiple, we will work on it. There is enough water in the well for this kind of project.  

Q. Considering all the recent concerns about Vedanta’s high debt situation, how confident are you about raising funds? 
If you look at the overall number, we have one of the best balance sheets in the world.

We have a debt-equity ratio of 1:2, which is very comfortable. We have put in $80 billion in cash in the last 25 years in the company. We have put $22 billion of cash in oil and gas. We have put $20 billion into zinc, $20 billion into aluminium, and $20 billion in the other business that we have.  

Against that, the total debt in the company is $13 billion ($6.5 billion at Vedanta Limited and $6.5 billion at Vedanta Resources Limited). Against that $13 billion, we make a profit of $8 billion. It is one of the best balance sheets. We have certain payments that are getting due, and we are very comfortable making those payments.  

Also read: Anil Agarwal: India's minesweeper

It’s like when people watch a football match. They'll be on edge anticipating a goal, but that doesn’t happen because the goalkeeper is strong. So, it’s more of creating a perception.  

When my daughter came to study in London, even though she was brilliant, there was huge discrimination. I told her, if you want to be here, you must be 25 percent better. We are newcomers and we must be 25 percent better than the people who are established. Vedanta is a cash-flow company. We make Rs 60,000 crore cash every year. Maybe one, or two companies in India make cash between Rs 50,000 to Rs 60,000 crore every year.  

Q. Do you then reckon that the recent events at Adani have led to closer scrutiny of the financials of Indian companies?
We are made of rock. The governance is very strong and there is no greed. I've always been in the business of cash flow and in our business, there's no competition. Nobody else makes oil and gas, or zinc, or silver. Only Hindalco makes aluminium, and we are three times bigger than Hindalco. Nobody makes optical fibre or semiconductors. In business, there are going to be successes and failures and if somebody likes to put you in a club, I can't stop them.  

Also read: Inside the shaken house of Adani

Q. If you are so strong with cash flows, why are you pursuing being a zero-debt company? Is all the constant chatter about debt bothering you?
This is our aim at the parent company. The parent company (Vedanta Resources Limited) today has $6.5 billion of debt. We want to make it zero in a couple of years. We want to be something like Tata Sons where we have all these companies that are making cash flow at the top. We are following their strategy. So, we said, at the parent company, we should be debt-free. With the plan that we have, we should be debt-free in four years.  

Q. Does that mean you might look at diluting your stake?
We have a 70 percent holding. I have no plan at all to reduce my equity. But if tomorrow, somebody comes and gives me a phenomenal price, I will take it to the board. But there's no plan at this point. I'm here to create value.  

Also read: Beneath the Surface: How Hindustan Zinc grew to become the world's second largest zinc producer

Q. With the plan to foray into semiconductors, is there an attempt at pivoting the company into newer frontiers, and to emerge as a technology company from being just a natural resources company? 
We’ll need both. Everybody is talking about technology. But, if you want to develop technology, you need more copper, silver or zinc. According to me, both are the same (natural resources and technology). One part of the business can be natural resource and the other can be the technology side where we have renewable, transmission, semiconductor, glass display, and optical fibre.  

I enjoy each of my businesses and they are unique. Even today, if somebody wants to build my business, it will take 10 years, and $20 billion. Each of my businesses can today develop at least 100-400 factories.

Q. With India emerging as a dark horse amidst a possible slowdown, are there bottlenecks in India that need to be ironed out?  
Absolutely. There is still discrimination between the public sector and the private sector. In the public sector, they are funding day and night. The PM has said that government has no business to be in business. The top line of the government has understood, but the government machinery and the judiciary have not understood that. Money making is not a sin.  

Q. There is a lot of focus on Make in India. Has the commodities market in India kept pace with that?  
We had a shortage of grain some 20-30 years back. Today, above the ground, we are self-sufficient. We have enough to eat. But everything is subsidised. The seed, electricity, crop and fertiliser are subsidised. It’s a one-way traffic that the government is funding. If you go below the ground, there's so much wealth. Each state can make so much money.

In Odisha, for instance, the revenue from mining was Rs 5,000 crore. In 2014, I was the only one who said the allocation of mines should not be in the hand of a minister or others. It should be a public auction. Because of that, the Odisha government, from Rs 5,000 crore, makes Rs 50,000 crore. They don't know how to spend that money. They are debt-free.  

When I said this, all the NGOs jumped on me. They stopped my mine in Niyamgiri. But mining is very important. Oil and gas are very important. How long will you import? If you want to eradicate poverty, you have to go below the ground, whether it is gold, silver or oil. People created a myth that we don’t have (these resources).

Today, exploration is only at 2 percent in India. The smallest country does 10 percent exploration. Exploration is being done by the government or by geological surveys or they say, you do the exploration and give back if you make the discovery. Who will do the exploration then? So these are the things that are coming up and taking time. But I have no doubt this will be sorted. Government policy could be simplified and as the PM says, minimum government, maximum governance. Just follow that.  

Q. You were very keen that Hindustan Zinc acquire the zinc business of Vedanta, which was blocked by the government. Has that hurt you?  
When you sell something, you come with a condition. I'm giving you x percentage now and after one year I'll give 20 percent. The proper formula has been put into the agreement. We got all the clearances from the government. Then the government machinery says, don’t do it. India's government has to honour the commitment.  

Because we are Indian, we adjust and accept the culture. But Cairn has gone through the court and seized their plane and property outside and they had to pay that money. They had to honour the commitment. The same thing is happening in Hindustan Zinc and Balco. Somehow this mindset that people will make more money has to go away.  

Q. You are now approaching 70. Have you thought of succession planning at Vedanta?  
Vedanta is my dream. And I want Vedanta to be an institution that will be around for 500 years. The family will not be in the management. They can be the shareholder, but we have to have top-class management. Any company built by an individual needs to move on, and that’s my vision.   

Q. With the global economy expected to slip into a recession, how do you see the commodities market? And the potential that India offers in the years to come?  
India is in a very different situation. Globally, there is a focus on China plus one. We had our lull period for some time. Today, it has the human, natural, and brain resources. It is a democratic country which means this is our time. We also have a strong government. I'm sitting in London and everybody is negative, thinking of slowdown or high inflation. In India, it’s the reverse. 

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