Vedanta to Sell Steel Business in Debt Reduction Move

financial year, chairman Anil Agarwal announced. This strategic move comes after the company initiated a comprehensive review of these businesses in June last year. Originally, the demerger was expected to be completed by March 2024. However, Agarwal has clarified that the sale will only proceed if the company secures the “right” price.

Vedanta’s acquisition of Electrosteel Steels Ltd in 2018 through the insolvency process is a key component of this divestment plan. The decision to divest the steel business aligns with Vedanta’s broader strategy to reduce its debt burden. In the company’s annual report for the financial year 2023-24 (April-March), Agarwal highlighted the significant progress made in reducing debt at the holding company level, Vedanta Resources. Over the past two years, Vedanta Resources has reduced its debt by $3.7 billion, approaching its target of a $4 billion reduction.

Agarwal reiterated the company’s commitment to further deleverage Vedanta Resources by an additional $3 billion over the next three years. As of March 31, 2024, Vedanta Resources had a debt of $6 billion. The company also successfully restructured $3.2 billion worth of bonds last year, extending their maturity up to 2028-29. This restructuring has provided Vedanta with greater liquidity flexibility, enabling it to allocate cash flows to critical capital expenditure projects.

For the current year, Vedanta has earmarked $1.9 billion for capital expenditure, a notable increase from the $1.4 billion spent last year. A significant portion of this investment will be directed towards expanding the company’s aluminium operations. Vedanta aims to increase its alumina refinery capacity to 6 million tonnes per year by FY26, with a target smelting capacity of 3 million tonnes in the latter half of this year.

Executive director Arun Misra and chief financial officer Ajay Goel emphasized that the aluminium business is expected to drive substantial growth, projecting a multi-fold increase in EBITDA margin. At the 3 million tonnes per annum capacity, the aluminium segment alone is anticipated to generate over $4 billion in EBITDA.

Beyond aluminium, Vedanta is also focusing on expanding capacities in its zinc operations, oil and gas business, and iron ore business. The company plans to enhance production capacity at its ferrochrome operations from the current 150 KTPA to 450 KTPA by FY27, positioning it as the largest producer of ferrochrome in India.

The company’s financial performance in FY24 underscores its robust operational capabilities. Vedanta generated an operating profit of Rs 36,455 crore, with free cash flow standing at Rs 11,427 crore. These strong financials provide a solid foundation for the company’s ambitious expansion and debt reduction plans.

In summary, Vedanta Ltd’s decision to monetize its steel and raw materials business is a strategic move aimed at significantly reducing its debt. This initiative is part of a broader effort to enhance liquidity, invest in key growth areas, and strengthen the company’s financial position. As Vedanta continues to implement its strategic plans, it remains focused on achieving sustainable growth and delivering value to its stakeholders.