Vedanta to make a $20 billion capex bet on commodities

Speaking at the 56th AGM of Vedanta, Anil Agarwal committed investments of $20 billion across various minerals and metals that Vedanta is present in. Vedanta is a diversified commodity conglomerate with interests in aluminium, copper, silver, bauxite, zinc, ferrochrome and oil. 

The reason for this aggression is not hard to seek. Commodities ranging from copper to aluminium to zinc are in a massive bull market rally and the evidence is there in LME prices. It is not certain whether this is the beginning of a long-term commodity cycle. However, analysts are betting on massive commodity demand likely to be generated from electric cars to alternate energy. In short, the time is ripe for a massive conglomerate like Vedanta to embark on aggressive capex investment.

In terms of specific investment time-table, Vedanta has only crystallized investments worth $5 billion in the next 3 years, of which $2 billion will be into oil. In addition, Vedanta plans to double its silver production, considering its diverse applications in everything from microchips to renewable energy. Vedanta also plans to double its steel capacity.

Vedanta is betting on the commodity-GDP effect. The estimate is that, as India’s GDP expands from the current level of $2.6 trillion to $5 trillion, the contribution of mining and metals to the GDP will grow exponentially. Currently, mining contributes 1.5% of GDP and metals contribute another 2% of GDP. Vedanta is expecting this combined contribution to increase from the current 3.5% to the range of 7-10% by the time GDP scales to $5 trillion. The opportunity is certainly massive.

The trigger for this announcement has certainly been the scrapping of retrospective tax amendment, that has given greater confidence to global investors to commit investments to India.