Will Vedanta benefit from massive diversification?

Billionaire Anil Agarwal-led Vedanta group's aggressive diversification into new segments through acquisitions has raised investor confidence though there are worries related to debt. The metals and mining giant is in the fray to buy petroleum retailer BPCL and consumer electronics manufacturer Videocon. Besides, it plans to double the steel making capacity at the recently acquired bankrupt company Electrosteel.

All these three areas of business are new to Vedanta. It has submitted the expression of interest (EoI) for BPCL and is likely to qualify for giving financial bid. Private equity firms Apollo Global and I Squared Capital's arm Think Gas have also submitted EoIs.

The lenders have agreed to accept Vedanta group's Rs 5,000- Rs 6,000 crore offer for buying bankrupt consumer electronics company Videocon Industries after months long negotiations with prospective bidders. Vedanta is believed to be the preferred bidder.

Videocon's former promoter Venugopal Dhoot has also offered to pay Rs 31,289 crore for withdrawal of insolvency proceedings against 15 of the group companies. Vedanta's repayment track record and the better balance sheet helped it to emerge as preferred bidder, said sources. But consumer electronics will be a completely a new area for Anil Agarwal.

Vedanta acquired Electrosteel for Rs 5,000 crore in 2018 and renamed it as ESL Steel Limited. After turning around the company in the first year itself, the company had announced an investment of around Rs 4,000-5,000 crore to double the production capacity of the plant at Bokaro to nearly 3 million tonnes (mt) in the next two years.

While the timing seems to be perfect as the economy is in a bounce-back phase, the investors and analysts are concerned about the debt of the parent company Vedanta Resources. Moody's Investors Service said last month that it had placed Vedanta Resources's B1 corporate family rating (CFR) under review for downgrade. The gross debt of India-listed Vedanta Ltd was at Rs 62,759 crore in September.

The government is divesting its entire 52.98 per cent stake in BPCL, which is valued Rs 86,000 crore in the stock market. The oil marketing company controls around 15.33 per cent of India's oil refining capacity of 249.8 million tonnes and 22 per cent of fuel marketing share. BPCL has four refineries in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh), and Numaligarh (Assam) with a combined capacity of 38.3 million tonnes per annum.

The flagship company Vedanta Ltd's share price jumped 58 per cent to Rs 145 in the last 6 weeks.

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