Since its 2012 debut in India, 'ESG' gained significant traction among investors and corporates. Despite over a decade since the inception of sustainability metrics in domestic corporate practices, the latter facets of 'ESG' remain overlooked. 'Social' and 'Governance' are more than just employee benefits and workplaces. They involve creating a sustainable, resilient working cycle that consistently provides opportunities and welfare for all its stakeholders.
In an exclusive interview with Outlook Business, John Slaven, CEO of Vedanta Aluminium, shares his insights on how the company maintains a sustainable business cycle through investments in renewable energy, expanding its value-added product range through R&D efforts and maintaining an integrated supply chain within India.
How do you think the recent geopolitical events, like the Red Sea crisis and the conflict between Ukraine and Russia, will impact the metal supply chain, and do you expect any disruptions that could dampen the positive outlook in the industry?
The world seems to be in a bit of a wait-and-see mode due to recent events such as COVID, the conflict in Ukraine, and the tensions in the Middle East. These uncertainties have definitely caused some concern. However, for the business we're in, there's been a generally positive trend.
While demand growth has remained relatively flat, price levels have been strong. One advantage we have at Vedanta is our fully domestic supply chain here in India. Our operations are fully integrated and self-sufficient. For instance, we mine bauxite right next to our refinery within a few kilometers. Our supply chain extends seamlessly from our bauxite mines to the refinery and then to the smelters.
The coal mines supply the needs of our coal-fired power stations. This setup gives us an advantage as aluminium producers. Even when global supply chains face disruptions due to conflicts or other crises, our supply chain remains intact. We are located in a resource-rich province, connected by rail, ensuring a fully domestic and self-sufficient supply chain. So, while the world may experience chaos and interruptions, everything we produce is made in India, right here in our facilities.
Since the end of COVID, there have been fluctuations in demand cycles. Now if we shift our focus from retail demand to corporate demand, what trends have you observed?
Initially, during the first three to four months of COVID, there was a significant downturn in demand. However, there was a rapid recovery thereafter, similar to a V-shaped recovery than the earlier expected U or L shape recovery. Demand for key resources, including aluminium, quickly rebounded. Domestically, demand growth has averaged to an impressive 14 per cent over the past three years, rising to 16 per cent in the current year.
This sustained demand is driven by several factors, for instance, India is witnessing robust economic growth. Now, as economic activity increases, the demand cycle experiences a corresponding uptick, particularly in infrastructure development and the production of consumer durables. This includes investments in motor vehicles, both two-wheelers and four-wheelers, which require significant amounts of aluminium.
There is also a growing trend towards a carbon-constrained world, with a focus on renewable energy sources like solar and wind power. The development of solar and wind farms, EVs, and energy-efficient buildings all contribute to the demand for aluminium. The properties of this metal, such as recyclability, conductivity, formability, and corrosion resistance make it the preferred metal for many applications.
Considering the extensive 750+ product portfolio, there must be a significant expenditure going into the R&D segment. Can you provide some insights into this?
We invest in R&D to develop proprietary alloys and expand our physical production capacity for value-added products. Our goal is to increase our production capacity from 2.4 million tonnes to 2.6 million tonnes, with value-added products comprising 60 per cent to 90 per cent of our total production capacity. This expansion involves investments in technology for production equipment, chemical composition (alloy composition), and metallurgical processes. The combination of these elements ensures that our products meet the specific requirements of our customers' applications.
Lately, sustainability has become a buzz word for companies, and Vedanta Aluminium seems to be progressing swiftly in this space. However, transitioning to sustainable practices often involves adopting new technologies and methods, which can create uncertainty among investors. Do you think this uncertainty contributed to the downgrade of Vedanta's bonds last year?
The downgrade of Vedanta's bonds last year is not related to our focus on sustainability. Our investors are actually very supportive of our sustainability initiatives. In fact, we have received recognition for our sustainability efforts, including topping the aluminium category in the S&P Global Corporate Sustainability Assessment.
The programs and initiatives you see today are not recent developments but have been established over an extended period. While we have made significant progress in many aspects of sustainability, one area where we need to focus more is reducing our CO2 footprint in the aluminium segment. Currently, we produce metal using coal-fired power, but we have ambitious plans to transition to renewable energy sources. We aim to have 10 per cent of our energy mix from renewables by 2026 and 30 per cent by 2030. This transition is a key focus for us as we strive to make our operations more sustainable.
The company's ambitious growth program across its diversified portfolio requires significant investment in both equity and debt. This investment is essential for growth but may create pressure on debt levels.
What challenges does Vedanta Aluminium foresee over the next five to ten years, considering the promising future of aluminium?
As we continue to grow, one of our main challenges lies in attracting and retaining talent for future leadership roles. While we have clarity on our capacity, technology, and product development, the focus remains on building a strong workforce. Fortunately, India offers a vast pool of highly educated and hardworking individuals, but concerted efforts are needed to harness this resource effectively.
The company's production reached 2.29 million tonnes in FY23, translating to over 60 per cent of India's aluminium consumption. The expansive plant spans a periphery of 65-70 kilometers, is situated in Jharsuguda, and has a 1.8 MTPA smelter along with a thermal power generation facility with a capacity of 3615 MW. The plant provides direct employment to 15,000 people.
