Face value

Tested mettle

Jul 26th 2007
From The Economist print edition

Anil Agarwal has built a mining and metals giant in less than a decade

AS HE looks out over Mumbai's main airport, where a queue of planes wait their turn to ascend into the leaden monsoon sky, Anil Agarwal describes the transformation he has watched through his office window. In three years, he says, “the number of planes has grown four times—can you imagine?” Many Indian-based companies have experienced galloping growth in recent years, airlines among them. But few have kept pace with Mr Agarwal's Vedanta Resources, a London-listed mining and metals group, of which he is the chairman, founder and, with his family, owner of a 54% stake.

When Mr Agarwal founded the company in 1979 he was a scrap-metal merchant with ambitions to own a cable-making company. By the early 1990s, when India embarked on the liberal reforms that were to enable him to make his fortune, he was battling to establish a modest copper smelter. But in the past two years the market capitalisation of Vedanta—named after Mr Agarwal's mother—has increased fivefold to $10 billion. Last month 20% of the group's flagship company, Sterlite Industries, one of India's biggest producers of zinc, copper and aluminium, was floated on the New York Stock Exchange for over $2 billion—the biggest overseas sale of shares by an Indian company. Last year Vedanta turned over $6.5 billion, an increase of 76% on the previous year, and nearly half of it profit.

High metal prices, driven in part by India's own rapid growth, help explain the surge. But so do Mr Agarwal's instincts for his market: Vedanta's float in London in 2003 proved to be brilliantly timed. He has been equally adept at turning around a series of unprofitable, formerly state-owned companies. The group encountered little competition when it bid for a controlling stake in Hindustan Zinc, a loss-making state-owned firm, in 2002. It proceeded to cut its costs in half and increase its capacity fivefold. Hindustan Zinc is now the group's most profitable unit and the lowest-cost zinc producer in the world. With such a record, Mr Agarwal laughs at the prospect of lower prices. “Everyone's going to die,” he says. “But we must die last.”

In an industry in which size matters, he is pushing ahead with Vedanta's expansion. The group plans to invest $8 billion in the next three years to consolidate existing ventures and launch new ones. In April he extended his reach into iron ore by acquiring 51% of Sesa Goa, India's largest iron-ore exporter. The group also has ambitions in power generation, arguably the biggest constraint on India's growth. It has proposed building a $1.9 billion power station in Orissa, where it is also awaiting approval for a vast greenfield bauxite mine. Despite big investments in Australia, Zambia and elsewhere, India is where Mr Agarwal sees the group's greatest potential for growth. The group is skilled at handling the country's sometimes slippery officialdom—unlike foreign-based rivals, such as BHP Billiton and Anglo American, which have no presence in India. “It helps that we understand India,” says Mr Agarwal.

In a way, he is emblematic of India's emergence. Around half of India's dozen richest businessmen are self-made men. But none more so than Mr Agarwal, now 53, whose personal fortune is estimated at $5.4 billion. When he left school at 15, he knew no English, the language of India's seasoned elite. Even after a decade based in London, his English remains imperfect. “We are very humble,” he says, his unwitting use of the royal “we” perhaps making him sound rather grander than he intended.

Start small, think big

In the 1990s Mr Agarwal's copper and cable businesses grew on the back of the telecoms boom. He then raised his game in 2001 with Sterlite's successful bid for 51% of the Bharat Aluminium Company (BALCO), India's first privatisation. The deal was consistent with his strategy of backward integration—but also with Mr Agarwal's record for controversy. In 1998 Sterlite was briefly banned from India's capital markets over allegations of insider trading, though the order was later repealed. The BALCO deal was marred by a two-month strike by the company's workers. As the symbol of a still-controversial (and now apparently mothballed) divestment programme, it remains politically sensitive. Sterlite has therefore been unable to exercise an option to buy the remaining 49% of BALCO.

Few Indian companies have grown so fast without stirring controversy. Just as remarkable was the ease with which Mr Agarwal graduated from managing a medium-sized company to running a large group. This has not sated his appetite for risk. As he puts it: “As an individual, we're very strong as an entrepreneur.” Mr Agarwal says he remains interested in further acquisitions, but concedes that his hands are rather full. If approved, Vedanta's plans in Orissa, which holds the world's fourth-biggest bauxite deposit, will keep him particularly busy. He faces strong opposition from environmentalists and local tribes, however. The example of POSCO, a South Korean steelmaker, is not encouraging. Three years after announcing plans for a $12 billion steel project in Orissa, it is still waiting for the requisite permits and land. Then again, Mr Agarwal is not South Korean.

He is Indian, and proud to be—hence, he says, his philanthropic scheme to donate $1 billion to found a world-class university in India. Vedanta University will be constructed on a 3,200-hectare site in Orissa and will cater for 100,000 students when it is completed, around 2025. “When you go to the US, you see their large universities, Harvard and Berkeley, and we don't have them,” says Mr Agarwal. “Yet the biggest thing you can give to people is education.” Sceptics say he has chosen Orissa as the site for the university for political reasons. It is certainly an extraordinarily ambitious scheme. But there is no doubting Mr Agarwal's ability to overcome obstacles and establish giant enterprises with surprising speed.

# posted by chitta @ 11:45 AM 1 comments

Chronicles of Higher Education has two premium articles ( one needs a subscription to read the full article). Following are links to those articles and excerpts from them.

• Article 1: For Planners, the Opportunity of a Lifetime
  By LAWRENCE BIEMILLER
  Baltimore

  In an office a few feet from the chop of the Baltimore harbor, architects are drawing plans for a vast university campus on the east coast of India that would be shaped like twin blossoms, bordered by a lake, and entered through any of 34 gates, each with its own name and symbolism. As beautiful as a mandala and as intricate as a postgraduate mathematics problem, it’s almost certainly the most ambitious campus plan ever conceived.

  On more than 7,500 acres, Vedanta University and its environs would accommodate a liberal-arts program, an engineering school, an agriculture college, a medical campus, Olympics-grade sports facilities, townships for faculty and staff members, parklands, a resort, and even its own airport. At the behest of Anil Agarwal, an industrialist who has pledged $1-billion toward its construction, the campus is being designed to house 100,000 students and to fulfill the donor’s dream of creating an institution that is Indian and world-class at the same time. … MORE

• Article 2: In Rural India, an Ambitious Academic Vision:

  A mining mogul with big ideas is determined to build an elite, American-style university for 100,000 students in Orissa. Farmers, who own the land he wants to develop, plan to resist.

  By SHAILAJA NEELAKANTAN
  Bhubaneshwar, India

  A few miles outside the town of Puri, in the eastern Indian state of Orissa, lies Beladala, a farming village of thatch-roofed homes. One recent afternoon a group of farmers sat on the porch of the village’s small school eating a lunch of rice, lentils, and vegetables on plates made of broad leaves. … MORE

# posted by chitta @ 8:47 AM 1 comments