LONDON/BANGALORE: The end of an 18-month overhaul of Vedanta’s byzantine structure, which has left the resources group leaner and better able to cut debt, has raised questions over future ambitions and the temptation to use new-found flexibility for more deals.

As with Indian rivals like Hindalco, part of billionaire Kumar Mangalam Birla’s business empire, and major miners like Rio Tinto, Vedanta is more conservative than it once was, analysts and industry advisers say, held back by a debt burden that survived the streamlining of its web of subsidiaries and cross shareholdings.

But the sometimes unpredictable mining and energy group, almost 65-percent owned by Anil Agarwal, an ambitious scrap dealer turned metals tycoon, is also buoyed by falling spending needs, rising cash flows and the impact of a weak Indian rupee.

In the past months alone it has circled potential acquisitions including Rio’s Canadian iron ore unit IOC and considered coal targets, sources familiar with the matter say.

Such a big deal, however, would have undone efforts to cut debt and even breached agreements with lenders; Rio values its 59 percent IOC stake at up to $4 billion, according to sources familiar with the matter, not far below Vedanta’s own London market value of $4.9 billion.

Agarwal has grown his group through acquisitions and told a newspaper this year that earnings would double in the next two to three years, which makes some nervous about his intentions.

“It’s always our biggest fear. No one likes empire building, and they certainly have bid for assets which aren’t viewed that favourably,” said analyst Ben Davis at Liberum in London.

Davis said the fact Vedanta had walked away from potential deals including Rio’s IOC was reassuring.

Yet the high price Rio seeks for IOC and the protracted bid process there makes it unclear whether Vedanta did indeed drop out or found its bid rejected.

“They have always wanted to be builders, and have been proactive – the challenge is financing,” said one industry adviser who has worked with the group, referring to debt left behind after the acquisition of Cairn India in 2011.

The Cairn deal took many by surprise; not only did the almost $9 billion takeover exceed Vedanta’s own value, it was one of the largest deals in the Indian energy sector from a company with no experience in oil. The bet was on India’s dependence on oil imports, and it has, in the short term at least, helped cushion the blow to Vedanta of a ban on iron ore exports.

As a result of the deal, Vedanta’s net debt at the end of March was $8.6 billion. It is also among the most cash-rich miners in the industry – it had a cash pile of $8 billion, second only to Anglo American – but most of it is in subsidiaries, so getting hold of it at group level would involve leakage to the taxman and to minority shareholders.

“My general impression is that the company is not going to be doing large acquisitions, but I have absolutely no confidence that there won’t be some opportunity that comes up,” analyst Tom Gidley-Kitchin at Charles Stanley said.

Though total production still ranks below industry giants, Vedanta is one of the world’s largest producers of metals such as zinc. Its newly created Sesa Sterlite unit, which houses all subsidiaries except Zambian copper, is the world’s 7th-largest diversified natural resources group.

Courtesy: The Economics Times