Alpha | Lloyds Metals & Energy Ltd. – Equity Research Desk

Lloyds Metals & Energy Ltd – Empowering India’s Infrastructure

Incorporated in 1977 and headquartered in Mumbai, Lloyds Metals & Energy Ltd (LMEL) is a key player in the metals and mining industry engaged in mining of iron ore, manufacturing of sponge iron and generating power.  The company is present across the value chain of steel manufacturing, from iron ore mining to Direct Reduced Iron (DRI) manufacturing and is further forward integrating into steel manufacturing. The company has strategically located iron ore at Surjagarh in Gadchiroli district of Maharashtra which has a 10 MMTPA iron ore capacity. It has manufacturing facilities in Ghughus in Chandrapur district and in Konsari in Gadchiroli district of Maharashtra, with a combined production capacity of 0.34 MMT and 34 MWh of power generation. 

Lloyds Metals & Energy Ltd (LMEL), with a targeted upside potential of 18% is one of the few steel companies that have growth and expansion plans on almost no debt leverage.

Products and Services

The company’s key business segments include iron ore mining, DRI, captive power and pellet trading.

Subsidiaries: As of FY24, the company has 3 subsidiaries and no associate companies/joint ventures.

Investment Rationale

• Growth strategies – The company has set a strategic goal to become a sustained value-added steel manufacturer, with plans to achieve a wire-rod production capacity of 1.2 million tonnes and an HR coils manufacturing capacity of 3 million tonnes per annum, all without relying on debt leverage. This approach is expected to enhance the company’s resilience, even during cyclical slowdowns. With targeted investments in steel assets, the company is on track to become India’s most cost-efficient steel producer. Additionally, the company has acquired approximately an 83% stake in Thriveni Earthmovers Private Ltd, one of India’s largest mining development operators (MDO), for a transaction value of Rs.70 crore. This acquisition is expected to deliver per tonne savings of Rs.400-500 on iron ore, on a consolidated basis.
   
• Expansion plans – The company is constructing India’s longest slurry pipelines, with a 85 km pipeline to the Konsari plant and a 190 km pipeline to the Chandrapur plant from its mines. These pipelines are expected to reduce freight costs by Rs.500-600 per tonne for the 85 km pipeline and Rs.800-1,000 per tonne for the 190 km pipeline. LMEL is also establishing a mineral-based steel plant at Konsari, Gadchiroli district, with a capacity of 72,000 MTPA for DRI production. Additionally, the company is setting up a 12 MNT pellet plant, a 1.2 MNT Wire Rod Mill (WRM) facility, and a 3 MNT integrated steel plant. To ensure captive logistics, the company is also investing in a fleet of trucks, moving away from reliance on third-party logistics.
• Q3FY25 – During Q3FY25, the company reported revenue of Rs.1,693 crore, a de-growth of 12% as compared to the Rs.1,924 crore of Q3FY24. EBITDA increased by 20% from Rs.461 crore of Q3FY24 to Rs.555 crore of the current quarter. Net profit increased from Rs.332 crore of Q3FY24 to Rs.389 crore of Q3FY25, a growth of 17% YoY. EBITDA margin improved from 24% to 33% and net profit margin increased from 17% to 23% YoY. 
• FY24 – Supported by higher iron ore volumes, the company generated revenue of Rs.6,522 crore, an increase of 92% compared to FY23 revenue. Operating profit is at Rs.1,781 crore, up by 101% YoY. The company posted net profit of Rs.1,243 crore, against loss reported in FY23.
• Financial Performance – The company has generated revenue and net profit CAGR of 196% and 2014% over the period of 3 years (FY21-24). Average 3-year ROE & ROCE is around 65% each for FY21-24 period. The company has a debt-to-equity ratio of 0.01.

Industry

The mining industry has the potential to significantly boost GDP growth, foreign exchange earnings, and provide a competitive advantage to end-use industries such as construction, infrastructure, automotive, and power by securing key raw materials at competitive prices. As the government’s emphasis on infrastructure development intensifies, the demand for iron and steel is expected to rise, driven by the growing construction of roads, railways, airports, and more. India is the world’s second-largest producer of crude steel and the fourth-largest producer of iron ore, as well as the largest producer of sponge iron (DRI). These factors are anticipated to drive future demand for both steel and iron ore.

Growth Drivers

• 100% FDI through automatic route in the mining sector.
• Minerals are precious natural resources that serve as essential raw materials for fundamental industries, so the growth of the mining industry is essential for the overall industrial development of a nation.
• Indian government’s initiatives and schemes such as Gati Shakti Master Plan, Make in India, Pradhan Mantri Awas Yojna – Housing for all, Urban Infrastructure development scheme for small and medium towns is expected to foster the growth of Metals and Mining sector in India in the next few years.

Peer Analysis

Competitors: NMDC Ltd, Gujarat Mineral Development Corporation Ltd (GMDC), etc.

Compared to its competitors, the company has higher profitability ratios and better revenue & profit growth, indicating the company’s financial stability and its efficiency in generating income and returns from the invested capital.

Outlook

The Surjagarh Iron Ore Mine is strategically situated in the heart of India, making it centrally located and equidistant from most steel plants across the country. The partnership with Thriveni is expected to enhance operational capabilities, reduce costs, expand the company’s presence in key mining regions, and strengthen its order book. Mining output from the site is projected to grow from 10 MMTPA to 25 MMTPA. This is expected to generate significant revenue and profit for the company, with projected cumulative revenues of approximately Rs.27,000 crore and an EBITDA of Rs.9,000 crore over the next three years (FY26-28). The company is planning a Rs.33,000 crore capital expenditure for its expansion initiatives.

Valuation

We believe LMEL’s business plans are set to scale operations and achieve operational excellence, positioning the company as a low-cost, high-efficiency key player in the steel and mining industries. We recommend a BUY rating in the stock with the target price (TP) of Rs.1,206, 27x FY26E EPS.

Risk

• ESG risk – The company is subject to the inherent ESG risk the mining sector is exposed to. The management must be cautious of any risk that may affect their ability to raise capital, obtain permits, work with communities & regulators.

• Concentration risk – The company has coal mine only at a single location exposing it to higher volatility and potential losses if anything negatively affects the single operational location.

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