LLOYDSME - Lloyds Metals and Energy Limited Share Price

During the Q4 and FY25 earnings conference call of Lloyds Metals and Energy, management provided an optimistic outlook and highlighted several key forward-looking points:

1. Performance Highlights: For FY25, the company achieved its highest-ever profit before tax and sponge iron production, maintaining an annual run of 10 million tons for iron ore.

2. Upcoming Projects: The management reported significant progress on several projects, including:

   • Completion of the slurry pipeline, with material moving from Hedri to Konsari.
   • Nearing completion of a 4 million ton pellet plant, a 360,000 ton DRI plant, and a 60 megawatt power plant, with commissioning expected in June and July 2025.

3. Expansion Strategy: The Thriveni MDO acquisition is expected to gain NCLT approval by Q1 FY26, which will enhance integration and operational efficiencies.

4. Capex Guidance: A capex of INR 6,000 to INR 6,500 crores is planned for FY26, focusing on mining, pellet expansion, and steel capacities. The overall capex incurred rose from INR 1,690 crores in FY24 to INR 3,695 crores in FY25.

5. Market Outlook: The Indian iron ore market remains buoyant, with a consistent steel demand growth of 8% year-on-year. Management expects a steady pricing environment despite possible reductions in iron ore volumes due to pending EC, estimating a minor loss of 1 million tons from the target of 25 million tons.

6. Earnings and Realizations: FY25 revenue increased by 3% year-on-year, primarily driven by better realizations from iron ore. The average iron ore realization for FY25 was INR 5,766 per ton, a 6% increase from the previous year.

7. Future Capacity Plans: Management aims to reach 23-24 million tons of volume in FY26, with plans already underway for negotiations with customers regarding off-take agreements.

In summary, Lloyds Metals and Energy is focusing on strategic expansion, operational efficiencies from upcoming projects, and a strong market outlook for iron ore, while managing anticipated challenges in volume and pricing.

Question: I just had a small query on the volumes, which we plan to do. Can you just lay out the steps you have taken to ensure that the materiality of lower volumes is not there when the final volumes for this year come out?

Answer: Last year, monsoon volumes were relatively stable. This year, with the commissioning of our pipeline, we expect similar results. We aim to achieve around 20% of the full-year volumes during the monsoon, equating to about 2 million tons. We're already ramping up production, so the first quarter of FY '26 should yield better results.

Question: What would be your guidance at this point in time for FY '26?

Answer: Based on current assessments, we anticipate a reduction in our volume guidance for FY '26, with expectations of 1-1.2 million tons being less than our target of 25 million tons. Therefore, we foresee that our iron ore dispatch may fall short but expect heavier volumes in the second half of the fiscal year.

Question: Does the INR6,000 crores to INR6,500 crores capex for FY '26 include maintenance capex as well?

Answer: Yes, our capex includes investments in mining assets, the beneficiation plant, and the upcoming steel plant, plus normal maintenance capex, which is expected to be around INR50 crores for the year.

Question: Can you provide an update on BHQ?

Answer: Our pilot plant is performing well, and we expect to receive permissions to start ground progress by Diwali 2025. Commissioning of the first BHQ beneficiation plant train is anticipated by June 2027, followed by subsequent trains later, contributing to our productivity.

Question: Any specific reason we fell short by 0.5 million tons in terms of dispatches?

Answer: The shortfall includes some iron ore being utilized for captive consumption instead of being sold. Production of the full 10 million tons occurred, but certain quantities were directed to internal needs rather than dispatch.

Question: On iron ore realization, it seems slightly up sequentially, but EBITDA per ton was down sharply. Any specific reasons?

Answer: The EBITDA decrease in this quarter is largely due to lump-sum expenses related to community development and ESOP costs. We've front-loaded costs this quarter to ramp up capacities, impacting profit margins.

Question: Are we negotiating with our customers for volume?

Answer: Yes, we're actively engaging with our customer base for the projected increase of 15 million tons, ensuring a strong uptake in the market, which should alleviate any pricing pressure.

Question: What are the anticipated realizations for pellets?

Answer: Currently, pellet sales are focused through our seed marketing program. In India, we anticipate realizations close to INR11,000 per ton, while international sales may yield around $128-$130, making it a lucrative market for our product.

Question: The INR5,000 crores resolution you announced, what is its rationale? How much of the INR6,000 crores capex will be from internal accruals?

Answer: The INR5,000 crores resolution is enabling, to be utilized for potential fundraising but not definitive yet. We expect the entire anticipated INR6,000 crores for our projects next year to stem from internal accruals and pending preferential warrants.