Lloyds Metals hits new high; stock zooms 102% in 1 year on healthy earnings

Long-term steel demand buoyancy augurs well for the company and it is well-positioned to capitalise on the existing and emerging opportunities in the market, believes the management.

Shares of Lloyds Metals and Energy (LMEL) hit a record high of Rs 1,061.25, as they rallied 10 per cent on the BSE in Friday’s intra-day trade amid heavy volumes on expectations of stable earnings. 

 

The stock of the sponge iron company surpassed its previous high of Rs 1,041 touched on October 15, 2024. In the past one year, the stock has more-than-doubled or zoomed 102 per cent, as compared to 19 per cent rise in the BSE Sensex.

 

LMEL is engaged in mining iron ore, manufacturing coal-based Direct Reduced Iron (DRI)/(Sponge Iron) and generating power. The company is one of the largest coal-based DRI manufacturers in Maharashtra with a production capacity of 3,40,000 TPA across two districts. It has a DRI plant with a production capacity of 2,70,000 TPA along with a captive power plant with a 30 MW capacity at Ghugus, Chandrapur district, Maharashtra, and a Greenfield plant with a production capacity of 70,000 MTPA in Konsari, Gadchiroli with a 4 MW captive power plant.

 

 

The company is the only iron ore miner in Maharashtra, India. It has an iron ore mining lease for 50 years till 2057 at Surjagarh village in Gadchiroli district, which is the largest reserve of high-grade iron ore in Maharashtra.

 

LMEL’s growth trajectory is strong, and the company is confident of driving sustainable growth in the future. Long-term steel demand buoyancy augurs well for LMEL and it is well-positioned to capitalise on the existing and emerging opportunities in the market.

 

In the first half (April to September) of the financial year 2024-25 (H1FY25), the company’s revenue was up 26 per cent year-on-year (YoY), led by higher sponge and Iron ore volumes. On the iron ore front, both volumes and realisations were encouraging YoY. Sponge, too, recorded higher volumes and realisations YoY. Profit after tax (PAT) jumped 30.3 per cent YoY at Rs 301.30 crore.

 

Earnings before interest, tax, depreciation and amortization (ebitda), too, replicated the revenue performance, growing by 37 per cent YoY in H1FY25. Both iron ore and sponge led robust performance.  Margins improved by 270bps YoY and 36 bps sequentially to 30.26 per cent. However, on quarter-on-quarter basis, total income and PAT declined 39.3 per cent and 45.9 per cent, respectively.

 

Meanwhile, India’s iron ore production growth is dependent on two companies NMDC & Lloyds Metals. While NMDC has environmental clearance (EC) to ramp up output to 53mt (6-7mt more than the current level), Lloyds Metals has plenty of room as it has EC for 55mt. However, please note that Lloyds Metals produces magnetite iron, which has a lower Fe content (it later undergoes beneficiation to increase the Fe content, making it usable for Indian users). 

 

For the metallic balance calculation, we have assumed an equivalent of 62 per cent Fe content. Even after assuming full ramp-up by Lloyds Metals, India will still be facing a deficit of iron ore, as both scrap production and imports are stagnating (please note that ~60mt of electric arc furnace capacity can use scrap or sponge iron as feed material), analysts at InCred Equities said in metal sector update.

 

With production ramp-up in Odisha looking unlikely, the Indian steel industry's hopes rest on Lloyds Steel's iron ore mines in Maharashtra. It is important to note that Lloyds Steels is mining magnetite ore in Maharashtra, which has a low Fe content and requires advanced beneficiation techniques to make it suitable for industrial use, the brokerage firm said.