Lloyds Metals and Energy Limited (512455) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Lloyds Metals and Energy Limited Q3 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Lohia from ICICI Securities. Thank you, and over to you, sir.

Yes. Good afternoon, everyone. Thank you for joining Lloyds Metals and Energy Limited Quarter 3 FY '24 Con Call. I would like to thank management for providing us this opportunity to host the call. From the management side, we have Mr. Rajesh Gupta, Managing Director; Mr. Riyaz Shaikh, Chief Financial Officer; and Mr. Chintan Mehta, Chief Investment Officer. Now without further delay, I now hand over the call to Mr. Rajesh Gupta. Thanks, and over to you, sir.

Good evening, ladies and gentlemen. Thank you for joining us today for our Q3 and 9-month FY '24 results conference call. I trust this message finds you well. I hope each one of you had the opportunity to thoroughly review the detailed earnings release that we released on the exchange and our official website. The results we are presenting today marks a significant milestone in our company's journey. I'm pleased to announce that we have surpassed the INR 5,000 crore mark in revenue for the 9 months ended FY '24. This achievement underscores the robust performance and growth that we have experienced across all our segments, sponge, iron ore, power and pellet trading. In terms of operation, our sponge segment has recorded its best ever quarterly performance. Our Ghugus plant, that is our first plant, has achieved the best quarterly production. Further as a result of timely commissioning of the new Konsari plant, the production is approximately more than 20% extra than the previous 9 months. Our iron ore segment continues its strong performance and remains on track to dispatch 10 million tonnes in FY '24. Additionally, our power segment has witnessed satisfactory traction with very good PLF as well as timely pricing strategy. During our Board meeting in December and further in the last Board meeting, we have outlined a comprehensive road map for the future. Our path forward is clear, and our execution team is fully committed to achieving our goals. We have established time lines for each of our projects and are diligently working towards them. To provide you with a glimpse of our future plans, we are moving towards forward integration of operations to become a value-added steel maker with a 4.2 million tonnes steel capacity. This includes 3 million tonnes of flat products, and 1.2 million tonnes of long products, that is a balanced portfolio. It is in two locations, ensuring proper distribution of resources. Central to our plans are the expansion of our iron ore production from 10 million to 55 million tonnes, with beneficiation playing a very crucial role. First time in the country, we will be mining and beneficiating low-quality BHQ of up to 45 million tonnes over a period. Furthermore, addressing logistics in steelmaking is vital, and we plan to do so through two slurry pipelines. This not only reduces freight cost, but also aligns with our commitment to environmental sustainability. Importantly, all our outline plans are rooted in one key principle, internal accruals. We believe that establishing such capacity without resorting to debt will be a differentiating factor in our industry. Now I will hand over to Riyaz, our CFO, who will provide more details on our headline numbers, and elaborate on any other questions that is asked. Thank you. Over to you, Riyaz.

Thank you. Good evening, ladies and gentlemen. I would like to express my gratitude to all the investors for joining us today. Without further ado, let's dive into our performance for the 9 months financial year '24, in case anyone hasn't had the chance to review our release. Our revenue for the period 9 months FY '24 stood at INR 5,012 crores, reflecting a remarkable 92% year-on-year growth. EBITDA also experienced significant growth during 9 months financial year '24, reaching INR 1,315 crores, up 88% year-on-year. The profit after tax reached INR 967 crores during the same period. On a per tonne basis, our iron ore EBITDA stood at INR 1,550 per tonne, while sponge iron stood at INR 14,000 per tonne. Now moving on to our capital expenditure plan. As our MD, Mr. Rajesh Gupta mentioned earlier, we are forward integrating our operations to become a value-added steelmaker. Our proposed capacities include pellet plants of 12 million tonnes, DRI of further 0.36 million tonnes, wire rod of 1.2 million tonnes, blast furnace and HR coil for 3 million tonnes, two slurry pipelines of 85 kilometers and 190 kilometers, respectively, a beneficiation plant and a coke oven of 1.8 million tonnes. These projects are expected to roll out in phases over the next 6 to 7 years. As emphasized by Mr. Gupta, all our capital expenditure will be financed through internal accruals, adhering to our fundamental principle. To provide a snapshot of our 9-month FY '24 CapEx number, we have spent around INR 880 crores still. It's worth noting that due to our integrated operations, our cost of production is anticipated to be among the lowest in the Indian scenario. With that, I'd like to open the floor for any questions or clarifications you may have. Thank you.

[Operator Instructions] We have our first question from the line of Siddharth Gadekar from Equirus Securities.

Sir, the first question is related to our capital expenditure plans. Can you just share that how, in terms of the time lines, when do we expect these projects to come online? And how much will be the CapEx each year? Like what will be the cash outflow in FY '25, '26 and '27?

So we are doing -- like I mentioned earlier, we are doing these projects in various phases. First phase in the Chandrapur Ghugus plant is for the DRI expansion and the power plant worth around INR 350 crores. This is in Chandrapur. Simultaneously, the first pellet plant in Konsari will be coming up of around INR 1,100 crores, INR 1,200 crores -- sorry, INR 1,700 crores, along with the pipeline of INR 550 crores. So this is the first phase. These two projects will be commissioned by '25-'26. By that period, these two projects will be commissioned. Each year, there will be an outflow of various amounts with a peak of around INR 9,000 crores.

So is it fair to assume that we would have roughly around INR 2,500 crores to INR 3,000 crores CapEx every year over the next 3 years?

Roughly, yes.

Okay. And secondly, now in terms of our iron ore volumes for the fourth quarter, given that we have capacity constraints, we would be only restricted to 2 million tonnes. Is that assumption right?

A little more than that. The capacity constraint is limited to 10 million tonnes total.

Correct.

1.8 million tonnes.

And for FY '25 and '26, how should we look at the volumes?

FY '25-'26, we will be applying -- we are in various stages of applying for the expansion of the mine. So by the end of the year, if we get the expansion, we will be volume of around 12 million tonnes. The output of the next year would be 12 million tonnes.

We have our next question from the line of Jatin Damania from SVAN Investment Managers.

Congrats on a good set of numbers. Sir, as you pointed out that the Q4 numbers will be restricted because of our restriction in terms of the overall volume. But since you have given the aggressive plans of 55 million tonnes of the iron ore capacity, so can you lay out which stage are we in? And what exactly are the approvals we are awaiting for to reach from 10 million to 55 million?

Various stages of the mining approval expansion. First, we have to apply for a mining plan, which is under process right now. Next would be the EC clearance, which will also entail a public hearing. And finally, we'll get the EC itself. And then, of course, expanding the mine also to achieve that much quantity, and the logistics part. So logistically, we are well aligned with increasing our output in the short term and the long term. In the short term, there's a link of roads which have been expanded to make sure that the surge of output up to a -- dispatchable output of 25 million tonnes would happen. That's the logistics. On the EC approval, et cetera, the process is well set by the MoEF. And the mining plan has been made already internally. It is awaiting approval from IBM, for which various site visits, et cetera, will be required. So we hope that the whole process will be over by December of this current calendar year.

So by December, we'll get an approval for the 25 million or probably we are taking approval for the entire 55 million tonnes of the capacity that we are ramping up?

So the 55 million tonnes is the total mining that we will be doing. Out of which, in the long run, it will be 10 million tonnes of what we call DSO, direct sales ore. And 45 million tonnes of BHQ. The BHQ would be beneficiated in the long run to 15 million tonnes down. So it will be 10 million plus 15 million, and total 25 million tonnes output. That is in the long run. In the first year, around 20 million, 25 million tonnes in the first 2, 3 years till the beneficiation plant comes up, will be mined directly. Given the overall reserves that we have, we can achieve that, and we are working towards that.

So sir, when we talk about the BHQ, we will be setting up the beneficiation process. So correct me if I'm not wrong because as an Indian player, players are restricted to simple set up the beneficiation plant, and we were planning to improve the content of the ore from 40% to 60%. So what are the process? And are we approved players in terms of the expanding the only beneficiation?

So I don't understand exactly your question. The beneficiation of BHQ would be a first time in India. It is a well-practiced process in the European countries as well as in China. China mines around 300 million tonnes of BHQ, and beneficiates from around 28% to 65%. Our BHQ is around 35%, and we'll be beneficiary up to 65%, 66%. All the technical studies of that are underway and have taken place already. We have signed contracts with technology suppliers in China for this purpose. And we are ready to apply for the necessary approvals to the government of India, again, MoEF for that.

So a stand-alone beneficiation plant would be possible, right, for us?

Yes.

And sir, what would be the cost that you will be doing it? Because you said that you'll be importing or you'll be using a Chinese technology. So...

Around INR 5,000 crores is the total cost that is envisaged over 3 phases.

We have our next question from the line of Rucheeta Kadge from I-Wealth.

Congratulations on a good set of numbers. Sir, my question was more on the side of this 45 million BHQ capacity. So just wanted to understand by when do you expect this to come on board? And when you say that initially, you will be mining around 20 million, 25 million tonnes. And post the beneficiation plant comes, you will do 15 million tonnes. So when is that beneficiation plant expected to come on board?

We expect that the first plant would come up by the latter half of '25-'26 at the earliest. And '26-'27 definitely for the first plant. And then every year, one plant subsequently.

Sorry, sir. Actually your voice is a bit muffled. If you could just speak again. Hello?

On the earliest side, we expect that the first beneficiation plant would be commissioned by '25-'26, second half. On a worst-case scenario, '26-'27 would be the first phase of that plant. And then every subsequent year, one plant each, of 15 million tonnes each input and 5 million tonnes output.

Okay. Understood. And sir, what is the realization and the profitability difference between a 65% content versus a 35%? If you could give a broad understanding of that?

35% content is not considered as iron ore, but is considered a waste product in Indian parlance. So 45% is the breakeven level for -- considered the iron ore in India. 35%, like I said, will be the first time it's being beneficiated. And 65% would be -- I would -- given the chemistry, it would be a much heavier premium than the 63%, 64% that we are currently mining.

Understood. So till the time the beneficiation plant doesn't come up, you cannot sell this?

It is not a sellable product, no. We will be selling 62% to 64% iron ore till the beneficiation plant comes up.

Okay. And sir, this DRI and pellet plant that you spoke about around INR 1,700 crores, which is going to come in FY '25-'26, what is the capacity for it?

The pellet plant capacity, INR 1,700 crores is the pellet plant and INR 550 crores is the pipeline connected with that. The pipeline capacity is for 9 million tonnes, and the first pellet plant is for 4 million tonnes.

4 million tonnes. Okay. And the rest would come then, sir, the remaining 8 million tonnes?

A year after that.

So '26-'27?

'26-'27, both the plant will be commissioned, yes.

Okay. Understood. And similarly, sir, for your blast furnace and your wire, if you could just tell when exactly you're expecting this to come up?

So we expect it to come between '26-'27, '27-'28.

So it's going to come in phases, is it?

Yes, yes. No, not in phases. There are 4, 5 plants in that chain. So the plant would ultimately produce 1.2 million tonnes of iron ore. So various commissioning would happen from the end of this year, '26-'27 to the beginning of the next year, '27-'28.

We have our next question from the line of Rakesh Roy from [ Omkar Capital ].

Sir, my first question is regarding realization. So how much realization in Q3 for sponge iron and iron ore?

In the 9 months?

No, sir. For Q3, sir.

Yes. For Q3, the realization for sponge iron was 38,000, close to 38,000. And iron ore was 5,500, close to 5,500.

And Q2, sir, how much both?

Q2, it was -- iron ore was 4,600 and sponge iron was 31,700.

Okay. So we have taken a price hike in this one, in Q3?

Q3, there was a price hike, yes.

Okay. Sir, my next question is regarding volume. Currently, we have a total capacity of 10 million tonnes. So you say that this year will -- how much -- for FY '25, how much volume you are targeting? You are saying 20 million tonnes?

FY '23-'24 will be 10 million. And FY '24-'25 should be close to 14 million tonnes.

14?

Yes.

We have our next question from the line of [ Nikunj Lahoti ], a shareholder.

Sir, I have a question. Like, you would be mining 45 million tonne of BHQ and the output would be 15 million tonnes. So what would be approx cost of mining? Would it be, like, cost of mining for 45 million tonnes, but output is 15 million tonnes? And what would be the cost of beneficiation, if you could give some...

We anticipate the total cost of beneficiated ore, ex royalty, would be around INR 1,200.

Okay. So it's like the same of iron ore cost only like currently, you are producing?

Yes. You can say that. Because we are handling 3x the material. So the mining cost is actually lesser, but because it is 3x and there are a lot of waste product. So yes, you are right.

Okay. Sir, approximately INR 1,200 per tonne for like, for BHQ?

Yes.

[Operator Instructions] We have a next question from the line of [ Kanishka Sorcar ], an individual investor.

My question is that this BHQ beneficiation, which is being done for the first time in India, there are no established players. I would wish to understand how does the economics play? Since you're putting a large amount of investment into this particular one and getting the technology from China. So if you could please walk us through this particular, and how does it add value to the business? And the economics of this against the current -- the grade which you're selling and the process which you're going to put in and the kind of margins that we can make?

Okay. Firstly, let me clarify and highlight that it is the first time in India, but not the first time in the world. It's a well-established practice to beneficiate BHQ or BHJ, banded hematite jade, in other parts of the world. It's a series of magnetic separation and flotation that is being done. And we have sent our samples of the BHQ to 3, 4 parts of the world where this is already being done. In 3, 4 countries where it's being done, including more than one lab in each country as well as in two, three labs within India who know the process. We are also simultaneously creating a pilot plant study in our mine for this process of 5, 6 tonnes, which will be ready in the next 2, 3 months. So by the time the process is being engineered, by that time, the pilot plant study will prove the proof of concept, number one. Number two, the economics, like the previous speaker asked, the cost of mining is very similar to what we are doing right now, the cost of output of the ore. But having said that, we feel that the royalty will be very less. That's one part of the economics. But most importantly, this reserve of 800 million tonnes will yield us output of 250 million tonnes over the life of the mine. Now this 250 million tonnes would -- otherwise in the country, as is the current practice would have been a waste product. And we have spent money to dump it and level it back into the mine. Also, because of this, beneficiating this BHQ, the ore which lies under this -- the direct ore which lies under this also can be utilized. So we are able to utilize around 300 million tonnes extra ore because of the beneficiation process.

Right. No, it makes a lot of sense...

That is the most economical and a key part to our whole life cycle.

Sir, does it mean that, if I see the total -- yours is going to be an integrated steel plant over the next 6 years, right? If I take all of this into account, your unit economics, if I take every part of the steel business from mining till the finished product and pelletization, beneficiation. On the unit cost side, does it bring down the cost further down because of addition of this beneficiation?

Further down from where?

In terms of unit price, like you said, you are a very efficient steel producer...

From what level? From -- if are we going to use iron ore mine or if we are going to be used outside ore?

No, no, I'm saying from the iron ore mine. If you're using the iron ore mine and if you're using the beneficiation part of it.

It would be similar to that. But again, let me repeat that with this, we can sell more pellets, we can make more steel over the life of the mine, and we can sell more iron ore.

Yes, understood. So sir, just one thing. What does...

More or less the same. But if the quantity increases, the viability is 300 million tonnes into INR 4,000, INR 3,500 over 50 years.

Yes. Right, right. Absolutely. Sir, just one thing I just want to add here. Since you are going to be the first company in India, putting this up and you're also doing the proof of concept. And I'm sure you would have already done a lot of your study. Otherwise, you won't be entering this particular site. Would that also open up an opportunity that if you stabilize this over the next, let's say, 6, 7 years, and you are in a place where there are a lot of mines around and others are not using that and possibly that is a waste product. So would that become a big business going forward?

That's a very interesting question. And if I had not known better, I actually would have had some inside information from my company. We are at the highest level, are discussing various aspects of how to monetize that post our success in this plant.

[Operator Instructions] We have our next question from the line of Pallav Agarwal from Antique Stockbroking.

So I think we've taken a price hike in iron ore in Q3. But if I look at the EBIT per tonne on a sequential basis from 2Q to 3Q, there's not been a corresponding increase in that. So have our costs gone up in that segment in the third quarter?

Yes. There is an increase in the cost in the third quarter on account of this road constructions and what we have, and also the fines generation has been more than what was anticipated and what was there in the last quarter.

Okay. So but the blended realization would include fines as well, right? So that would include both...

Yes, yes.

Okay. And so like, sir, could you just also clarify what is the current royalty structure that we are paying on iron ore mines?

Royalty is a factor of the sales price. It's 15% royalty and 30% of the royalty as DMT -- DMF, and NMET. So it's around 19.5% of the sales price. The current royalty is, I mean, the end royalty that is debitable to the company is based on that. Currently is on the ASP and then the government corrects it over a period, and it has to be paid. So that is royalty is constant for everybody. We continue to pay no premium on our products since it's not an auction mine.

Right. And the life of the -- I mean, the mining lease is valid for a pretty long time.

2057, yes.

[Operator Instructions] We have a next question from the line of [ Nikunj Lahoti ], an Individual Investor.

Sir, I have a question, like do you have any plans of acquiring new mines through auction?

At the moment, no, [ Nikunj ].

[Operator Instructions] We have a next question from the line of Siddharth Gadekar from Equirus securities.

Sir, just one more question on our realization side. Given that NMDC has again recently taken a price hike today of INR 400 per tonne. Is it fair to assume that even we could take a price hike in the fourth quarter now given that NMDC realizations have moved up?

So yes, it's a commodity, and generally speaking, commodities move up and down for most vendors together. So I won't say we have taken the price hike. I would say we have probably already gone a little ahead of that. We are a little ahead of the curve right now.

But there is no possibility for another price hike given that it is almost a 10% price hike for NMDC?

No. Like I said, we have already increased our prices to some -- we don't have a price announcement scheme like NMDC has. It's more on a spot basis. And from time to time, we adjust our prices. And yes, we have taken price rises in the past, and we would definitely look at any opportunities to maximize our revenue either way.

Okay. And sir, secondly, in terms of the pellet volumes, what were our pellet volumes this quarter that we have done from the Goa plant?

So the Goa plant is basically a trading activity. We are selling them all the iron ore that they require. And we buy back pellet that we are able to export. We have purchased around 225,000 tonnes of -- purchased and sold 225,000 tonnes of pellet through four shipments. Through four shipments in the world. All four are export. And this is for around first time in Kenya from India, our material has gone.

And for FY '25, could you give some guidance in terms of our pellets that what could be our targeted pellet volumes that we are looking at given that we are seeding the market currently?

So that plant can produce up to 1.8 million tonnes. We hope to supply them that much iron ore. In terms of pellet purchase, it can depend on various factors, including what is the profitability we get. And so the idea of the palletization conversion, I mean, palletization sales is to get seed marketing. So we have achieved that to some extent. And we continue to do that. I would say around 400,000, 500,000 tonnes would be the volume in the coming year, but that's a very, very -- it can change very dramatically over months only.

We have our next question from the line of Mangesh Kulkarni from Almondz Global Securities.

I just wanted to understand this expansion time line, if you could provide us in a tabular form with year-wise CapEx as well as the time line for the commencement of the commercial production, that will be helpful in the presentation itself.

See, it would be difficult on a phone call to explain you the time lines and the cost. But hopefully, yes, we'll be trying to put it in the next investor presentation under the...

Yes. That will be beneficial for us.

Yes, I think, will take that point and we would be incorporating it.

We have our next question from the line of [ Kanishka Sorcar ], an Individual Investor.

Once again, I just -- I want to understand, so I was going through various reports, and there is something very interesting, which you guys are branding the pellet. And I wanted to understand since you said that this is a commodity business, is there any particular reason to brand it? And does it give us any specific benefits in terms of margins when you brand it?

So [ Kanishka ], I think you asked the most interesting questions. LMELPEL is something that I personally tried to push as a concept. Yes, it's a commodity. The problem in pellets is that people have tried to make higher grade pellets. Our pellets are 65% minimum. People have tried -- are making higher-grade pellets, but the consistency doesn't happen because of the availability of iron ore. So the higher iron ore -- higher-grade iron ore that we are producing, we are sending to MRPPL and they are producing pellets out of that. And I mean -- and that's what we are buying back. So with the higher grade focus -- and mind you, we'll be producing 8 million tonnes of pellets in the next 2 years, 3 years, 4 years. So we have to look at how to differentiate ourselves from the rest of the market. If the guru of the industries of branding was Tata, who started Tiscon TMT, which was unheard of that time, we thought we'll start small by branding our pellets as well.

Okay. Okay. Sir, one more thing. You are kind of -- like a couple of things. You have the renewable power, basically, that's one part. Second is you're using the slurry to move the ore from one part to another part. So typically, the transportation is almost taken kind of fossil fuel instead of [indiscernible]. Now all this over a longer period of time, does it bring in any kind of this -- the green part of the business? And does it have any kind of opportunity to earn carbon credits?

No, none of these projects actually earn carbon credit. It's not qualifying for that, for even on pelletization, et cetera. We cannot prove the individuality of the project that without green carbon credit, the project is not viable. So we are not claiming any green in the pipeline. In the beneficiation, we are studying whether it is possible for us to claim that. That study is not yet over. In the power plant, in our Ghugus plant, we have been claiming carbon credit for the last 4 or 5 years now.

Right, sir. And a very different question I want to put to Mr. Gupta...

Answering the green question, though our process looks on the face of it the traditional blast furnace route, but the way we are producing the ore and the closeness to which we are producing the ore and with the transport mode, the net carbon input into the furnaces is much lesser because of the raw material itself.

Right, right. Sir, and a very different question, and I think, not related to this company. So I'm also a shareholder of your other company, which is Lloyds Engineering. And it's a personal request. Would it be possible for you to -- because this company is getting a lot of traction, and a lot of things happening that side also. But if you could organize a con call for that?

I'm a shareholder in that company like you. I'm not in the management of the company.

Okay. Okay. But would it be possible to communicate to them to kind of hold a conference with the investors?

As a shareholder, I will definitely request them.

We have our next question from the line of Rakesh Roy from [ Omkar Capital ].

Sir, just to mention, your pellet volume for this quarter is near about 2,025 tonnes?

225,000 tonnes sold.

225?

225,000 tonnes.

Okay. 225,000 tonnes. Okay. Right, sir. Sir, next question, sir, regarding BHQ, you are targeting nearby 55 million tonnes. So out of 55 million tonnes, if I'm right, is the 40 million tonnes by BHQ and the remaining from normal?

No, no, let me clarify again. For the sake of making sure there's no misunderstanding. 55 million tonnes will be the total ore output. 10 million tonnes will be direct sales ore, ranging from 58% to 62%, 64% in output. And 45 million tonnes will be BHQ, which would be beneficial down to 15 million tonnes of usable ore, or would be 15 million tonnes of concentrate, roughly.

We have our last question of the day from the line of Rucheeta Kadge from I-Wealth Management.

Just one question. What is the payback period that we have on these CapEx, if you could give a broad number on that?

So if we don't calculate the EV of the input capital, it will be 3 to 3.5 years based on transfer price at market levels. Each of the projects, that's what internally we try to focus at 100% capacity. That is not always the case. It may be a little less, a little more. But that is the idea to get that output out. We feel that, again, a very important question that you've asked us, and that's the reason why we are trying to have 0 debt in the company. Because if we have any debt, this payback, what you call payback or IRR, multiplied by 3 to 4x, which makes it a very much more difficult process. So we are trying to avoid that.

As there are no further questions, I would now like to hand the conference over to Mr. Rajesh Gupta for closing comments. Over to you, sir.

Thank you, everybody. Some of these questions have been very, very interesting and thought-provoking. And I thank everybody for participation in this conference.

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.