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

Ladies and gentlemen, good day, and welcome to Lloyds Metals & Energy Limited Q1 FY '25 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Somani. Thank you, and over to you, sir.

Yes, thanks, operator, and welcome, everyone, to the call. I will first thank Lloyds Metals and Energy for giving JM Financial, the opportunity to host today's call. Without much ado, I'll hand over the call to Mr. Rajesh Gupta, MD, Lloyds Metals & Energy. Over to you, sir.

Good afternoon, everybody. Greetings to all the investors present on the con call and a very special thanks to Ashutosh and the JM Financial team for hosting this call. The quarterly results of our company were very satisfying and robust, and the growth story continues, both in terms of operational and financial operations -- performance. We reported our best ever quarterly iron ore production as well as best ever quarterly DRI production. This was matched by highest ever quarterly revenue as well as quarterly profit. This quarter, the highlight also was fundraising where nearly $500 million over 2 issues, the QIP issue as well as the preference issue. The preference issue is still ongoing, and it should get completed very shortly. And this fund raise will ensure that our CapEx program remains undisrupted through the cycle that we have planned over the next 3, 4 years. On the CapEx front, the projects are executing and were executed and progressing as expected or maybe even better. The slurry pipeline is nearly over, and testing is about to begin in the next 20, 30 days as soon as the rains subside a little bit. The pellet plant is well on track. And the DRI doubling capacity is also on schedule in Chandrapur. Regarding the market scenario, the iron ore market demand in India buoyant, pricing being volatile since seasonally. The structural demand of steel, therefore, iron ore, therefore, the metal space is very strong. And we remain in a firm position as we speak. That's it from my side, and I'd now like to hand over to our CFO, Mr. Riyaz Shaikh, who will go into more details on the performance of the company. Thank you. Over to you, Riyaz.

Thank you, Rajesh. Good afternoon, everyone. Thank you for joining us today. I'm delighted to share with you our highest-ever quarterly performance, both operationally and financially for quarter 1 FY '25. Our revenue of INR 2,423 crores for quarter 1 FY '25 saw a remarkable 23% year-over-year increase driven by highest sponge iron and iron ore volumes. Notably, quarter 1 FY '25, iron ore volumes were the highest ever recorded in the second quarter for the company. On the realization front, we witnessed increasing year-over-year growth, sponge iron too recorded significant volume increase the highest ever both year-over-year and quarter-over-quarter. Our EBITDA performance mirrored our revenue growth with a substantial 32% year-over-year increase in the quarter 1 FY '25. This robust performance was primarily led by our iron ore and sponge iron segment, supported by higher margins. During FY '24, we incurred capital expenditure of INR 1,690 crores and in quarter 1 FY '25 alone, we have invested INR 598 crores. These investments reflect our commitment to sustainable growth and operational efficiency. Let me provide some key highlights. Iron ore, production called quarter 1 FY '25 stood at 4 million tonnes. Dispatches were at 3.6 million tonnes. Realization for quarter 1 FY '25 was INR 5,710 on average, a 7% year-over-year growth. EBITDA per tonne for quarter 1 FY '25 was INR 1,848 up 23% year-over-year. DRI and Power. DRI segment reported a quarter 1 FY '25 production of 76,704 tonnes, a 16% year-over-year increase. Realization for the DRI segment remained marginally muted year-over-year. The Power segment reported a steady performance with a 5% year-over-year increase in the sales for quarter 1 FY '25. I want to extend my gratitude to the entire Lloyds Metals team for their hard work and dedication which has enabled us to achieve these exceptional results. We remain focused on delivering sustained growth and value for our shareholders. Thank you for your continued support. We look forward to discussing our performance in more detail during this call.

You can open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Rajeev from Anand Rathi, please go ahead.

Good afternoon. So just wanted to know the status of the increase in this mining capacity, which you are planning to take it from the current 10 million tonnes, what is the status on that sir? And what is the time line when the new production would come on stream. And if you can throw some light on what kind of numbers are you looking once these mines are up and running as far as the EBITDA numbers are concerned?

The mining capacity enhancement has 3 steps. One is the -- there are 2 steps to the approval process, one is the IBM approval for the mining plant. Since it's a very major site expansion. And that process is over, and we've got the IBM plan approved by them. The HC clearance in the next step, we are in the process for that and should be in line by, I would say, January or so. Regarding the production process itself, we are enhancing our -- as we speak, enhancing is branch capacity and equipment, screening capacity as well as the mobile equipment, also electrifying most of the new equipment so that as soon as we get the approvals, we should be up and running with the total capacity. Like you saw, we have done 4 million tonnes in this quarter. So we -- if you extrapolate it in terms of 16 million tonnes, by the time the approvals come, we should be up and running with the requisite monthly capacity. And then pro rata we will be able to do as required for the year.

Sir, [indiscernible] all the approvals come in by mid proceed of January [indiscernible] 2 months from the new capacity on stream. And last year, you've already done extra 1 million tonnes on a pro rata it will be.

At that time, we should have achieved 10 million sir and so the next 2 months will be around 20% of around another 5 million, 6 million tonnes is what we hope to do. And that's obviously not given. It depends on so many other factors, primarily being the final approval coming.

And sir, we even have -- so this new approval is between the iron ore, I believe it'd be in iron ore and BSU, right? So what would be the mix of that going forward between iron ore and the BSU...

The approval is for producing x quantity of mine, 55 million tonnes is what approval we will get and we will limit our mining to 25 million tonnes in the first year only to iron ore dispatch of only 55 million tonnes of iron -- 25 million tonnes or iron ore in the first full year. And subsequently, as we speak, the beneficiation process, beneficiation plant, putting up that process is going on including environment approvals and land acquisition and all that. So once that -- and of course engineering, the pilot plant, all that beneficiation is also ready. So every year, we will add 1 module of the beneficiation plant of input of 15 million tonnes and an output of 5 million tonnes, capping the total output at 25 million tonnes over the life of the mine.

And what about the steel facility that you're planning to put in for FY '26, '27? What's the progress on that, sir?

Like I clarified earlier, in '24, '25, we should be up and running with the pellet plant -- the first pellet plant and the slurry pipeline to go with it as well as to double our DRI capacity to 700,000 tonnes, and the iron plant would be 4 million tonnes. That should be up and running by the end of this financial year. Next financial year, we would -- '25, '26, we would be able to -- we hope to start the second pilot plant of another 4 million tonnes. And the 1.2 million tonnes of steel plant would be June to September of '26.

So just one last question. So just considering your pellet plant will be coming up in phases in FY '25 and '26, what was the kind of delta you are expecting from these plants if possible to quantify the numbers.

Given the quality of the iron ore as well as the pipeline that would be in place by that time, along with the pellet plant. We expect the delta to -- the EBITDA delta to be around INR 1,200 to INR 1,500.

The next question is from the line of Siddharth Gadekar from Equirus Capital.

So my first question is on the realization. If I look at the steel prices or prices remain similar to the last quarter, but we have seen a sharp drop in realizations of around INR 500, it's on the iron ore side. So what explains the drop in realization?

From last quarter to this quarter?

Yes.

Yes. From Q4 to Q1, the realization difference would be primarily because our lump production was maximum last quarter. In the end of the year, we were focusing on extracting the maximum lump and this year, it will be the normal mix of around 18%, 20% lump and balances fines. So that is why the drop is there. The price per lump -- per pint has gone up around INR 6, INR 7 quarter-on-quarter. The price has come down in Q1 by INR 500, INR 600 in fines, plus the factor of this lump lesser.

Sir, secondly, in terms of our GSK facility, we were supposed to do some trials in April to June. Have you got any results on that?

So the pilot plant has been commissioned and the results are as expected. It's around 65%, 66% FE we are getting. On a consistent basis, 67, we have reached and the yield of that material is around 38% to 40%.

So our first beneficiation plant would come up in FY '27 is that understanding correct?

Yes.

Sir, thirdly in terms of our CapEx for the next 2, how should we look at our CapEx number?

Riyaz, the CapEx numbers.

We have -- in this year, we have -- first quarter, we've been around INR 598 crores. We should be what we have planned with all these projects will be completed. We should be doing INR 2,700 more in this -- the next 9 months. So that should be taking around INR 6,300 crores in this year and around INR 6,500 crores to INR 7,000 crores in the next year.

And lastly, on the CSR expenses, are we [indiscernible] expenses this quarter?

Last year, the CSR expenses for the whole year was around INR 65 crores. This year, the first quarter itself has seen a big jump. But we have completed our schools, started a new school, completed 1 school, completed the garment factories and many other things. So we've done around INR 68 crores in the very first quarter of CSR expenses.

The capital nature of the CSR has been completed 2 schools, 1 hospital and 1 garment factory these are the big-ticket items, which have been completed. And this will help the community at large over the next 50 years, obviously.

Sir, so how should we look at the CSR expenses for the entire year then going ahead?

It will be now going back to the INR 7, INR 8 crores per quarter.

The next question is from the line of [ Amui Gavre ] an individual Investor.

Congratulations on the good set of numbers. I just have one question, sir. Like, can the company maintain the debt free sets even after doing INR 3,000 crore CapEx?

Yes. As you might be aware, we've just done a fundraise also of QIP of INR 1,200 crores. And we are also in the process of doing a warrant -- preferential warrants issue which is around INR 2,960 crores. So that would be taking care of -- that would be around INR 4,200 crores of fundraising to via equity. This is what we had -- we would -- all our projects, what we have signed, we intend to remain -- actually the company intends to remain debt-free with all the projects. The fundraise will be used for any shortfalls if any, it would be used in for the projects.

[Operator Instructions] The next question is from the line of Nikunj Lahoti, an individual investor.

Sir, the company has [indiscernible] does company has more mines or wish to plan to bid for new mines?

As of now, there have been no such opportunities where we have been very excited.

And sir, how much is freight cost per tonne...

Freight cost up to our siding is around [indiscernible] EBITDA. Our total freight cost is INR 1,600 because much of our material were transporting up to the gate of the customers. So the average freight cost has been around INR 1,600 per tonne.

And sir, how much after starting of [indiscernible] and how much do you expect to get it lower.

On an average, I would say around INR 800, INR 900 a tonne will be reduced.

The next question is from the line of Rajesh Majumdar from B & K Securities.

Yes, my first time in this call. So I just want to know some broad questions -- broad answers from you. As for as new mines that we have post expansion, what is the royalty on these new mines and you have planned an increase in the royalty structure given the fact that the government -- the court has recently allowed the states can charge extra royalties on mining. That was my first question.

I couldn't understand the first part of the question.

I'm saying given the fact [indiscernible] royalty status on the expansion of the iron ore mines and the [indiscernible] already know the question, yes.

So the royalty would continue to remain the same around 19.8% of the average sales price which includes DMT and NMET. The current court case, which is still being studied, it's a 300-page document. They're still studying it. But prima facie it's not that additional royalty will or can be charged. It's prima facie saying that royalty is not a tax and the state can charge taxes. So that's the broad basis of the case. The exact implication and effect of that on the total iron ore industry and the steel industry is yet to be understood and studied by everybody.

And sir, I wanted to know who are our main customers in iron ore?

We have around a book of 25 to 35 customers quarterly. We have customers ranging from JSW, JSPL, all the Chandrapur customers which are smaller in each quantity, Gopani, Chaman, etc. but they buy all our lump product. We are selling to Bajrang. We are selling to Sunflag. So a very wide-ranging customer. I think the largest customer is around 15%-18%, 20% of our product range.

Will that be JSW?

Yes, that is JSW.

Sir, I wanted to know your outlook on the domestic prices, the discount that prevails over the iron ore imported or landed cost. Do you foresee any change happening there given the fact that a large amount of mining capacity is coming in India?

So the international pricing even at this depressed state is around $100 per tonne of 62%. Indian prices are much, much lower, always have been, number one. Number two, so there is no link to that actually speaking. And in terms of mining capacity being added, there is also steel capacity being added like we all know. The Prime Minister's program is to produce 300 million tonnes of steel by 2030. For that, we require around 300 million tonnes more of iron ore which is nearly doubling the capacity just like of steel. And that capacity we do not see on the anvil right now.

Okay. And so my last question if I could. I only have one more question. Is that the beneficiation plant is going to be using the iron ore that we are mining. So the total capacity of our iron ore mines post expansion is 25 million tonnes out of which our beneficiation is 45 million tonnes. So basically 20 million tonnes is the additional beneficiation capacity. Is that correct?

So the output of the beneficiation would be 15 million tonnes and 45 million tonnes would be the input and 15 million tonnes would be the output of the beneficiation plant. And 10 million tonnes would be direct sales ore. So 10 plus 15 would be 25 million tonnes ultimately over 3 to 4 years.

Okay. So 10 million direct sales at the current location and 15 million is [indiscernible].

Yes. The beneficiated ore would be producing 66%-67% which is much richer ore, very low in alumina and in cost. So we should be getting a good -- if we use it internally, it will be a good premium in production costs. If we sell it, it will be a good premium in selling price.

Thank you so much, sir. Thank you.

[Operator Instructions] The next question is from the line of Giriraj Daga from Visaria Family Trust. Please go ahead.

Yes. So my first question is regarding the prices. So let's say last month NMDC has cut prices. So what is the average realization versus for July compared to average of 1Q?

The price realization in Q1 has been around INR 5,700 partly delivered to the customer, partly delivered to the siding. And the average realization this quarter, this month would be little lesser than that. We have reduced the prices once. So we don't know how exactly the quarter will play out given the scenario.

Is it something like INR 300-INR 400 what NMDC also...

It would be similar.

And assuming there is an expectation of another cut coming from the 1st August onwards. So are we also anticipating similar INR 300-INR 400?

At the moment we are well booked till nearly end of August. So we don't know, but nobody can predict the prices of commodities like you very well know, sir.

No. So just to understand, let's say we are booked on quantity. So we will not be, let's say reducing the prices even if NMDC reduces [indiscernible]

We are not under pressure to market the product right now because of the monsoons. Even NMDC has had problems in the monsoon. We are having problems in the monsoons of delivery. So with all of that the pressure of the sales is not there. So we would not be looking at a price cut immediately.

Second, what is the specific beneficiation CapEx for the 45 million tonnes?

Around INR 5,000 crores for all the 3 units. Okay.

And lastly on a full year number, like last quarter you mentioned about 12 tonnes-13 million tonnes of number depending on the approval. So how confident are you for this number as of now?

There are many external factors. Primarily being the EC approval. Last time we got the EC approval after the IBM approval, we got it within 5-6 months. We got the EC approval last month so fairly -- Last time we got the EC approval after the IBM after 5-6 months. This time we got the IBM approval in the month of early July or maybe end of June. So, from that angle January seems to be a possible thing.

The next question is from the line of [indiscernible], an individual investor. Please go ahead.

[Technical Difficulty]

Next question is from the line of Ajay Lahoti, an individual investor.

Yes, sir. [Foreign Language]

We have no other mines other than the ones that we are operating right now.

[Foreign Language]

[Foreign Language] Let me correct that if there is a mistake. [Foreign Language]

[Foreign Language]

[Foreign Language] Of course we will look at other opportunities. [Foreign Language] That is the long-term vision. [Foreign Language]

Thank you. The next question is from the line of Harshil, an individual investor. Please go ahead.

Yes. What will be the CapEx spend for the financial year 2025 and 2026? And are we doing through internal accruals or are we taking any debt to fund it?

We are not taking any debt. That is very clear what we have always been mentioning. The CapEx plans for the 2 years is in the year 2024-'25, we are looking at around INR 3,300 crores of CapEx. And in the year 2025-'26, we are looking around INR 6,500 to INR 7,000 crores of CapEx. As I have earlier also mentioned, we have just done a fund raise of QIP as well as a preferential warrant is under process. So, we plan to do all these projects through internal accruals. Any shortfall or any issues would be supported with this fund raise of QIP as well as the preferential issues.

The next question is from the line of Prince Choudhary from PINC Wealth. Please go ahead.

I have a question. Out of the total capacity of 25 million tonnes per annum for iron ore and 45 million tonne after the post exploit function, how much do we use for the captive consumption and how [indiscernible] the customers?

Post-expansion -- post all the total expansion plan, we will be selling around 4.2 million tonnes of steel, 6 million tonnes of pellets and 9 million tonnes of iron ore. So, out of 25 million tonnes of iron ore that we mine, this would be the end product sale that we would be doing. 4.2 million tonnes of steel, 6 million tonnes of pellets and 9 million tonnes of iron ore.

So, that iron ore which we will mine, about 25 million tonnes, will it be used for the captive purpose?

Yes, 4.2 will consume around 8 million tones. [indiscernible] 9 million tonnes will be sold as iron ore. 6 million tonnes will be converted from iron ore to pellet and around 8 million tonnes will be converted from iron ore into steel. That gives the 25 million tonnes overall picture.

How much freight cost [indiscernible] using the slurry pipeline?

Could you repeat that?

How much freight cost [indiscernible] are you using for slurry pipeline.

Around INR 800 to INR 900 is what we will be saving on the slurry pipeline transport cost.

Okay. Thank you. That's it from my side.

Thank you. The next question is from the line of Vansh Jain, an individual investor. Please go ahead.

Given that the company is moving towards forward integration and will be producing value-added steel products, what is the management's projection for EBITDA margins?

After steel production, I think it's too forward-looking for us to respond on this con call, at this point of time.

The next question is from the line of Amui Gavre, an individual investor.

Can I expand on that answer that the gentleman just asked me?

Yes, sure, sir.

So, compared to my competitors in the steel business, we will be lower on the iron ore cost because we have no premiums. We will be lower on the iron ore cost because we have a good pipeline network would be set up. So, these two savings are around INR 4,000 a tonne of iron ore. And that translates to around INR 8,000 tonne of steel. So, this is definitely where our delta would be for the life of the mine.

Thank you. The next question is from the line of Amui Gavre, an individual investor.

I just have this question, sir. What will be the timeline guidance regarding to the 30 million tonne iron ore approval?

I just answered that. I think by January 2025, we should be up and running, subject to the EC approval being received.

Okay. And to add to that, is there any volume guidance that you would like to provide for iron ore for the next financial year?

We would be capping our iron ore production at 25 million tonnes.

[Operator Instructions] The next question is from the line of Samal Kothari, from Samal Traders. Please go ahead. Mr. Samal, your line has been unmuted. Please go ahead with your question.

Sir, there is a project in Surjagad, Gadchiroli, Surjagad Ispat Private Limited. Will it benefit our plant or our mines in any case?

We hope that they will be our customers of iron ore out of the 9 million tonnes that we have to sell. So, definitely that will be beneficial to the company.

Sir, any plans of taking stake in that company, sir?

No, we have no such plans at the moment.

Okay. And, sir, one more thing. There is a mine, Bande mine of Sunflag iron ore. In that mine, the Supreme Court case is going on. So, any plans that we are going to take that mine in future from Sunflag and Triveni is going to operate it because Triveni is the best in mining?

Triveni is one of the finest mining MDO operators, definitely, and that is why they are doing our mining. However, regarding the Bande mines, I have no idea and no knowledge of what is Sunflag's plans or Triveni's plans for that matter.

Thank you. The next question is from the line of Bhavin Chedha from ENAM Holdings. Please go ahead.

Sir, two, three questions. One, what was the mix of lumps and iron ore fines in this quarter versus quarter four? Second is, iron ore sales, what was the sales mix state-wise? Like entire sales happened in Maharashtra or you sent to other states and was there any exports and so? And the third question was, what was the blended Fe of the iron ore you produced in the quarter? So these are my 3 questions.

The third question I couldn't understand.

what was the Fe content -- average Fe content of the iron ore what we produced in the quarter.

Okay. Third question is very easy. It's our blended 63%-64% totally for lumps and for fines. And other than the exports, we have not done anything in this quarter. So, 63%-64% has been the Fe content in this quarter. Number two, the lump versus fine lump has been around 18%-19% in this quarter. Last quarter was around 23%-24% -- 25% was the lump versus 18% this quarter and what was your third question, sir?

Entire iron ore was sold in Maharashtra or you did sell out of Maharashtra?

We have a well-distributed policy. The lumps are sold mostly in Maharashtra to both blast furnaces and DRI units in Maharashtra. Fines are sold in Maharashtra, Raipur, Karnataka, sometimes to UP also, maybe not so much in this quarter. I think we did sell something to Jharkhand. So, it goes in many cities and of course to Goa we have sold.

And as you mentioned on the earlier part of the call that IBM approval is received and I think you are awaiting EC approval which is by January as you guided. Except for the EC, any other approval which you also require for incremental iron ore volumes?

So, when I say EC approval, it includes EC approval and then we need to add the CTO, Consent To Operate and then we are ready to go. So, that's part of the same process. Apart from the environmental clearance, there is no other clearances like forest or something is not required.

Forest is not required in this case?

Yes.

Okay. And the trial production of the BHQ plant what you had started that's running fine and all that?

Yes, absolutely. I clarified earlier, 66% regularly, 67% in trials and around 30%-40% yield from BHQ to finished product.

Thank you. The next question is from the line of Rohan Koshi from New Horizons. Please go ahead.

Hi, thanks for taking my question. Just wanted to expand a little bit on the comment you made on the benefit that you have of INR 8,000 a tonne on steel and how does that kind of sustain over time and you said also INR 4,000 a tonne on iron ore, right?

So, post the 2015 MMDR Act, all mines which were more than 50 years had to go in for a compulsory auction and most of the mines post 2030 will have gone for that. Last, from 2015 to 2024, in 7-8 years, there have been around 140 million tonnes of capacity which has gone in for auction at an average premium of 120%. So, I'm taking that as a premium of around INR 3,000 that those mines have to pay. If we extrapolate that to the further auction that will happen including major steel players that are still operating the older mines, that 120% translates to around INR 3,000 on a very, very conservative basis or premium that they are paying over and above the royalty that I am paying or that even they would need to pay. So, that INR 3,000 is one delta and then we add to that the pipeline saving. Most of the steel plants are not attached to the mine. The pipeline network is not there in many of the plants or the mines for that matter. So, the transport cost, if you add that further, that's around INR 1,000 on an average is what I've estimated for all these mine/plant combinations. And I'm talking about the big steel plants. The smaller steel plants like the mini -- high pellets on a commercial basis, etc., I'm not even including that in this discussion. So, this INR 4,000 delta that I have, steel requires around approximately 1.9 to 2 times of iron ore of the steel output. Iron is 1.6 to 1.65 and then steel is around 1.1 to 1.15. And then for the losses, I'm taking 2 times, 1.9x. So, that INR 4,000 translates to INR 8,000.

And does that sustain over the life of the mine or is that...

Contractually, yes. And when I talk about this beneficiation plant, the beneficiation plant produces like I said 66% Fe content that reduces the coke requirement to the blast furnaces or coal requirement in the DRI furnaces or power requirement in the ARC furnaces, whatever way you make the iron. In the net steel making, around 15% to 18% energy requirement either of coke or coal or power comes down. And that's again a delta which I have not yet calculated.

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments.

Thank you, everybody. It was a nice session. Hope you have clarified and replied to all your queries and questions. Thank you very much.

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