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

Ladies and gentlemen, good day, and welcome to Lloyds Metals and Energy Limited Q2 FY '25 Earnings Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Gadekar. Thank you, and over to you, Mr. Gadekar.

Good morning, everyone, and thank you for joining us today. We at Equirus are pleased to host Lloyds Metals and Energy's Q2 FY '25 Results Conference Call. We have with us today Mr. Rajesh Gupta, Managing Director; Mr. Riyaz Shaikh, CFO. Now I would like to invite Mr. Rajesh Gupta to initiate the proceedings for the results call.

Good morning to all the people, investors and analysts present on this call. We appreciate your continued support and interest in Lloyds Metals and a special thanks to Siddharth and the Equirus team for hosting this call today. We value the opportunity to share our progress and insights and the process of the company with all of you. I'm pleased to report that our Q2 and H1 FY '25 results have been very satisfying and robust, reflecting strong performance on both operations and financial metrics and in continuation of our target to create a cyclical proof steel business. In terms of iron ore volumes, we have achieved 5.37 million tonnes in the first half. And in sponge iron production also we have done better in both the plants, since now 2 plants are operational than the previous year substantially. The iron ore market domestically remains buoyant. There is some headwind, but the prices have remained stable at around $100 for the 62% grade in the international market. And in the Indian market for the first time after many months, we have seen a double price increase in the market itself. In addition, there's a considerable demand for high-quality ore, which very positively influences our outlook for our iron ore business. In terms of project updates, we are excited to announce the successful laying of the 85-kilometer slurry pipeline, completed in record-breaking time and probably one of the fastest durations of around 8, 9 months since we started the project. This pipeline is now awaiting the completion of the first pellet plant, which should be completed within this financial year in Konsari. The DRI plant in Ghugus is also well in progress and future projects of second pellet plant and the 1.2 wire rod mill in Konsari and Ghugus are also advancing well within schedule. Regarding the mine expansion, we have received permissions stage by stage and within this fiscal year, we hope to announce the mine expansion also as per our original projections. With these updates, I will now hand over the call to Riyaz, our CFO, who will walk you through our quarterly numbers. Over to you Riyaz.

Thank you, Rajesh ji. Good morning to all participants on this earnings call. Thank you for joining us today. A brief overview on our H1 FY '25 revenue performance. H1 FY '25 revenue grew by 26% year-on-year, driven by higher sponge iron and iron ore volumes. On the iron ore front, both volumes and realization showed encouraging growth year-on-year. Sponge production also recorded increased volumes and realizations year-on-year. The company received close to INR 72 crores as IPS benefits from previous years, contributing to overall performance, and this forms part of our other income for reporting purposes. On EBITDA front, EBITDA mirrored revenue performance increasing by 37% year-on-year in H1 FY '25. The robust performance was supported by higher margins from both iron ore and sponge. Speaking about capital expenditure, we incurred a capital expenditure of INR 1,690 crores in FY '24. and INR 1,714 crores in H1 FY '25. We will now give you a brief snapshot on per ton metrics as well. Iron ore realization, for quarter 2 FY '25, the iron ore realization was INR 5,516 per tonne, up 19% year-on-year. And for H1 FY '25, it was INR 5,638, up 11% year-on-year. EBITDA per ton, for quarter 2 FY '25, INR 1,668, up 17% year-on-year and for H1 FY '25, INR 1,782, up 21% year-on-year. DRI segment volumes were as follows. Q2 FY '25 was 84,552 tons and H1 FY '25 was 1,60,974 tons. Realizations remained stable both year-on-year and quarter-on-quarter. Power segment performance. The Power reported a steady performance with 38% higher sales year-on-year for quarter 2 FY '25. For H1 FY '25 volumes were also higher by 4% year-on-year. CapEx and project updates. As mentioned by Rajesh ji, all our projects are progressing at breathtaking speed. Several projects are ahead of schedule, but we will maintain our CapEx design as previously guided. The fundraising undertaken by the company has supported fast execution of all the projects. Taking queue from Rajesh ji, we foresee a much better H2 FY '25. That's all from my side. Thank you all for taking the time to join this call. I look forward for your insights and questions during this call. Thank you. Over to you, Siddharth.

[Operator Instructions] The first question is from the line of Parthiv Shah from TS Builders Private Limited.

Firstly, congratulations for a resilient set of numbers. Sir, I want to understand what has been the average iron ore prices during the quarter? And also, what have been the exit iron ore prices?

The average of this quarter, the iron ore prices was INR 5,516 per ton.

And what is the existing?

And for the half year, it is INR 5,638.

Sir, have we increased the ore prices for the October deliveries?

Not able to hear you properly.

Have you, sir, increased the ore prices for the October deliveries? And also if you could quantify because NMDC has taken 2 price hikes in October?

Yes, so we go with the flow of the market, and we have also taken price hikes. Our price hikes are more constant or price hikes or price falls are more constant. This year or rather this month, as like I mentioned earlier, after many times, many months, the price increase of 2x has been announced by NMDC, and we have followed a little bit better than that.

Okay. And sir, what is your production volume guidance for '24 estimates, FY '24?

FY '24-'25, so we expect around 13 million - 14 million tonnes assuming that the EC -- for the expansion comes by mid-February or so.

Okay. And sir, one last one. In your prior calls, you had mentioned that as and when your iron ore mining goes up, you tend to get operating leverage and that would reduce your cost. Could you throw some light as to where your cost per tonne looks at after this enhanced mining?

After enhanced timing, the MDO cost should come down once it stabilizes by around INR 150 to INR 200 a tonne. And once the beneficiation starts by another INR 150 to INR 200 then the volumes go up really high, number one. Number two, the slurry pipeline cost once it is started, which will start along with the present plan, that should reduce our transport costs by around INR 600 a tonne also.

The next question is from the line of Vikash Singh from PhilipCapital.

Sir, just wanted to understand the way I see that this sponge iron EBIT has jumped on a sequential basis while we believe that the prices was kind of lower for most of the players in Chhattisgarh region. Is there anything additional in this sponge iron which we are missing out right now?

We have got the permission for previous year IPS, Industrial Promotion Scheme in this year, which we have accounted for as other income of around INR 72 crores. So that is the onetime income that is added to the bottom line.

Understood, sir. Sir, in terms of pellet trading which we started and had done other marginal losses this quarter. Just wanted to understand that why if we are able to sell iron ore then why this pellet trading is happening here right now or...

Pellet trading, we have started from 3, 4 directional reasons. The primary reason is that it is because of our seed marketing effort for our higher grade pellets, that we will be coming into the market very shortly so that we can export with a better knowledge of the market when we are fully commercial. This quarter, like many people know that pellets margins, especially on the export front were very low. So we have not had much export or zero export rather. And the marginal loss that you see is basically a carry on for the previous quarters, some figures that were balance and some administrative costs.

Understood, sir. Sir, just one last question. How much CapEx we have already done for the first half and the pending CapEx for the second half which we are guiding and for FY '26 as well?

We've done around INR 1,700 crores in the first half, and we should be doing an equal amount in the next half of this financial year also.

Understood, sir. And lastly, if you would like to give us some idea about the beneficiation of low-grade iron ore project, where it is right now, by when we are thinking of starting and how is the cost differential in terms of additional costs which we had to incur for the beneficiation of iron ore?

The beneficiation plant, we have started a pilot plant, which was commissioned in the end of March 2024. That pilot plant is giving us very good results. We are getting a little better results than what was earlier thought to be. We're getting 68% output through the beneficiation route. We have produced some quantities, and we are now going to do this testing of these quantities up to pellet making as well as steel making, so that we understand the full benefit of the ore or if any correction need to be doing from downstream production activities, number one. Number two, we have -- from the project angle, with the beneficiation pilot plant is completed, the flow sheet of the project is now final and detailed engineering is going on along with our Chinese contractor, Sinosteel. Simultaneously, the permissions required for the forest land, et cetera, are being processed. We are in line for our -- as projected for the first plant to be ready by end of '27, '28. So we are well in line within that.

Understood, sir. Sir, cost -- additional cost which you need to take up versus the premium of 67% Fe grade, what is it right now, the premium and what is the additional cost we expect to have...

The cost of beneficiation would be around INR 800, INR 700 a tonne, but that is more than offset by the fact that this material would be piped by slurry pipeline to our steel plant or pellet plant facilities, number one, as well as the royalty would come down because we are doing this beneficiation outside the mine area and the royalty would be paid on a lower grade materials. So we believe that the cost will be well under control compared to current in spite of a higher grade. Regarding the premium of the higher grade, if you look at pelletization the market is giving a premium of around $40 to $50 in the international market. And if you look at steelmaking, we expect around similar benefit, not similar, maybe a little lesser benefit if we look at steel making as part of the benefit. So overall, it's a win-win situation.

Yes, yes, it's still way above the costs you are incurring.

[Operator Instructions] The next question is from the line of Nishant Bagrecha from InCred Finance.

I have a couple of questions on the CapEx front and also on your iron ore. So sir, my first question is like, can you give some highlights on the CapEx front and share timelines on each plant commissioning over the next 2 to 3 years?

The CapEx, as I mentioned during this first half we have done INR 1,700 crores, it was well backed up with the fund raise also what we did. So the projects are all going much on time. We intend to do around INR 3400 crores to INR 3500 crores in this year of CapEx and followed in the next 2 years of almost -- not close to double sort of a thing what we are doing here. So we should -- that's how the CapEx plans are. All our projects are running much in -- all our projects are running much, much in advance as of today, as we mentioned, but we just continue sticking with the same dates what we have already mentioned. So on the CapEx front, all the projects are almost 1 year to 1.5 year ahead of schedules, that is what we are going on. So we should be completing things very, very soon. We should be coming out with things.

Okay. Sir, and [indiscernible].

Like the pellet -- like the first plant...

If I can give some update on the project wise. First is the 25 million tonne dispatch from the mine, either DSO or beneficiated. We hope to complete this by February 2025. The beneficiation like I mentioned earlier, by end of financial year '27-'28 was the original, we hope to do it around 6 months earlier than that for all the 3 phases. The iron ore grinding plant and the pipeline, like I mentioned earlier, the pipeline is already completed. The grinding unit of 10 million tonnes will be completed by March '25. The pellet plant, the first one will be completed by the March '25 and the second one by March '26. Our original guidance was around 6 months to 1 year more than this. For the integrated steel plant, the first phase of that is the DRI plant. We hope to complete this by March '25, again. And part of the captive power plant in March '25, one small part in March -- in January '25. And the 1.2 million tonne steel plant with BF, blast furnace, coke oven and wire rod mill by September '26. These are our internal projections. Our projections to our board are -- the original projection to the board were a little bit more than this like we have mentioned.

Okay. And just wanted one more clarity on the CapEx front. Like we have spoken about almost INR 32,000 crores CapEx over the next 5 to 6 years. So post the fund raise, can we assume the entire CapEx would be funded by internal accrual?

Yes. As of today, we have all decided it should be without debt, that is what we have -- we should be continuing. We had a fundraise through QIP as well as warrants. Warrants are still around 35% is what we've got, and we will be getting 65% more. So we have -- so this would be funding for the projects. It would be without, we still maintained, it would be without debt.

Okay. And one more, like what would be our cost of benefiting this iron ore. Can you give any sense on the all-inclusive cost of iron ore, including mining and beneficiations and royalty charges?

The all inclusive charge of beneficiation, royalty and transport to the consuming center, that is either pellet or steel plant would remain more or less the same as of today. Okay, around INR 2,800 to INR 3,000.

The next question is from the line of Rajesh Ravi from HDFC Securities.

Part of the question, giving the details of the timelines. Just wanted to cross check the INR 3,500 crores CapEx would be in FY '25 and INR 7,000 crores each is in FY '26 and '27?

Yes.

Okay. And as per your timeline, most of the projects would get completed by FY '26 and the BHQ beneficiation line also you mentioned would be completed by FY '26 and or early FY '27?

BHQ, the last phase of that would be completed by September 2028.

Okay. Okay...

September 2027, sorry.

Okay. So, FY '28, it will get completed...

It is a steel plant of 3 million tonnes, which expenditure of this land has started, and the full study of the project is on right now. That INR 16,000 crores project would be, apart from land wound be invested post some of the major investments being completed.

Okay. Okay. So this is the third -- beyond this INR 14,000 -- INR 18,000 which you will be spending in 3 years, so remaining INR 16,000, INR 17,000 is what you would be...

First, if you want to break it up, we have the DRI plant, the pellet plants at around -- and the pipeline and the beneficiation of around INR 16,000 crores. 3 million tonnes steel plant at around INR 16,000 crores, roughly, I am giving broad figures. So the INR 16,000 crore figure investment would start apart from land and technology build up would start post most of these other projects being over.

The next question is from the line of Manish Sehgal, an Individual Investor.

I just want a quick clarification on our relationship with Sunflag, given we are having about INR 6 crore shares sitting there, which could be potentially a supply overhang. And also, there was some oversupply agreement, if you could clarify a bit on that as well with them?

Sunflag, as you all know, it was an arbitration matter by which we had given them these OFCDs, which got later converted into equity shares. That is around INR 6 crores of equity share, which they have. And also based on this same order, we entered into an over purchase agreement, where we are supplying them almost -- they have the requirement of around 1 million tonnes per annum. So at a cost-plus basis, so we've been doing that as per the arbitration order what we have. And it's a completely -- the shares are in the -- it forms the part of the public holding...

There was at least in the initial list, the warrants were issued to them also. But of course, finally, I think it didn't fructify.

Yes, they were not able to apply for it.

Yes. So I mean, is there some long-term thinking on the relationship with that company as well -- or it is just outside, setting outside?

In terms of long-term relationship, this is limited to the supply of iron ore for which we have a long-term supply agreement with them.

Okay. So the supply can come in the market effectively?

Supply of iron ore I said.

No, no, I'm just saying the stock...

Supply of shares. We as a company not -- it's part of the public shareholding, and we are not in a position to comment on that.

[Operator Instructions] The next question is from the line of Siddharth Gadekar from Equirus Securities Pvt Ltd.

Sir, can you just quantify how much price hikes have we taken in October 1st?

We have taken one price hike of INR 425 and the second one is around INR 380 or INR 400 in the prime sector. And in the lump sector, the first one was INR 425, the second one, I think, is INR 500. I'm not able to remember the second one offhand right now.

So broadly, excluding the royalty, incremental royalty that we might be paying on the higher legalization broadly, everything should flow to our EBITDA in the third and the fourth quarter assuming prices stay where they are, right?

Yes, the royalty, apart from the royalty, everything should flow to the bottom.

Secondly, on the IPS number where you said you have received INR 72 crores for this year. How should we look at these numbers going ahead over the next 2, 3 years?

I think this number is more or less the final figure for the overhang that was there for the past investment. For future -- once the pellet plant is started, then we will start our new series of the IPS for Gadchiroli at 150%. That will start post the pellet plant, which will also be for the DRI plant in Gadchiroli. And similarly, for the DRI plant, the new plant, once we start post that, the income would start accruing.

So we can expect some benefits to start flowing in from FY '26 only...

Yes, FY '26 because once we complete our project in FY '25, we start operations in FY '25, '26 and we should be fine.

Sir, secondly, in terms of the slurry pipeline, which has got commissioned already, when do we expect to actually start utilizing the slurry pipeline?

The iron ore grinding unit is under preparation. And the pellet plant, even if the iron ore grinding unit is started, we can start sending ground material to the pellet plant area and try to dispatch some ground material to some customers. However, the delay is more -- is expected around the same time as the pellet plant around March '25.

Sir, the cost of transportation in the pellet plant would be around INR 50. Is that a fair understanding?

To the pellet plant?

Yes.

Yes, yes, around INR 50.

The next question is from the line of Ashutosh Somani from JM Financial.

If you could spend some time on the domestic pricing outlook both in the short term and in the long term. So short-term perspective in terms of what are your customers saying and what kind of room you are seeing in terms of price increase further. And from a longer-term perspective of mines expiring in 2030 and how do you look at the pricing outlook there?

Ashutosh, thank you very much for a very nice question. We have commissioned BigMint and [ Questro ] for a detailed market study to address some of these questions. Some -- in the preliminary discussions, some surprises have been thrown up. For example, many of the steel authority mines also expire at the same time as some of the other mines in 2030, that I didn't know, for example. The current -- so continuing with the long term, the steel market is expected to grow 200 million tonnes to 300 million tonnes by 2030, '32, '33. And has a growth of around 7%, 8% per annum for the next 4 years or even more. Given the pace of the iron ore mining increase in the past few years, we do not see that keeping pace, so we see a mismatch. Some of this mismatch will be covered by other beneficiation projects, which are being thought about. But we don't know the extent of that. That is the study that BigMint would try to cover for us in the next 2, 3 months, we'll have that detailed report with us. Regarding the short term, the steel plant capacity in the country has been added by around 8% in the last quarter with 2 mega blast furnaces being commissioned apart from many other units being added. There have been no mine announcements coming up. So that is probably part of the reason of this mismatch and price increase. The Indian market continues to remain at a deep discount to the international prices. And so that does remain in the overall scenario that we factor in.

The next question is from the line of Aryan Sharma from B&K Securities Limited.

Just one clarification. I know you have mentioned it already, but could you please give more details based upon the future costs? Like how much for beneficiation, pipeline, steel plant, et cetera. Could you just share any specifics on these...

I think that would be quite detailed. Can we ask you to approach our investment relation cell and they would be glad to update you on that?

Sure, sir. No problem.

The next question is from the line of Deep Mehta from Bank of India Mutual Fund.

Just one clarification. We will get our EC limits for increasing our mining capacity by end of this year, correct?

End of this financial year, yes.

End of this financial year. And then how much time it will take to ramp up the production to the rated capacity?

So let me clarify on the EC. There is -- the mining plan has been approved. The TOR has been approved. Now the public hearing would happen post this Maharashtra elections. And subsequent to that, the EC would be issued by the Central Government, MOEA. So that is the process that is balanced, what has been completed, what is balance. So we expect the timeline by February 15, 20, something like that. We have already have processed up to 2 million, 2.5 million tonnes also per month. So we hope that the 25 million tonne DSO sales on a per month basis could happen more or less immediately in line with the EC clearance. Our MDO Thriveni, has already started implementing machinery based on this.

So is it fair to assume that for FY '26, we may touch 20 million tonnes or something like that?

25 would be a more accurate figure.

Very clear. And the pellet plant will also start, right? So what will be the sales to the outside world?

For sure. Yes.

Okay. And pellet plant should start by -- during the start of the next financial, right?

First pellet plant would start and the first -- the DRI plant capacity enhancement, both should happen by the end of March '25.

Operation should start from the next financial year.

The next question is from the line of Vikas Shah from RNM Capital Advisors.

Congratulations on the robust performance. The first question is with respect to -- so what is the yield that you've got in the pilot beneficiation plant? And can we assume that the yield will improve when we do beneficiation on a larger scale?

The yield that we've got is around 38%. Originally, we had anticipated 35%, so 38% a little bit improvement on that. I would say that this 38% is an optimum figure. There are too many variables in a larger plant, so I would say 38% would remain our internal thinking.

Okay. Okay. And so when we talked about 45 million-ton of beneficiation, which would give us roughly around 15 million tonnes of saleable iron ore. So can the number will be even higher also?

It will be a little bit higher, but again, that's we have to appreciate that this is the first time that this plant is being done in India. So we have been very, very conservative in announcing our figures. And -- but the pilot plant is showing 38%.

And then one last question. What is the mining that you have done in any month, just to understand like how fast we can ramp up the mine?

Sorry, come again? I lost your question.

Sir, what I'm saying is that what is the peak mining that we have done in any month, just to understand like how fast we can ramp up the mines?

Around 2.2 million tonnes were done, I think, in the beginning of this financial year. And one more thing that we have to keep in mind is the logistics movement, so that becomes a bottleneck. With the pipeline of 10 million tonnes being commissioned simultaneously, that bottleneck stands reduced dramatically.

The next question is from the line of Shrey Gandhi from CR Kothari Stock Broking.

I have just have a small question. When I was going through the quarterly results, I see some mining revenue has decreased quarter-on-quarter by almost INR 800 crores. So could you just throw some light on this? And what can we expect?

We are not able to hear you properly.

The mining revenues decreased by almost INR 800 crores in the quarter 2 as compared to last quarter. So can you throw some light on this? And what can we expect in the coming future?

See, quarter 2 guidelines are always going to be lower for any year because of the rains and monsoons and the demand, et cetera. So all put together, that's always going to be a little lesser than quarter 1 or quarter 4. It's the nature of the [indiscernible].

Seasonally weak quarter. So the second quarter always sees a similar type of trend.

But this quarter has been better than the year-on-year quarter. This half has been better than year-on-year half.

So in the coming quarters, we can expect something similar figure, may be more than this in the quarter 1?

Like we mentioned earlier, we would be having our -- if you talk about mining, the figures will continue on the same basis till we get the EC clearance and the overall guidance would be around 13 million, 14 million tonnes for the year for mining and our DRI plant of around 33,000 tonnes a year will be the overall guidance.

Congratulations for the great numbers.

The next question is from the line of Bharat Bajracha, an Individual Investor.

Can we see any incremental volume if we get the EC clearance by year-end or Jan '25, as you said?

So the incremental volume would be right now, it is 10 million tonnes, so 13 million tonnes, so 3 million tonnes will be incremental volume in the last 1.5 to 2 months.

How [indiscernible] profitability at current levels given the iron ore prices are today?

Can you repeat that?

[indiscernible] iron ore prices are today?

We are losing the first part of the question. I think something wrong with the line?

The profitability at current levels, where iron ore prices today?

I would leave that to the very able analysts to analyze that. There are nearly 100 people in the group. So I'm sure many of them will be doing a lot of that analysis.

[Operator Instructions] The next question is from the line of Amit Agicha from H G. Hawa & Company.

Can you please elaborate on how the slurry pipeline contributes to reducing the carbon footprint and operational efficiency?

We spent around -- okay, in terms of carbon efficiency, I don't have the figures with me, but we [indiscernible] the truck movement is with diesel, and this is through pump power and the slurry reduces this. So I'll work on this. It's a very interesting question. We have the figures in rupees, but not in carbon footprint, we will evaluate that. Apart from that, what we're also doing in carbon footprint reduction is the pelletization, we are working -- going to work with LNG, not with oil. So that will reduce that carbon footprint in a very big way. The local transport to the siding to the nearby customers would be through LNG trucks. That is as far as the transport is concerned. Within the mine, much of the equipment by the year-end 2025 would be through electrical equipment, again reducing the carbon footprint dramatically. So all of that put together, the footprint reduces. By the next quarter, I think we will be able to have a more precise -- not precise, but more elaborate answer to your question, my friend.

It was very helpful. And last question is like are there any diversification plans or technology investments aimed at enhancing operational efficiency?

That's within the plans that we are doing, there is a continuous effort to improve efficiencies, improve marketability, improve costs and things like that. So that is the ongoing process. If that -- apart from this, no specific thing that we are addressing right now, the steel plant that we're talking about, the 3 million tonnes steel plant, we are looking at the latest technologies in the blast furnace route, et cetera, to ensure that the technologies are very well up to date. So whatever plans we are buying are state of the art up-to-date plans.

As there are no further questions, we would like to hand the conference over to the management of Lloyds Metals and Energy Limited for closing comments.

I would like to thank everybody for the active participation and the very interesting questions. And Happy Diwali to one and all, and wish all a happy and prosperous investing New Year. Thank you.

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