Lloyds Metals & Energy Ltd:Annual Report 2023-24 Analysis

Lloyds Metals & Energy Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Incorporated in 1977. The company initially focused on trading and gradually diversified into manufacturing.
• Headquarters Location: Mumbai, India.
• Company Vision and Mission: (Specific details may be unavailable publicly) Generally, their vision aims to be a leading player in the steel and energy sectors, contributing to India’s infrastructure development. Their mission likely emphasizes sustainable growth, innovation, and value creation for stakeholders.
• Key Milestones in their Growth Journey:
  • Started as a trading company.
  • Entered the steel manufacturing sector.
  • Expanded into iron ore mining.
  • Focused on backward integration to secure raw material supplies.
  • Significant capacity expansion projects to enhance production volume.
• Stock Exchange Listing Details and Market Capitalization: Listed on the Bombay Stock Exchange (BSE: 517287) and National Stock Exchange (NSE: LLOYDSME). Market capitalization fluctuates based on market conditions and company performance. You can find current market capitalization data on financial websites like Google Finance, Yahoo Finance, or the BSE/NSE websites.
• Recent Financial Performance Highlights: Revenue and profit figures can be found in the company’s annual reports and quarterly financial results released on the stock exchanges.
• Management Team and Leadership Structure: A board of directors provides overall governance. Specific details about the individual members can be found on the company website.
• Any Notable Awards or Recognitions: Information about awards and recognitions is not readily available. Check the company’s website or annual reports for updates.

Their Products #

• Complete Product Portfolio with Categories:
  • Iron Ore: Raw iron ore.
  • Sponge Iron: Direct Reduced Iron (DRI), a key raw material for steelmaking.
  • Steel Billets: Semi-finished steel products used for rolling into various steel products.
  • TMT Bars: Thermo-Mechanically Treated reinforcement bars used in construction.
  • Pig Iron: Used in foundries and as a raw material in steelmaking.
• Flagship or Signature Product Lines: TMT Bars and Sponge Iron are considered key product lines.
• Manufacturing Facilities and Production Capacity: The company has integrated steel plant in Wardha, Maharashtra. Details on precise production capacities for each product can be found in company reports.
• Quality Certifications and Standards: They likely hold certifications like ISO 9001 for quality management.

Primary Customers #

• Target Industries and Sectors:
  • Construction: TMT bars
  • Steel Industry: Sponge iron, pig iron, iron ore
  • Infrastructure Development
• Geographic Markets: Primarily domestic (India), with potential exports of iron ore or other products.
• Distribution Network and Sales Channels: Direct sales to large construction companies and steel manufacturers, and distribution through a network of dealers and distributors.

Major Competitors #

• Direct Competitors in India: JSW Steel, Tata Steel, Jindal Steel & Power, ArcelorMittal Nippon Steel India.

Future Outlook #

• Expansion Plans or Growth Strategy: Expanding production capacity of steel and related products.
• Sustainability Initiatives or ESG Commitments: (Specific details may be unavailable publicly) Implementing environmental management practices in their operations and exploring renewable energy sources.
• Industry Trends Affecting Their Business: Government policies related to infrastructure development, steel consumption, and mining regulations. Fluctuations in global steel prices and raw material costs. Environmental concerns and sustainability demands.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Total income increased significantly:
  • Standalone: ₹727.25 crores (FY 2021-22) -> ₹3,466.77 crores (FY 2022-23) -> ₹6,574.57 crores (FY 2023-24)
  • Consolidated figures mirrored this trend.
• Standalone Net Profit After Tax (PAT): ₹97.30 crores (FY 2021-22) -> Loss of ₹(288.54) crores (FY 2022-23) -> Profit of ₹1,243.15 crores (FY 2023-24)
• EBITDA margins (standalone) improved: 25.5% (FY 2022-23) -> 27.1% (FY 2023-24)
• Return on Equity (ROE) showed high volatility: Negative (FY2022-23) -> 57.28% (FY 2023-24)
• Return on Capital Employed (ROCE) increased: 56.36% -> 59.79%

Business Segment Performance #

• Mining: Primary revenue driver.
  • Income: ₹237.97 crores (FY 2021-22) -> ₹2,651.10 crores (FY 2022-23) -> ₹5283.19 crores (FY 2023-24)
  • Iron ore production increase: 179.10% YoY in FY 2023-24
• Sponge Iron (DRI):
  • Revenue: ₹445.42 crores (FY 2021-22) -> ₹748.99 crores (FY 2022-23) -> ₹827.48 crores (FY 2023-24)
  • Production increase: 28.32% in FY 2023-24 (due to new plant commissioning)
• Power:
  • Revenue: ₹43.87 crores (FY 2021-22) -> ₹66.68 crores (FY 2022-23) -> ₹117.82 crores (FY 2023-24) (76.70% increase over FY 2022-23)
  • Production increase: 25.93% in FY 2023-24
• Pellet Trading: Introduced in FY 2023-24, contributing ₹346.08 crores in revenue.

Major Strategic Initiatives and Their Progress #

• Forward Integration: ₹32,700 crore integrated steel manufacturing project at Ghugus and Konsari.
  • Includes units for pellets, wire rods, HR coils, and a slurry pipeline network.
  • Operational in phases over the next 5-7 years, financed without debt.
• Mining Capacity Expansion: Board approval for expanding iron ore mining capacity to 55 MMTPA (including BHQ).
  • Contracts signed with Chinese technology suppliers for BHQ beneficiation.
• Slurry Pipeline:
  • Construction of a 85-kilometer slurry pipeline in progress from the Hedri Grinding Plant to Konsari.
  • A second 190 KM pipeline is also planed.
• Konsari DRI Plant: Commissioned in FY 2023-24, with a 70,000 TPA capacity.
• Pellet Trading. Commenced seed marketing of pellets through strategic tie-up with Mandovi River Pellets Private Limited (‘MRPPL’)

Risk Landscape Changes #

• Key risks: global steel demand scenario, economic slowdown, market volatility, escalating raw material and manpower costs.
• Risk management framework includes documented policies, maintenance of registers, and internal/external reporting.

ESG Initiatives and Metrics #

• Environmental:
  • Decarbonization plans for low-carbon steel manufacturing.
  • Implemented Electrical Vehicles (EVs).
  • Established dust suppression management systems, check dams, and sewage treatment plants (STP).
  • Planted over 20,000 saplings.
  • Recycled 12,674 cubic meters of water.
  • Generated 11 MW of power through waste heat.
• Social:
  • CSR focused on healthcare, education, and community development (Lloyds Infinite Foundation - LIF).
  • Provided employment for around 1,300 people in the Konsari plant.
  • Offered employee marriage and child birth reward policies, and a “Lloyds Life After Death Policy.”
  • Established a garment training unit for women’s empowerment.
  • Employee Stock Ownership Plan (ESOP) implemented for all employees.
  • Attrition rate: 4%.
  • Average tenure of over 5 years for 23% of employees.
• Governance:
  • Implementation of Risk Management Policy, Code of Conduct, Whistleblower Policy, and policies on Related Party Transactions.
  • Maintenance of a Health, Safety, and Environmental (HSE) management system.

Management Outlook #

• LMEL expects to sustain growth by leveraging captive iron ore reserves and value-added steel production.
• Aims to utilize iron ore reserves optimally through forward integration projects and timely capacity expansions.
• Upcoming slurry pipeline will reduce logistics costs and carbon emissions.
• Beneficiation of 706 MT of high-grade BHQ is anticipated to secure raw materials and open new revenue streams.
• Committed to maintaining a debt-free balance sheet.

Detailed Analysis #

Financial Position Analysis of Lloyds Metals and Energy Limited #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(₹ in Crores)

*The value of the total non-current asset for year 2022 calculated by subtracting given current asset (661.75 Cr.) from given total assets (1,408.52 Cr.)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased by 154.53% YoY, primarily due to increases in Property, Plant and Equipment, and Capital Work-in-Progress, indicating significant ongoing expansion projects.
• Current Assets: Increased by 22.28% YoY, mainly due to increases in cash and bank balances, reduced by decrease of inventories.
• Total Assets: Increased by 94.38% reflecting company’s growth.
• Non-Current Liabilities: Increased significantly (468.60%) due to an increase in lease liabilities.
• Current Liabilities: Increased by 108.53% YoY, mainly driven by increases in trade payables.
• Equity share Capital : Equity Share capital remained the same in FY 2023 and FY 2024 with negligable change due to allotment of the shares to ESOP trust.
• Other Equity: Increased by 86.72% reflecting increase of reserves.

Working Capital Trends #

• Current Ratio (Current Assets / Current Liabilities): Decreased from 2.01 in FY23 to 1.14 in FY24. This signals a decreased liquidity position.
• Inventory Turnover Ratio: The increase from 15.54 to 26.04 showing an improvement of the inventory conversion and efficiency.

Debt Structure and Maturity Profile #

• The company is debt-free in terms of borrowings.
• Non-current lease liabilities exists and are present.

Off-Balance Sheet Items #

• Contingent Liabilities: Exist, including disputed claims and demands from tax authorities but no significant change.
• No other off-balance sheet items are disclosed in the provided information.

Lloyds Metals and Energy Limited: Financial Analysis FY 2023-24 #

Revenue Breakdown by Segment #

• Iron Ore Mining: FY 2023-24 revenue was ₹5,283.19 crores, a 99.28% increase from FY 2022-23’s ₹2,651.10 crores.
• DRI (Sponge Iron): FY 2023-24 revenue was ₹827.48 crores, a 10.48% increase from FY 2022-23’s ₹748.99 crores.
• Power: FY 2023-24 revenue was ₹117.82 crores, a 76.70% increase from FY 2022-23’s ₹66.68 crores.
• Pellet Trading: FY2023-24 revenue was ₹346.08 crores.

Cost Structure Analysis #

• Cost of Materials Consumed: Increased to ₹536.62 crores in FY 2023-24 from ₹504.35 crores in FY 2022-23.
• Mining, Royalty, and Freight Expenses: Significantly increased to ₹3,239.77 crores in FY 2023-24 from ₹1,751.64 crores in FY 2022-23.
• Employee Benefit Expense: Increased to ₹117.76 crore in FY 2023-2024, from ₹54.26 crore in FY 2022-2023.

Margin Analysis (Consolidated) #

• Operating Profit Margin: Increased to 26.35% in FY 2023-24 from 24.86% in FY 2022-23.
• Net Profit Margin: Increased to 19.06% in FY 2023-24 from a negative (8.51%) in FY 2022-23.

Operating Leverage #

• The increase in fixed costs (depreciation and employee benefit expenses) along with high increases in operating income indicates the presence of operational leverage.

Non-Recurring Items #

• FY 2022-23 included an exceptional item of ₹(1,194.40) crores. There were no such items in FY 2023-24.

EPS Analysis (Consolidated) #

• Basic EPS: Increased to ₹24.62 in FY 2023-24 from ₹(6.53) in FY 2022-23.
• Diluted EPS: Increased to ₹24.43 in FY 2023-24 from ₹(4.74) in FY 2022-23.

Cash Management: A Financial Analysis #

Cash Flow Components #

• Operating Cash Flow (OCF): Increased significantly to ₹1,701.04 crore in FY 2023-24 from ₹(516.44) crore in FY 2022-23, driven primarily by improved profitability.
• Investing Cash Flow (ICF): Showed a substantial outflow of ₹(1,725.41) crore in FY 2023-24, compared to ₹(612.27) crore in FY 2022-23, primarily due to significant capital expenditure on Property, Plant & Equipment and Capital Work-in-Progress.
• Financing Cash Flow (FCF): Outflow of ₹(0.62) crore in FY 2023-24, changed from an inflow of ₹1,142.53 crore in FY 2022-23. The previous year’s inflow was primarily due to the Proceeds from the issue of Shares from ESOP.

Working Capital Management Efficiency #

• Inventory Turnover Ratio: Improved to 26.04 times in FY 2023-24 from 15.54 times in FY 2022-23, indicating increased operational efficiency and higher production.
• Trade Receivables Turnover Ratio: Decreased to 124.91 times in FY 2023-24 from 140.62 times in FY 2022-23.
• Trade Payables Turnover Ratio: Increased to 27.78 times in FY 2023-24 from 11.61, indicating increase in capital creditor on account of ongoing project work.

Capex Analysis #

• Total additions to Property, Plant and Equipment and Capital Work-In-Progress, along with Right to Use of Assets totaled ₹1,690 Crore.
• Detailed segment-wise split of Capex of ₹32,700 crores is outlined, with significant investments planned for Konsari and Ghugus, including beneficiation, DRI, wire rod, HR coil, pellet plants, slurry pipelines, and power plants. Operational in phases from FY25 to FY31.

Dividend and Share Buyback #

• A final dividend of Re. 1/- per equity share (100%) was recommended for FY 2023-24.
• No share buybacks were mentioned in the provided data for the periods covered.

Debt Service Coverage #

• Debt Service Coverage Ratio (DSCR) is not applicable as the company reported being debt-free as of March 31, 2024.

Liquidity Position #

• Current Ratio: Decreased to 1.14 in FY 2023-24 from 2.01 in FY 2022-23, due to increased current liabilities.
• Cash and cash equivalents decreased to ₹2.59 crores.

Operational Metrics: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE: FY24: 57.28%, FY23: (90.11%), FY22: Not Available. Significant fluctuation observed, with a negative ROE in FY23 and a very high positive value in FY24.
• ROIC: FY24: 59.79%, FY23: 56.36%, FY22: Not Available. A strong and increased ROIC is shown.
• EBITDA Margin: FY24: 27.1%, FY23: 25.5%, FY22: Not Available. Consistent and increasing EBITDA margin.
• Net Profit Margin: FY24: 19.06%, FY23: (8.51%), FY22: Not Available. The company became significantly profitable.

Liquidity Metrics #

• Current Ratio: FY24: 1.14, FY23: 2.01. A decrease is observed.

Efficiency Ratios #

• Inventory Turnover Ratio: FY24: 26.04, FY23: 15.54. Improvement is seen, indicating better inventory management or increased sales.
• Receivables Turnover Ratio: FY24: 124.93, FY23: 140.62. A slight reduction, indicating a marginal increase in collection period.

Leverage Metrics #

• Debt/Equity Ratio: FY24 and FY23: Not applicable as the company is mentioned as debt-free.
• Interest Coverage Ratio: FY24 and FY23: Not applicable as the company is debt-free.

Working Capital Ratios #

• Receivable Days: Increased. Derived from inverse of Receivables Turnover.
• Inventory Days: Decreased. Derived form inverse of inventory Turnover.
• Payables Days: Significant decrease as suggested by increased payable turnover rate.

Comparisons with Industry Averages and Deviations #

• Profitability Ratios are significantly fluctuating compared to industry averages.
• Liquidity ratios show a decreasing trend.
• Efficiency ratios are significantly higher than industry averages.
• Leverage is better because Company is debt-free.

Lloyds Metals and Energy Limited (LMEL) Business Segment Analysis #

Revenue and Profitability Metrics #

• Iron Ore Mining:
  • FY 2023-24 Revenue: ₹5,283.19 crores.
  • Revenue Growth (YoY): 99.28% (from ₹2,651.10 crores in FY 2022-23).
  • Iron Ore Production Growth (YoY): 179.10%
  • Iron Ore Despatch Growth (YoY): 81.21%.
• DRI (Sponge Iron):
  • FY 2023-24 Revenue: ₹827.48 crores.
  • Revenue Growth (YoY): 10.48% (from ₹748.99 crores in FY 2022-23).
  • Production Growth (YoY): 28.32%
• Captive Power:
  • FY 2023-24 Revenue: ₹117.82 crores.
  • Revenue Growth (YoY): 76.70% (from ₹66.68 crores in FY 2022-23).
  • Production Growth (YoY): 25.93%.
• Pellet Trading:
  • FY 2023-24 Revenue: ₹346.08 crores.
  • New segment in FY23-24
• Consolidated:
  • Revenue increased by 90%, Reached ₹6,574.59.
  • EBITDA Increased by 101%

Market Share and Competitive Position #

• LMEL is the only iron ore miner in Maharashtra.
• Despatches and delivery of a record volume of iron ore placed LMEL among the top five merchant miners in India.
• LMEL is one of the largest coal-based DRI manufacturers in Maharashtra.

Key Products/Services Performance #

• Iron Ore: Production increased by 179% to 10 MT in FY 2023-24. Despatches nearly doubled YoY.
• Sponge Iron (DRI): Production reached a historic high in FY 2023-24, with a 28.32% increase YoY, driven by the new Konsari facility.
• Power: Healthy performance with increased realizations and higher offtake.
• Pellets: Seed marketing commenced, with a strategic tie-up with Mandovi River Pellets Private Limited (MRPPL).

Geographic Distribution and Market Penetration #

• LMEL’s iron ore mine is strategically located in Surjagarh, Gadchiroli district, Maharashtra, providing access to key markets across India.
• The company is supplying iron ore mined/produced pan India and around the world.
• The company started the export of Iron Ore.

Segment-wise CAPEX and ROIC #

• Overall CAPEX Plan: ₹32,700 crores over 5-7 years, focused on forward integration into steel manufacturing.
• Specific Projects:
  • Beneficiation plant (45 million tonnes)
  • DRI facility (360,000 TPA)
  • Wire rod plant (1.2 million tonnes)
  • HR coil manufacturing (3 million tonnes)
  • Pellet plants (12 million tonnes)
  • Two slurry pipelines (85 km and 190 km)
  • Power plant (470 MW)
• ROIC: Expected to be better than the industry average, leading to faster project payback.

Operational Efficiency Metrics #

• Low-Cost Producer: LMEL benefits from captive raw material (iron ore) and strategic mine location, leading to lower freight costs.
• Slurry Pipelines: The two upcoming slurry pipelines aim to increase operational efficiency and lower costs by reducing reliance on road transport.
• BHQ Beneficiation: Mining and beneficiation of low-quality BHQ will set a new benchmark in India, making LMEL a pioneer.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Forward integration into value-added steelmaking (wire rods, HR coils).
  • Expansion of iron ore production from 10 million to 55 million tonnes, including BHQ beneficiation.
  • Development of slurry pipelines for efficient logistics.
  • Increased Pellet production
• Challenges:
  • The report cites the potential impact of rising raw material and manpower costs.
  • Shortage and uncertainty in coal availability are highlighted as a risk.
  • Potential obstacles related to approvals and procedures, as well as unfavorable changes in government policies, are mentioned.
  • Potential for any social unrest

Strategic Risks #

• Severity: High, due to the company’s aggressive expansion into steel manufacturing and BHQ beneficiation, representing significant deviations from its established iron ore mining and DRI production.
• Likelihood: Medium. The success of forward integration into steel depends on external market factors like steel demand, pricing, and competition.
• Trend: Increasing. The MoU with the Maharashtra Government and land procurement for the slurry pipeline indicates progression of strategic expansion plans.
• Mitigation Strategies: Forward integration, diversifying product range (pellets, wire rods, HR coils).
• Control Effectiveness: Moderate, dependent on successful project execution and market acceptance of new products.
• Potential Financial Impact: High, given the capex plan of ₹32,700 crores. Success will result in becoming one of india’s lowest cost steel producer. Failure can impact the value chain.

Operational Risks #

• Severity: High, due to dependance on the Surjagarh mine.
• Likelihood: Medium, given factors including potential disruptions in mining operations, and infrastructure projects.
• Trend: Increasing. Iron ore production increased by 179% YoY, indicating heightened operational activity.
• Mitigation Strategies: The planned slurry pipeline will reduce the cost of raw materials and increase the efficiency of the operation.
• Control Effectiveness: Moderate. The dependence on a single mine inherently carries risk, although operational efficiency improvements mitigate this.
• Potential Financial Impact: High. Any disruption to mining operations directly impacts revenue and profitability.

Financial Risks #

• Severity: Moderate, due to current debt-free status and large cash reserves.
• Likelihood: Low, based on current financial health and financing strategy.
• Trend: Potentially Increasing. The large capex plan, although planned to be funded without debt, introduces a degree of financial risk.
• Mitigation Strategies: Commitment to debt-free financing of capex, reliance on internal cash flows, and eligibility for government subsidies (IPS).
• Control Effectiveness: High. Debt-free status and prudent financial management.
• Potential Financial Impact: Moderate, primarily related to capex execution and maintaining profitability to fund expansion without debt. The capex will be eligible for the Industrial Promotion Scheme (IPS) from the state goverment.

Compliance/Regulatory Risks #

• Severity: High, related to environmental clearances, mining regulations.
• Likelihood: Medium. Ongoing engagement with government and regulatory bodies.
• Trend: Stable. The receipt of MoEFCC clearance for capacity expansion indicates successful compliance, but future expansions require continued adherence.
• Mitigation Strategies: Proactive engagement with government, compliance with mining and environmental regulations.
• Control Effectiveness: Moderate, continuous monitoring and adherence to regulations are required.
• Potential Financial Impact: High. Delays or non-compliance can significantly impact project timelines and costs.

Emerging Risks #

BHQ #

• Severity: Moderate, as it is a well practiced process in European countries and China,
• Likelihood: Low.
• Trend: Increasing.
• Mitigation Strategies: Contracts with chinese technology suppliers for benefication.
• Control Effectiveness: To be determined, dependent on project execution.
• Potential Financial Impact: Moderate.

Slurry Pipelines #

• Severity: High, freight costs will be reduced.
• Likelihood: Low.
• Trend: Decreasing.
• Mitigation Strategies: LMEL is making swifter progress of the construction.
• Control Effectiveness: Moderate.
• Potential Financial Impact: Low, as there is lower operational cost.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Goal: To become a value-added steelmaker with integrated operations and one of the lowest-cost producers in the industry, via forward integration.
• Progress: A ₹ 32,700-crore integrated steel manufacturing unit is planned at Ghughus and Konsari, including facilities for pellets, wire rods, and HR coils. Seed marketing of pellets has commenced. A slurry pipeline network is under development. Targeted to become operational is 5 to 7 years.
• Targeting a wire rod-making capacity of 1.2 million tonnes and HR coils manufacturing capacity of 3 million tonnes per annum.
• To achieve strategic goals without debt leveraging.

Competitive Advantages and Market Positioning #

• Iron Ore: Only iron ore miner in Maharashtra, contributing significantly to the state’s steel supply chain.
• Cost Advantage: Allocated mines, with no premium to be paid to the Government of India over the mine’s lifetime, make LMEL India’s most sustainable iron ore miner.
• Strategic Location: Surjagarh Iron Ore Mine is centrally located in India, making it equidistant from most steel plants across the country.
• Despatch Network: Despatching iron ore to steel makers across India, position among top five merchant miners in India.

Innovation Initiatives and R&D Effectiveness #

• BHQ Beneficiation: Plans for the beneficiation of BHQ (Banded Hematite Quartzite), setting a new benchmark for the industry in India, first of this magnitude in the country.
• Technology Partnerships: Collaboration with Sinosteel Equipment and Engineering Co. Ltd for BHQ Beneficiation design.
• R&D Spend: The company has spent ₹63.40 crores on R&D. Pilot plant with a capacity of 5 TPH, has been set up for research and development testing purposes.
• Slurry Pipeline: Will lower freight costs as well as carbon footprint.

M&A Strategy and Execution #

• Joint Venture: Entered a joint venture with Sino Steel Plant to set up India’s 1st BHQ beneficiation plant.

Management’s Track Record in Execution #

• Konsari DRI Plant: Executed in 13 months post-receipt of EC, indicating swift project execution capabilities.
• Capacity Expansion: Increased iron ore capacity from 3 MMTPA to 10 MMTPA, and Board approval secured for further expansion to 55 MMTPA.
• Revenue Growth: Crossed the ₹ 6,000 crore revenue milestone, a historical first for the company.
• Operational Excellence: Iron Ore capacity was increased from 3 MMTPA to 10 MMTPA.

Capital Allocation Strategy #

• Debt-Free Approach: Capex plans, including the ₹ 32,700-crore integrated steel plant, are to be financed without resorting to debt.
• Industrial Promotion Scheme (IPS): Capex is eligible for IPS from the State Government, ensuring faster payback.
• Forward Integration: Focus on forward integration into steel manufacturing to drive profitability and enhance returns.
• Pellet Manufacturing and trading: Planned pellet plants in Ghughus and Konsari with a total capacity of 12 MTPA, and have commenced seed marketing through a tie-up with Mandovi River Pellets Private Limited.

Organizational Changes and Their Impact #

• Listing on NSE: Listing on the National Stock Exchange (NSE) in July 2023, enhancing visibility and market access.
• Leadership: Multiple key leadership messages indicate a strong, aligned management team.

ESG Framework: Lloyds Metals and Energy Limited (LMEL) Analysis #

Environmental Metrics and Targets #

• LMEL has set a target of “Zero Accidents” and maintaining a safe and healthy environment at its operational sites.
• Power generation through waste heat reached 11 MW in FY 2023-24.
• 12,674 cubic meters of water was recycled in FY 2023-24.
• The company is investing in a slurry pipeline to reduce operational costs by reducing freight costs, which it claims will lower their carbon footprint.
• LMEL is developing Electrical Vehicles to run equipment and reduce diesel emissions.
• The Surajgarh mine has achieved a 5-star rating from the Indian Bureau of mines for environmental protection and productivity.

Social Responsibility Programs #

• Lloyds Infinite Foundation (LIF), the CSR arm, is investing in a hospital, garment unit, school, and sports/skill development facilities in Gadchiroli.
• The company is spending 50% more than the mandated CSR, spending 66.55Cr.
• LIF provided healthcare services to 27,454 patients in FY 2023-24 through LKAM Hospital.
• The Lloyds Garment Unit employs 280 women from local villages, providing skill training.
• Lloyds Raj Vidya Niketan will offer CBSE education from the academic year 2024-25, with a focus on holistic development.
• LIF provided scholarships to 15 persons with disabilities.
• Employee Marriage and Child Birth Reward Policy and Lloyds Life After Death Policy were implemented for employee welfare.
• Attrition rate was 4% in FY2023-24

Governance Structure and Effectiveness #

• The Board comprises 13 directors, including executive, non-executive, and independent directors.
• Seven committees support the Board: Audit, Nomination and Remuneration, Stakeholder Relationship, Corporate Social Responsibility, Share Transfer and Shareholder’s/Investor’s Grievance, Committee of Board of Directors, and Risk Management.
• The Board met seven times during FY 2023-24, with details available in the Corporate Governance Report.
• An independent directors’ meeting was held to review the performance of the Board and non-independent directors.
• The company has a Whistle Blower & Vigil Mechanism Policy.
• The Company has complied with all mandatory Corporate Governance requirements.
• The Nomination and Remuneration Committee has laid down criteria for performance evaluation of the Board, its committees, and directors.

Sustainability Investments #

• LMEL plans to set up a 470 MW upcoming CPP (Captive Power Plant).
• Capex of ‘32,700 crore is planned for capacity expansion, including a beneficiation plant, DRI facility, wire rod plant, HR coil manufacturing facility, pellet plants, and slurry pipelines.

Regulatory Compliance and Future Preparations #

• The company has a Risk Management Policy in compliance with SEBI regulations and the Companies Act, 2013.
• The company maintains internal control systems, with internal and statutory auditors providing assurance on their adequacy.
• All recommendations made by the Audit Committee, Nomination and Remuneration Committee, Stakeholders’ Relationship Committee, and Corporate Social Responsibility Committee were accepted and implemented by the Board.
• The company is the first in India to carry out extensive beneficiation of low-grade BHQ (Banded Hematite Quartzite).

Lloyds Metals and Energy Limited (LMEL) Financial Analysis #

Iron Ore Mining #

• Management Guidance and Assumptions: Strategic location of the Surjagarh Iron Ore Mine provides a logistical advantage. Allocated mines with no premium payable make LMEL a cost-competitive and sustainable iron ore miner in India.
• Market Growth Forecasts: India’s iron ore pellet demand is projected to grow at 11.7% CAGR.
• Planned Strategic Initiatives: Expansion of iron ore mining capacity to 55 MMTPA (including BHQ), with beneficiation of BHQ. Joint venture with Sino Steel Plant for India’s first BHQ beneficiation plant.
• Capital Expenditure Plans: Part of the ’ 32,700 crore integrated steel manufacturing unit plan, including a slurry pipeline network.
• Efficiency Improvement Targets: Implementation of two slurry pipelines to lower operational costs and align with environmental sustainability.
• Potential Challenges and Opportunities: Regulatory changes are the primary risk. Securing necessary approvals for the BHQ beneficiation project is vital. The opportunity lies in becoming a first mover in BHQ beneficiation in India.
• Scenario Analysis / Sensitivity: Iron ore realization is aligned with market dynamics.

DRI (Sponge Iron) #

• Management Guidance and Assumptions: Captive raw material (iron ore) will result in low-cost production. Location of DRI plants in Ghugus and Konsari.
• Market Growth Forecasts: India’s steel demand is projected to grow by 7% CAGR to 190 million tonnes by 2030.
• Planned Strategic Initiatives: Commissioned a new DRI manufacturing facility in Konsari. Plans for additional DRI capacity of 360,000 TPA.
• Capital Expenditure Plans: Investments in expanding DRI capacity.
• Efficiency Improvement Targets: Low freight cost.
• Potential Challenges and Opportunities: Severe shortage and uncertainty in coal availability.

Captive Power #

• Management Guidance and Assumptions: Existing captive thermal power capacity of 34 MW, with a new 4 MW WHRB based power plant commissioned.
• Market Growth Forecasts: Implicitly linked to the growth of the steel industry and internal consumption.
• Planned Strategic Initiatives: Expansion of Captive Power Plant capacity to 470MW is part of forward integration.
• Capital Expenditure Plans: Investments in additional power capacity.
• Efficiency Improvement Targets: Use of waste heat recovery for power generation (11 MW currently), supporting decarbonization efforts.
• Potential Challenges and Opportunities: Changes to the power sector policy.

Pellet Trading (Set to Scale Up to Pellet Manufacturing) #

• Management Guidance and Assumptions: Strategic tie-up with Mandovi River Pellets Private Limited (MRPPL) for seed marketing.
• Market Growth Forecasts: Rising demand for iron ore pellets, projected at 11.7% CAGR through 2033.
• Planned Strategic Initiatives: Transition from pellet trading to manufacturing. Plans for 12 MTPA pellet capacity.
• Capital Expenditure Plans: Setting up pellet-making plants in Ghugus (Unit-I) and Konsari (Unit-II), with slurry, grinding, and pumping facilities.
• Efficiency Improvement Targets: Aims for cost optimization and increased profitability.
• Potential Challenges and Opportunities: Market acceptance of the ‘LMELPEL’ brand.

Wire Rods (Steel Manufacturing) - Upcoming #

• Management Guidance and Assumptions: Focus on value-added products to drive profitability.
• Market Growth Forecasts: Steel demand in India is expected to grow by 8% in 2024 and 2025.
• Planned Strategic Initiatives: Setting up an integrated steel plant with 1.2 MTPA wire rod mill capacity.
• Capital Expenditure Plans: Significant investment as part of the ’ 32,700 crore plan.
• Efficiency Improvement Targets: Becoming one of India’s lowest-cost steel-producing companies.
• Potential Challenges and Opportunities: Competition from established steel manufacturers.

Hot Rolled Coil (Steel Manufacturing) - Upcoming #

• Management Guidance and Assumptions: LMEL plans to set up units to make pellets, wire rods, HR coils and develop a slurry pipeline. The focus will be on value-added products to drive profitability over the next 2-5 years.
• Market Growth Forecasts: India’s steel demand is projected to grow by 7% CAGR to 190 million tonnes by 2030.
• Planned strategic initiatives: Foray into steel assets with targeted investments.

• **Capital Expenditure Plans**: Setting up an integrated steel plant with 3 million tonnes per annum of HR Coils capacity.
  

• **Efficiency Improvement Targets**: Reduction of logistical costs.
  

•  **Potential Challenges and Opportunities:** Diversification and Risk Profitability.
  

Scenario Analysis and Sensitivity #

• Iron Ore Price Volatility: Prolonged downturn in iron ore prices could impact revenue from merchant sales. Conversely, a surge in prices could increase revenue but may also affect the cost competitiveness of planned steel manufacturing operations if external sourcing becomes necessary.
• Coal Price and Availability: Significant increases in coal prices or shortages would impact DRI production costs and power generation costs.
• Regulatory Approvals: Delays or failure to obtain necessary environmental clearances could significantly delay or derail strategic plans.
• Steel Demand: A slowdown in infrastructure spending or weaker-than-expected growth in steel-consuming sectors could impact demand and pricing for the company’s planned steel products.
• Debt Management: Any need for debt financing would increase financial risk, especially during cyclical slowdowns.
• Interest Rate Sensitivity: Interest rates are a key risk.

Audit & Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditor’s opinion on the standalone and consolidated financial statements is unmodified, indicating a true and fair view in conformity with Ind AS and generally accepted accounting principles in India.
• The auditors reported non-compliances regarding regulation 17(1)(A) of the SEBI, with fines levied by stock exchanges.

Auditors Report Observations #

The Company has not complied with Regulation 17(1)(A) of the SEBI, with respect to the appointment of Mr. Babulal Agarwal as the Non-Executive Promoter Director and Vice- Chairman of the Company as he crosses the age of 75 years which require prior approval of members of the Company and subsequently fine of ’ 1,08,000 each levied by 3 stock exchange where equity shares of the Company are listed (i.e. BSE, NSE and MSE) for the quarter ended on September 30, 2023 and the fine of ’ 44,000 each levied by 2 stock exchange where equity shares of the Company are listed (i.e. BSE and NSE) for the quarter ended on December 31, 2023

Key Accounting Policies and Changes #

• The financial statements are prepared under the historical cost convention on an accrual basis, except for certain financial instruments measured at fair value.
• Revenue is recognized upon the transfer of control of promised goods or services to customers.
• The Company adopted IND AS 116 and consolidated it’s financials accordingly.
• Property, plant, and equipment are carried at cost less accumulated depreciation and impairment loss, if any.
• Inventories are valued at the lower of cost and net realizable value, with costs determined on a weighted average basis.
• Employee Stock Options are valued using simplified methods, including Black-Scholes model.

Internal Control Effectiveness #

• The auditor’s report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• The management asserts the establishment and maintenance of internal controls for financial reporting.

Regulatory Compliance Status #

• The Company is generally compliant with statutory provisions, but has non compliances with SEBI Regulation.
• The company has not been declared as a willful defaulter by any bank, financial institution or other lender.
• The Company has an internal audit system commensurate with its size and nature of business.

Legal Proceedings and Their Potential Impact #

• The Company disclosed pending litigations impacting its financial position, Note 42 of the financial statement.
• There are disputed claims of Excise Duty amounting to ’ 16.16 crores, and Income Tax demand notices for ’ 32.42 crores
• Cases are also ongoing related to irregularities in obtaining environmental clearances.

Related Party Transactions #

• All related party transactions were reported to be at arm’s length and in the ordinary course of business.
• Key related party transactions included the sale of iron ore and the purchase of iron ore pellets from Mandovi River Pellets Private Limited.

Subsequent Events #

The Company’s Board of Directors at its meeting held on 02nd May, 2024, has recommended a final dividend of Re. 1/- per equity share of face value Re. 1/- each (i.e., 100%). The Record date fixed for determining entitlement of Members to final dividend for the financial year ended 31st March, 2024 is Tuesday, 13th August, 2024.

Analysis of Accounting Quality #

• The adoption of Ind AS and the historical cost convention, with exceptions for fair value measurements, indicates a standard accounting approach.
• The use of estimates and judgments in areas like impairment, useful lives of assets, and deferred tax assets introduces a degree of subjectivity, which is typical and addressed through review processes.

Regulatory Risk Assessment #

• The Company’s operations are subject to oversight from multiple regulatory bodies, indicating moderate to high regulatory risk exposure.
• Regulatory risk is high due to the nature of the mining industry, which is heavily regulated due to environmental, safety, and labor laws.