Lloyds Metals & Energy Ltd - May 2025 Earnings Call Transcript Analysis

Earnings Call Transcript Analysis Report #

Earnings Call Transcript Analysis: Lloyds Engineering Works Ltd. (LEWL) - FY25 #

Financial Performance Analysis #

Key Financial Metrics & Comparisons (FY25) #

• Revenue: Grew by 3% year-on-year, driven by better iron ore realizations and record sponge iron production.
• EBITDA: Grew by 13% year-on-year to INR 2,005 crores, driven by higher iron ore realizations but moderated by muted sponge iron and power realizations.
• Profit Before Tax: Highest ever achieved.
• Iron Ore Volumes: Flat year-on-year at 10 million tons, achieving 100% capacity for the second year.
• Iron Ore Sales Volume (Q4): 1.66 million tons.
• Iron Ore Realization (Q4): INR 5,994 per ton, down 6% year-on-year.
• Iron Ore Realization (FY25): INR 5,766 per ton, up 6% year-on-year.
• Iron Ore EBITDA per ton (FY25): INR 1,801, up 5% year-on-year.
• Sponge Iron Production: Highest ever.
• DRI Volumes: 308,000 tons per annum.
• Power Volumes: Grew 5% year-on-year.
• Sponge Iron & Power Realizations: Muted, impacting segment margins.

Q4 FY25 Margin Subdual #

• Lower iron ore volumes due to front-ending production in earlier quarters led to lower absorption of fixed costs.
• Sponge iron margins drastically down (0.84% PBT margin vs. 18-27% in Q2/Q3) due to “lumpy expenses on community development” and “front-loading of expenses to ramp up capacities to achieve 25 million tons.”

Exceptional Costs (Q4 FY25) #

• ESOP cost: ~INR 13 crores (non-cash).
• Community development expenses: ~INR 17-18 crores.

Capex #

• FY24: INR 1,690 crores.
• FY25: INR 3,695 crores.
• FY26 Guidance: INR 6,000 crores to INR 6,500 crores, focused on mining, pellet and steel capacities (including mining assets, beneficiation plant, 1.2 million tons wire rod plant, pellet plants, and ~INR 50 crores normal capex).

Revised Guidance or Forecasts #

• Iron Ore Volumes (FY26): Potential shortfall of 1 million to 1.2 million tons from the planned 25 million tons due to mining EC approval delays.
• Pellet Production (FY26): Around 2.5 million tons.

Areas of Growth or Decline #

• Growth: Iron ore realizations (FY25), sponge iron production (FY25), power volumes (FY25), overall revenue and EBITDA (FY25).
• Decline/Subdued: Iron ore realization (Q4 FY25 YoY), sponge iron and power realizations (FY25), iron ore volumes (Q4 FY25), overall margins (Q4 FY25).

Strategic Initiatives & Business Updates #

Major Strategic Announcements #

• Thriveni MDO Business Acquisition: NCLT approval in process, expected by Q1 FY26. Cultural integration has begun. MDO merger cost savings expected from April 1, 2025, post-NCLT order.
• CSR Commitments: Strengthened with education (2 schools), health (130-bedded hospital, medical camps), and sports initiatives (Gadchiroli Premier League).

New Products, Services, or Markets Discussed #

• Pellet Sales: Actively pursuing pellet market. Successfully participated in an RINL tender.

Significant Operational Changes #

• Slurry Pipeline: Commissioned and material movement from Hedri to Konsari started. Expected cost saving of INR 500-600 per ton of pellet.

Ongoing or Completed Projects #

• Completed: Slurry Pipeline Project.
• Nearing Completion / Commissioning Soon:
  • 4 Million Ton Pellet Plant (Phase 1): Under pre-commissioning. EC received Nov ‘23. Commissioning expected by end of June 2025.
  • 360,000 Ton DRI Plant: EC received Feb ‘24. One plant commissioning in June ‘25, another by July ‘25.
  • 60-Megawatt Power Plant: EC received Feb ‘24. Commissioning by July ‘25.
• Ongoing:
  • BHQ (Banded Hematite Quartzite) Project: Pilot plant performing well, technology inputs updated. Engineering in progress in China. Ground progress permission anticipated by Diwali 2025.
    • First train (5 MT output from 15 MT input) commissioning: July ‘27.
    • Subsequent trains (total 3): Every 6 months thereafter, finishing by March ‘28.
    • Capex for 3 trains: ~INR 5,000 crores.
  • Second Pellet Plant: Construction started, expected June 2026.
  • 1.2 Million Tons Steel Plant (Wire Rod): Live September ‘26.
  • 3 Million Tons Steel Plant (Final): Live March ‘29 to September ‘29.

Market & Competitive Landscape #

Insights About Industry Trends #

• Indian Iron Ore Market: Buoyant, prices steady, defying international market.
• Steel Demand: Consistently growing at 8% YoY in India.
• Government Focus: Strong on steel capacity expansion, initiating urgent need for greenfield iron ore mining and beneficiation.
• Auction Route: ~20 million tons of iron ore capacity scheduled to move from allotted to auction route annually for the next 5 years. Auctions fetching high premiums (125% to 200%).
• Pellet Market: Vibrant, huge demand for lumpy ore or pellets.

Competitive Positioning Statements #

• Mining EC: Expansion will make it “one of the largest mines in the country, irrespective of any mineral, except coal.”
• Market Reach: Detailed research (via SteelMint) indicates ~70-75% of material would be sold within 400-600 km range.
• Pricing Strategy: Kept prices constant despite scope for increase.
• BHQ Product: Will produce 66% Fe iron ore concentrate from low-grade BHQ (35-38% Fe), “one of the highest grade iron ore available in the country.”

Market Challenges or Opportunities Mentioned #

• Opportunity: Mines moving to auction route indicates strong demand and higher cost regime for competitors, benefiting Lloyds.
• Opportunity: Increasing capacities of customers.
• Challenge (Mitigated): International pellet realizations are poor, but domestic market offers better prices.

Risk Factors & Challenges #

Concerns or Challenges Acknowledged by Management #

• Mining EC Approval Delay: For expansion from 10 to 25 million tons. Awaiting final outcome from MOEF “very shortly,” possibly by May end (worst case).
• Impact of EC Delay: Potential loss of 1-1.2 million tons of iron ore volume in FY26.
• Monsoon Impact on Volumes: Mitigated by pipeline commissioning and previous year’s performance (2 million tons during monsoon).

Regulatory Issues Mentioned #

• Mining EC approval from MOEF is the primary regulatory hurdle discussed.
• NCLT approval for Thriveni MDO acquisition.

Supply Chain or Operational Constraints #

• Historically, monsoon could affect dispatches, but the new slurry pipeline is expected to help.
• Front-ending production in FY25 led to lower Q4 volumes.

Market Uncertainties #

• Management refrained from predicting future commodity (iron ore/steel) prices.

Forward-Looking Statements #

Outlook and Future Projections #

• Iron Ore Volumes (FY26): Target of 25 million tons, with a potential shortfall of 1-1.2 million tons (aiming for ~23.8-24 million tons).
• Pellet Production (FY26): Around 2.5 million tons.
• Capex (FY26): INR 6,000 - 6,500 crores.