Lloyds Metals And Energy Limited analyst Q&A

The first question comes from the line of Siddharth Mehrotra from Kotak Securities.

I just had a small query on the volumes, which we plan to do. So sir, n ow we are almost on the verge of monsoons, while we have guided that we will get our EC soon, that will perhaps significantly impact our volume ramp-up. So I mean, can you ju st lay out the steps you have taken to ensure that the materiality of lower volumes is not there when the final volumes for this year come out?

So last year also, the volumes in the monsoon were not as bad as compared to the average, number one. Number two, this year, our pipeline is getting comm issioned, and that will help in moving the volumes out of the mine. The mine itself is not majorly affected by the monsoons. So last year, we did around 2 million tons in the monsoon, which i s equal to an average of the year, and we assume that the similar percentage would be achieved during the year. We have already started producing in a larger quantity. And the first quarter itself will give better results, better quantity than earlier.

Okay, sir. So approximately 20% of full-year volumes in monsoons, right? That is the base case assumption?

Yes.

Okay. And when we are considering monsoons, approximately that is 4 mon ths of the year, 3 months of the year, 5 months of the year?

It was not in that manner.

The next question comes from the line of Amit Dixit from ICICI Securities.

Just a couple of questions from my side. The first one is again on iron ore volumes. So you mentioned in your prepared remarks that the EC is still pending, and we may fall short by 1 million ton or something thereabout. So what would be your guidance at this point in time for FY '26? And the related question is that where we see this EC approval getting stuck because 1 month has already passed in Q1 FY '26. So just wanted to give a little bit more color on this aspect.

As far as the EC aspects are concerned, the process is on. The committee has, in fact, made a visit to the mine, which is normally not a requirement because it's a big mine. We welcomed them to our mine. And post that, the processes are over, and we hope to be getting it very, very shortly. We have given timing earlier also. But at this moment, I th ink May end should be the date that we anticipated the worst case. And in terms of the volume guidance, like I said, around 1 million tons, 1.2 million tons maximum would be reduced based on 25 million tons.

Okay. So that means the second half could be a bit more heav y in terms of volumes compared to the first half of the year?

Yes, yes.

Okay. Great. The second question is on the capex. So in the prepared remarks, it was mentioned that INR6,000 crores to INR6,500 crores capex in FY '26. Now, first of all, does it include maintenance capex as well? And if you could divide it into bro ad buckets, where it would be invested in what all equipment?

See, when we say, INR6,500 crores is including the mining assets, tha t is for the beneficiation plant, the steel plant that is 1.2 million tons wire rod plant, the pellet plants. These are all included in this, plus some normal capex. Normal capex is it's not to a larger term, but it should be around INR50-odd crores for a particular year as going to the average is what we have been doing.

Okay. The third one, if I can, is an update on BHQ. So in the presentation, you did mention that there has been some progress, etc. Just wanted to understand where we are on that and if the commissioning time line that we have anticipated is on track?

So on BHQ, the pilot plant is performing extremely well. We have updated our technology inputs to reduce processing costs a little bit on that and fine-tuning tha t. That's number one. In the meantime, the engineering of the overall project is going on at large pace in China with our partners there. Number two. Number three, on the permission level, we are anticipating to get the p ermissions to start the ground progress by around Diwali 2025. So with that, the case a nd then by June, July '27, we should be in a position to start the beneficiation plant of the first train and 6 months thereon for every train. So there will be 3 trains of 15 million tons input and 5 milli on tons output. So July '27, March '28 and July -- March '28, we will finish off, sorry.

The next question comes from the line of Vikash Singh from Phillip Capital.

There is some captive consumption that is not iron ore sold. So tha t comes in the captive consumption side. The production of the mine of full 10 million tons.

Sir, my second question pertains to the iron ore realization seems to be slightly up on a sequential basis. But if you look at the EBITDA per ton, it was down sharply. Any spec ific reason for the same?

If you see for the overall -- full financial year, we are almost, in fact, better than what we did, what we have been achieving over the last previous years. Yes, in this qu arter, yes, it has been. There were some lumpy expenses for community development that was incurred. There were some ESOP expenses, as I mentioned in my opening remarks also. Plus, what we have done is, we have done some front-loading of expenses in this quarter to ramp up our capacities to achieve the 25 million tons. So that is some major cost what has been taken in this quarter. And that's the reason why the cost is on the higher side.

So effectively, the other operating expenses, which are higher...

Updating us on the higher production.

Understood, sir. Sir, in terms of the iron ore market, on one hand, you say that the Thriveni might get a huge business with the iron ore mines they would need to commission in India. And at the same time, if more mines get commissioned, our existing business will get a little bit impacted. So just wanted to understand your views on the incremental iron ore availability and how do you see the prices in the domestic market?

Question that you raised about Thriveni. But on the additional marke t, let me just throw some light. Indian steel market is growing at the rate of around 8% production and similar on demand. So that is a very positive sign. The iron ore market is growing a little lesser than that around 5% to 6% T herefore, the exports are reducing, International market is still very, very high compared to any Indian pricing. So that is still not a threat at all. I don't see that happening any threat i n the near future on the pricing front. In terms of -- we did a detailed research through SteelMint for our potential market, and we feel that around 70%, 75% of our material would be sold within 400 kilometers to 600 kilometers range of the mine or the pellet plant. So that is the status. We are seeing a lot of our customers are increasing their requirements an d increasing their capacities. And all that is helping us to increase to look at a very much better picture in terms of realizations going forward.

Understood, sir.

It largely answers, sir. Sir, just one last question, if I may. What is the spot iron ore realization versus 4Q average?

So again, this INR6,000 that we have achieved last year. In the last qu arter, we were around INR6,200, INR6,100. I mean, depending on the commodity and the location, it is going to be very similar. There has been no major movement. We have kept the prices constant. OMC has inched up the prices. NMDC has not. These are the major merchant competitors, and we are keeping the prices in the right trac k. The steel market is not at its best with the 12% safeguard duty, I think it will become better, but we have taken care not to increase the prices even though there was some scope, we have not done that.

The next question comes from the line of Jatin Damania from Svan Investments.

Sir, just on the follow-up questions in terms of the beneficiation plant where our pilot plant is already ready. So as you indicated that definitely we'll be moving ahead with the capex. So what sort of capex are we envisaging on that pilot plant?

We have started giving equipment order for the equipment. And for all the 3 trains, we anticipate around INR5,000-odd crores as a total beneficiation project.

And by when do we expect the plant to be ready?

So the first train would be ready, like I said, by June 2027.

And sir, in terms of the cost saving initiatives, now one of our slurry pipeline is being ready and probably likely to be ready in the second half and pellet plan t 1 will be ready. So overall cost saving initiatives, what will be the cost savings initiatives that we'll be getting in the second half based on the slurry pipeline?

The slurry pipeline is actually being commissioned today on trial run basis. And the pellet plant will be commissioned by end of June. The slurry pipeline initiates a cost saving of around INR500, INR600 per ton of pellet, the pipeline is for 10 million tons, we are commissioning the first phase by 5 million tons right now. The grinding will be commissioned, the grinding for the second 5 million tons will be commissioned along with the second pellet plant.

Last question on the pellet plant. Now we are doing a pellet in the 3 phases, Phase 1, Phase 2 and Phase 3. So how comfortable and confident we are in terms of scaling our pellet capacity to almost 8 million tons that we'll be able to sell it or consume it?

So in terms of selling pellet, I think the market is very vibrant. The re's a very shortage, but a huge demand for lumpy ore or pellets. So given our costing, we are confident of achieving a good marketing of that. Like I said earlier, we identified the mar kets and with the help of SteelMint, and one of that has been that we have -- in our seed marketing campaign, we have been able to get -- be successful in a tender which happened day before yesterday with RINL, which is the first time that RINL actually bought pellets in the open market like this by auction. So we have been successful in that. So yes, we are confident of ac hieving a profitable or EBITDA accretive, PAT accretive margins in our pellet plant.

The next question comes from the line of Siddharth Gadekar from Equirus.

Sir, first thing on the iron ore volumes. So for FY '26, when we are guiding for 23 million, 24 million tons of volume, have we started engaging with customers in terms of offtake and their demands? And how should we look at pricing going ahead given that, in the second half, there will be a significant surplus that would be coming from us in the open market?

So we are aware of the fact that a 15 million ton increase, includin g the part of the quantity would be fed into the pellet plant. So out of the 15 million tons extra 4 million tons will be consumed in the pellet plant. So around 10 million tons goes in the iron ore market. Out of that 10 million tons, around 0.5 million tons is consumed extra in our DRI plant. We're talking about 9.5 million tons extra marketing to be done. We feel that our quality and the markets are such that it can easily be absorbed without any impact on the pricing. That's why I did mention in my opening remarks that around 100 million tons of material will be going out of the allotment route into the auction route over the next 5 years as an average of 20 million tons every year goes away from a low-cost regime to a hig her cost regime. The auctions in the last 3 rounds have not been less than 125% with a peak of 200%. These indicate that the demand is very, very strong going forward as well. Stalwarts in the industry are paying those premiums. International stalwarts are paying 125%, 135% premium. The last mine, one of them very small mines went at a premium of 200% of the sales value. So obviously, those people who are buying that are perceiving a shortage going time forward, and we are there to service them during that period with our enhanced capacity.

But we have started negotiations with our customers for that volume?

Yes, sir.

Sir, secondly, on the pellet volume, how should we think about the production for this year?

Around 2.5 million tons.

The next question comes from the line of Prakhar Khajanchi from Ana nd Rathi Financial Services.

My first question is, on last call, you have guided for cost savin g on a consolidated basis once MDO merger is completed. Will this start from day 1 itself or it will be take time to flow?

As soon as we are just waiting for the NCLT order in this merger . So once the NCLT order is received, the consolidation will start happening because the d ate is 1, April '25. So it will start from 1, April '25 immediately.

Second pellet plant will be a year behind the first pellet plant. Construc tion for that has also started. So we are confident of that next year.

The next question comes from the line of Divy Agrawal from Ficom Family Office.

So I just wanted to know about the rationale behind raising the INR5,0 00 crores that you have announced. And also, I just wanted to know about the capex that you have announced of around INR6,000 crores, INR6,500 crores. So how much from it would be internal accruals?

Can you repeat your question?

So I just wanted to know the rationale behind the INR5,000 crores. An d secondly, I wanted to know the fund is INR5,000 crores and the INR6,000 crores to INR6,500 cro res of capex that you have announced, how much will be from internal accruals?

See, the INR5,000 crores resolution what we have taken, it's an enabling resolution. There is no concrete thing on it. What we are going to be going forward for any fund raise or any such thing to the equity route or any other route is not yet decided on. As of today, the INR6,000 crores what we are anticipating on the project for this next financial year is all through internal accruals and the balance of the preferential warrants what is pending to be called for.

Got it. Secondly, on the IPS benefit, sir, how much did you receive in FY '25 versus how much were you expecting to be received in FY '25? And how much can we expect in FY '26 as well?

We have not received any IPS for the new projects. Only for the old project, we had received some INR72 crores of IPS in the last year. This year, we will be around...

This year, the accrual of the IPS starts as soon as we start the operations.

So how much can you quantify?

It will be on accrual basis. We'll be getting that funds will be coming only in the next year, next financial year.

So in FY '26, you don't expect anything?

As a cash flow, no. The past inflows, the past inflows would start coming in will come in majorly around INR35 crores, INR40-odd crores.

In FY '26, right?

Yes.

That's a difficult question. I don't think we have the answer to th at ready. In principle, let me explain to you that the IPS is capped by 150% of the investment t hat we do in Gadchiroli and 115% of whatever investment we do in Chandrapur. In Gadchiroli, t he investment in both the places, this cap would be reimbursed with a maximum of 12 years, as well a s a minimum of value. So basically will be divided by 12. And every year, it will be accruing towards local sales GST, that is the SGST of that year as well as the royalty as Gadchiroli is co ncerned for the captive consumption that we do of iron ore. So based on that, we feel that every year, any project that we i nvest in, we will be getting the IPS over the next 12 years, 150% or 115% as the case may be. This is accrual, plus 1 year to 1.5 years for disbursement by the government of Maharashtra.

Okay. So it takes around 1 year, 1.5 years for disbursement, right, a fter the commissioning of the project?

No, no, no. After it is accrued.

The next question comes from the line of Kartik Khandelwal from HEM Securities Limited.

My question was regarding the sponge iron Q4 FY '25 margins. Earlier Q2 and Q3, we were able to achieve margins for profit before finance cost and taxes. The margins were around 27% in Q2 and 18% in Q3. But it has drastically brought down to 0.84 % in Q4. So any reason for that?

Sponge iron, yes, we have in this quarter, as I had mentioned earli er also, we have done some large expenses on community development, which were required. And that's the reason, and that has been -- that's the reason why it is on a higher side of those expenses are one-time expenses, which have occurred. It's a lumpy expense, and that has taken up most of the profitability.

The division of the quantity in the last quarter is lesser, I mean the year is very high. The division of the last quarter is similar.

Lesser than the last quarter.

The next question comes from the line of Rahul Agarwal from Aventus Capital.

So I had a couple of questions. So the first one was related to the cost savings questions that a couple of people have asked you previously. Would be that the re is a -- you mentioned in the presentation that there will be a high amount of cost savings through Thri veni business, the slurry pipelines, etc. But I was having some trouble with the per ton cost savings that were relate d to mining and freight. Given the numbers in the presentation, it seems as if the per ton costs are already quite low. And what we are expecting further, is it because of volumes, like the INR500 to INR600 per one pipeline and INR800 to INR1,000 per ton for the other pipeline. Will that be incorporated in terms of volumes?

One of the major volume savings would be because of the consolida tion of Thriveni into the company, and number two, the slurry pipeline. So these 2 reduce our cost of sales to a large extent. I think vis-a-vis the other figures, I suggest that Chintan could get in touch with you and resolve that matter. But basically, those are the 2 big ticket items on a per ton basis.

Sure, sir. I actually tried to reach out to Chintan for last quarter, I was unable to do that, but I will try to reach out to them again. So sir, the next question was abo ut BHQ realizations and volumes. So I know that, obviously, the project is still some ways a way from getting into full flow. But could you just give me an idea of what the realization might be like and what the volumes will be like once you start the plant?

BHQ is a byproduct of the mine. We have a reserves of around 700 mil lion tons, which is normally thrown aside by most mines. The Fe content is only 35%, 38%. BHQ, Banded Hematite Quartzite. We will be beneficiating this material into a 66% iron ore, which is one of the highest grade iron ore available in the country. So as such, BHQ itself is not sellable. And neither we plan to sell -- we will sell some of the concentrate that we produce out of this, which would be comparable to th e iron ore market on that day adjusted for the Fe content.

Okay, sir. So similar to the Hematite that we already sell, right?

Yes. The yield of BHQ is around 35% for 3 tons of BHQ, we get 1 ton of concentrate.

Okay. Then sir, just you spoke about the reserves. And I just wanted to know, given that we have a total reserve of about 850 million tons, now that we are expandin g into iron ore into '25 and we'll be doing BHQ, do we have enough reserves for the next deca de or so because the math was a bit weird. So do we have enough reserves to continue? Or a re we going to say maybe move towards BHQ completely in the next few years?

BHQ completely in 2034, '33, something like that as per the mining plan. Till that time, we have reserves for direct sales ore as well. Over a period once the BHQ plants are fully commissioned, the DSO will come down gradually. And ultimately, it will be after '33, '34, something like that, it becomes 100% BHQ.

And just one last thing. What are the pellet realizations? I just wanted t o know the number if that's possible?

So we are not selling pellets right now other than through our s eed marketing program. The pellet realizations internationally are very poor. We are able to get a much better realizations in India. So in Goa, we are selling our pellets for around INR11,000, INR10,500. That's not us, but the manufacturer of the pellets with our iron ore. We are exporting som e pellets. I think in this year, we should get around $128 to $130.

I saw the presentation and there was a question I wanted to get an answer on. What are the future capex time line we're looking at? When are they coming on stream?

The next year, as I've been already telling you this, this is around INR6,000 crores to INR6,500 crores is what we have to do. Till date, as we have announced aroun d INR32,000 crores, INR33,000 crores of capex over the next 5 to 7 years. Of that, INR 5,000 crores has been done until 31, March '25. Next year is what we do is INR6,000 crores, INR6,500 crores, similar thing we should be done in the next to next year and then a higher figure of around INR8,000 crores to INR9,000 crores in the next years. So by that, we should be completing it over the next 5 years.

And when are the projects going to be live, like the pellet plant an d the 1.2 million steel plant, the BHQ throughput, when are they going to be live? Like is there a time line of each of these plants?

Sequentially, I think there in the presentation, but let me repeat it. The first DRI plant would be live in June 2025. The first pellet plant and pipeline would be live in June 2025. The second pellet plant would be live approximately June 2026. The steel plant of 1.2 million tons would be live September '26. The first BHQ plant would be live June '27. Rest of the BHQ would be live March '28. And the final steel plant of 3 million tons would be live in March '29 to September '29.

The next question comes from the line of Manu Kumar an indiv idual investor. Since there's no response, we'll move on to the next participant. The next question comes from the line of Abhishek Kamdar from Value Plus Advisors LLP.

Given the scale of investment planned in the steel vertical and the long-term value creation potential, is it a possibility to eventually list the steel business through an IPO or demerger once the operations stabilize?

No, Abhishek, there's no such plans or thought process at the mome nt. We believe integration may be the best way forward, but that's too forward thinking for us right now.

The next question comes from the line of Vivek Patel from Le Luxe.

I just wanted to know regarding a bookkeeping question. I just wanted to know the non-current assets have increased from INR169 crores to INR795 crores. So can you he lp me with that? What would be the breakup of that?

This is more on the advanced tax position, the non-current assets be cause -- and mostly that is receivable with the government authorities.

And even on the other current liabilities, so it has increased from INR30 crores to INR1,335 crores in...

The next question comes from the line of Siddharth Gadekar from Equirus.

Sir, just one thing on the pellet plant. Given that there will be an annual maintenance at peak, we would be operating the plant at 90% or we can go up to 100% over the full-year beyond FY '26?

I think the capacity would be 100%, not in '27, but we will b e able to achieve 4 million tons in each of these plants by '28 or so.

Even adjusted for the annual maintenance that we will take a shutdown.

Yes. The plants are designed for a higher capacity. So this would be what we can achieve for the whole year, including the annual shutdowns.

Sir, and secondly, in terms of when we spoke about 100 million to ns of iron ore moving from allocation to the auction route. So, given that the market will likely become tighter, is there scope for us to increase prices further from these levels going ahead?

Steel is a commodity. Iron ore is a bigger part of the same commodity . And I would not even think of predicting the future pricing of any commodity.

The next question comes from the line of Kartik Khandelwal from HEM Securities Limited. The participant seemed to have dropped. Ladies and gentlemen, that brings us to the end of the question-and-answer session. I would now like to hand the conference over to the management for the closing comments.

Thank you, everybody, for an engaging question-and-answer session. I hope we have answered reply to all your queries. If anything is pending, you can always ge t in touch with anyone of us so that we'll be happy to give you all the replies in that case. Tha nk you very much. And thank you, Anand Rathi team for hosting this call.

Thank you, sir. Ladies and gentlemen, on behalf of Anand Rathi Sh ares and Stock Brokers Limited, that concludes this conference. You may now disconnect your lines.