 "Lloyds Metals' shares hits new high in weak market; surges 34% in 1 month")
Shares of Lloyds Metals and Energy (LMEL) hit a new high of Rs 1,475.45, gaining nearly 3 per cent on the BSE in Friday’s intra-day trade on a strong outlook. In comparison, at 11:24 am, the BSE Sensex was up 0.33 per cent after falling 0.7 per cent in intra-day trades today.
In one month, the stock of the sponge iron company has surged 34 per cent, as compared to the 4.6 per cent decline in the BSE Sensex. In the previous calendar year 2024, it had more-than-doubled, or zoomed 105 per cent, as compared to the 9 per cent rise in the BSE Sensex.
LMEL is the only iron ore miner in Maharashtra to boast of one of the highest grade ores in the country. It has an iron ore mining lease for 50 years till 2057 at Surjagarh village in Gadchiroli district, which is the largest reserve of high-grade iron ore in Maharashtra. The company has been awarded the permit to excavate up to 10 million tonnes per annum (MTPA) of iron ore. . Benefiting from the strategic location of its iron ore mines, LMEL has gained access to all the key markets in India.
Meanwhile, the company's stock is trading higher for the fourth straight day, soaring 6.5 per cent after India Ratings and Research (Ind-Ra), upgraded its long-term issuer rating.
The upgrade reflects LMEL likely receiving the mining approval by end-FY25, resulting in a significant increase in mining volumes FY26 onwards and higher scale of operations. The upgrade also reflects Ind-Ra’s expectations of a low-cost position of LMEL in steel making following the completion of its planned capex, supported by its captive iron ore mine as well as savings on logistic costs. However, the pace of the ramp-up of operations shall remain a key rating monitorable, the ratings agency said in rationale dated January 6, 2025.
Ind-Ra expects LMEL’s operating performance to increase substantially in FY25 and FY26, on the back of increased iron ore sales volumes and the ramp-up of its recently completed capex. Considering the robust domestic demand for iron ore from the steel industry, the saleability of increased volume of production from mines may not be a concern for the company.
In addition, the lower share of low-margin fines in the sales mix with the commercialisation of its pellet plant and cost advantage from the slurry pipeline would bolster the overall profitability in FY26. The volumes are likely to further increase with the commissioning of 700,000 TPA of sponge iron plant by FY26 (end-September 2024: 340,000 MTPA), Ind-Ra said.
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In the first half (April to September) of the financial year 2024-25 (H1FY25), the company’s revenue was up 26 per cent year-on-year (YoY), primarily due to higher sales volumes of iron ore and higher realisations supported by robust domestic demand. The Ebitda (earnings before interest, tax, depreciation and amortisation) margin remained strong at around 28 per cent in H1FY25 (H1FY24: 26.9 per cent; FY24: 26.5 per cent) with higher absorption of fixed costs on the back of increased volumes and realisations. Profit after tax (PAT) jumped 30.3 per cent YoY to Rs 301.30 crore.
Meanwhile, considering most of LMEL's costs are fixed in nature, any fluctuation in iron ore prices does not directly affect its Ebitda margin. Furthermore, the volatility in input costs is mitigated by operational captive iron ore mines and the fixed-price mine development and operator (MDO) contract. However, the steel sector is characterised by highly cyclical demand, and volatility in input prices and product realisations. The rating is also constrained by the highly competitive and fragmented nature of the sponge iron manufacturing industry, Ind-Ra said.