Lloyds Metals & Energy Ltd (BOM:512455) (Q2 2027) Earnings Call Highlights: Record H1 FY27 ...

Negative Points

• Q2 profitability impacted by monsoon season, with lower mining output and higher costs, particularly in Thriveni segment.

• Thriveni's Q2 EBITDA margin dipped due to heavy rains in Odisha and Jharkhand, and increased costs of HSD and explosives due to geopolitical issues.

• Chemaf's Surya Mines facing challenges: shortage of high-grade ore, lack of dedicated sulfuric acid plant, high diesel costs, and limited production.

• Copper production target for FY27 revised downward to 5,850 tonnes from earlier 8,000 tonnes due to challenges at Surya Mines.

• Steel plant commissioning delayed by a quarter; blast furnace and coke oven expected in Q4, steel plant and wire rod mill in Q1 FY28.

• BHQ beneficiation benefits expected only from FY29, with no volume contribution in FY27 or FY28.

• CapEx guidance high: INR13,000 crores for FY27 and similar for FY28, leading to elevated net debt of INR9,316 crores stand-alone and below INR20,000 crores consolidated.

• Panguna project in early stages with no clear timeline or production targets; final agreement not yet signed.

• Thriveni's new contracts (Tata Steel mines) rates not finalized, and benefits expected only from next year.

• Consolidated net debt includes full Chemaf debt despite 49% ownership, with 51% of profitability going to minority interest.

Q & A Highlights

Q: What is the status of the 3 million tonne steel plant and the 1.2 million tonne wire rod plant? A: Rajesh Gupta (Managing Director) said the company has acquired around 1,200 acres of land and holds an environmental clearance for 4.5 million tonnes. Active work has begun only on the captive power plant, which will power the beneficiation and pellet plants. The final configuration and machinery framework will be decided in the next couple of months. Separately, Riyaz Shaikh (CFO) said the blast furnace and coke oven should start in Q4 FY27, while the steel plant and wire rod mill should start in Q1 FY28, a delay of about a quarter.

Q: When will the Chemaf debt restructuring be completed, and what will the net debt be? A: Hemankur Upadhyaya (Director of International Strategy and Operations) said the restructuring is expected to close within 3 to 4 months, before the end of FY27. Long-term net debt at the Chemaf level is expected to be around $500 million versus the current $800 million, including debt for completing the plants. On consolidation, the full debt is reflected, but only 49% is attributable to Lloyds, with 51% of profitability going out as minority interest.

Q: What is the outlook for copper production in FY27 and the status of the Chemaf, Surya Mines and Panguna projects? A: Hemankur Upadhyaya (Director of International Strategy and Operations) said the FY27 copper target has been revised down to 5,850 tonnes from 8,000 tonnes earlier, as effort shifts to completing the Chemaf plants, which are expected to be completed by end-FY27 and in production in FY28. Both Chemaf complexes have captive mines within a 5-km radius, dedicated sulfuric acid plants and state power allocations. Surya Mines faces headwinds from third-party ore, high sulfuric acid and diesel costs, and JORC estimation will take time. Panguna is at a very early stage, with no contract signed and no projections.

Q: What is driving the margin expansion, and is it sustainable? A: Riyaz Shaikh (CFO) said H1 FY27 EBITDA margin was 38.33%, the best ever, up 542 basis points year-on-year, driven by the slurry pipeline lowering freight costs, higher realizations and a better product mix. Value-added products now contribute 61% of stand-alone revenue and 67% of EBIT in Q2, versus 43% and 49% a year ago. Rajesh Gupta (Managing Director) said the margins are not one-off but the result of years of building captive ore, captive logistics and value-added products.

Q: Why did Thriveni's EBITDA margin dip in Q2, and what is the sustainable level? A: S.K. Naredi (Director of Finance, Thriveni) said Q2 is historically weak due to the monsoon, with heavy rains in Odisha and Jharkhand hampering iron ore and coal production. Higher HSD and explosives prices due to geopolitical issues also hurt profitability. A pass-through mechanism with mine owners such as NTPC is now in place, and H1 margins were still up 436 basis points year-on-year.

Q: What is the CapEx plan for FY27 and FY28? A: Riyaz Shaikh (CFO) said the company incurred about INR6,000 crores in H1 FY27 and expects around INR13,000 crores for the full year. A similar figure is expected in FY28, with a large part directed towards the steel plant.

Q: What are the volume expectations for pellets, iron ore and beneficiation? A: Rajesh Gupta (Managing Director) said pellet capacity will rise from 8 million to 9.6 million tonnes within the next three to four months. Volumes should touch about 8 million tonnes this year and around 9.5 million tonnes next year. Beneficiation benefits are expected to start in FY29, while usable iron ore volumes remain at 26 million tonnes throughout.

Q: What is the update on the Tata Steel mining contracts through BRPL? A: S.K. Naredi (Director of Finance, Thriveni) said BRPL, the joint venture between Tata Steel and Lloyds Metals, will award the mining contract. Thriveni expects 12 million to 14 million tonnes of iron ore and 1.5 million to 1.8 million tonnes of manganese from next year onwards. Rates are yet to be finalized but negotiations are at an advanced stage, and operations have begun at the Tata Joda West mine.

Q: How should investors view the company's debt levels given the ongoing CapEx cycle? A: Riyaz Shaikh (CFO) said stand-alone borrowings are around INR9,500 crores, with projects planned at 60%-65% debt to equity and debt kept within 1-1.5x of the coming 12 months' EBITDA. Rajesh Gupta (Managing Director) added that every 2 to 2.5 years the company's bottom line exceeds the top line of two years prior, so absolute debt figures look high but remain well under control by financial parameters.

Q: What is the rationale behind the $300 million NCD enabling resolution? A: S.K. Naredi (Director of Finance, Thriveni) said it is an enabling resolution to keep the company ready if an opportunity arises, and the funds would primarily be used for CapEx.

Q: How is capital being allocated across the multiple businesses, and which is most lucrative? A: Rajesh Gupta (Managing Director) said each business is lucrative by its own standard, with Thriveni being the least EBITDA-accretive but a very steady service business. Copper, iron ore and steel are all EBITDA-accretive, and every process must add value to qualify for capital allocation. Power and solar investments are aimed at lowering costs and going green rather than generating external revenue.

Q: Why is iron ore realization per tonne higher than benchmark, and is it sustainable? A: Rajesh Gupta (Managing Director) said there is no specific benchmark in India and the price reflects the quality

For the complete transcript of the earnings call, please refer to the full earnings call transcript .