Broker’s call: Lloyds Metals and Energy (Buy)

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Target: ₹1,340

CMP: ₹1,189.35

Lloyds Metals and Energy Ltd (LMEL), is engaged in mining iron ore, manufacturing coal–based Direct Reduced Iron (DRI)/(Sponge Iron), generating power and trading of pellets. The company is one of the largest DRI manufacturers in Maharashtra with a production capacity of 3,40,000 TPA across two districts; Ghugus, Chandrapur district (2,70,000 MTPA, 30MW CPP) and Konsari, Gadchiroli (70,000 MTPA, 4 MW CPP).

LMEL’s diverse operations in iron ore mining, sponge iron production and upcoming steel project along with expanding iron ore capacity to 55 MT (including BHQ) would enhance cash flow further. The company plans capex of ₹32,700 crore covering multiple capacity spread over a period of 5-7 years without debt and just through internal cash accruals in a capital-intensive industry speaks about its operational efficiency and perennial demand for its products.

The upcoming slurry pipeline will substantially reduce its freight cost by ₹600 per tonne as it would replace road transportation .LMEL has the flexibility to alter its product mix to cater to the continuously evolving market conditions which insulates it from price volatility and optimises its margins.

We recommend Buy with a target price of ₹1,340 with over the next 9-12 months.