LMEL: This small-cap stock turned ₹1 lakh into ₹85 lakh in just 4 years

Investing in the stock market has long been recognised as a pathway to potential wealth creation. Identifying and holding onto promising stocks over an extended period can yield significant returns.

However, achieving consistent returns is challenging due to daily share price volatility and market fluctuations. Yet, some exceptional stocks demonstrate the ability to deliver steady returns even amidst market uncertainties, economic downturns, and industry disruptions.

Lloyds Metals & Energy (LMEL) stands out as one such gem, exemplifying resilience and stability in the equity markets with its consistent upward trajectory and lower volatility. The shares, which were trading at a price of ₹9 apiece 4 years ago, have skyrocketed 9200% to trade at the current price of ₹740.

If an investor had put ₹1 lakh into the shares at the start of this period and held onto the investment until today, the value would have surged to an impressive ₹82 lakhs.

This accomplishment is particularly notable due to the stock's strong annual performance. In CY20, it delivered a 32% return, followed by outstanding multi-bagger returns in the subsequent years: 905% in CY21, 144% in CY22, and 144% in CY23.

So far this year, the stock has risen by 24%, with its price climbing from ₹602 to ₹740. This impressive growth can be attributed to the company's robust growth trajectory and its ability to remain resilient in a challenging environment, thanks to its operational and cost efficiencies.

Its iron ore mining capacity has increased from 3 MTPA in 2020 to 10 MTPA in 2023, and it aims to expand further to 55 MTPA by 2030, representing an 18-fold increase in just a decade.

Lloyds Metals and Energy is a metals and mining company engaged in mining iron ore, manufacturing sponge iron, and generating power. It serves customers in all the key markets across India with our strategically located iron ore mine at Surjagarh in the Gadchiroli district of Maharashtra. 

Securing a 30-year future

LMEL has achieved a significant milestone by securing a 30-year extension for its captive iron ore mines at Surjagarh. Originally set to expire in 2027, the lease has been extended to 2057. This extension ensures uninterrupted access to iron ore, benefiting LMEL’s internal operations as well as its external sales.

Benefiting from the strategic location of its iron ore mines, LMEL has gained access to all the key markets in India.

The company is also working on obtaining necessary approvals from the Government of India, including the Ministry of Environment and Forests, for the mining of banded hematite quartzite (BHQ), a type of rock formation commonly found in iron ore deposit regions.

LMEL plans to set a new industry benchmark in India by mining and beneficiating low-quality BHQ. The company will be the first to undertake such extensive beneficiation operations in the country.

To advance these plans, the company has signed contracts with technology suppliers in China, where the beneficiation of BHQ is a well-established process. China processes around 300 million tonnes of BHQ annually, upgrading iron content from approximately 28% to 65%. LMEL’s BHQ has a current iron content of about 35%, with plans to increase this to 65%–67%.

The Surjagarh iron ore mine contains substantial iron ore reserves, including 157 million tonnes (MT) of extractable iron ore and an additional 706 MT of BHQ. The company's current iron ore production capacity is 10 million metric tonnes per year (MMTPA).

LMEL aims to expand this capacity significantly, targeting 55 MT by 2030. This expansion plan includes 10 million tonnes of direct-shipped ore (DSO) and 45 million tonnes of BHQ, according to the company's FY24 annual report. 

Forging ahead

As part of its forward integration strategy, the company is setting up a 3-MTPA fully integrated steel plant in Konsari, Gadchiroli district. Furthermore, with the addition of the upcoming DRI facility and a wire rod mill with a capacity of 1.2 MTPA in Ghughus, LMEL’s expansion will transform it into an integrated steel player by the fiscal year 2030-2031, boasting a total capacity of 4.2 MTPA.

A key competitive advantage for LMEL is its reliance on its own captive iron ore mines to meet raw material needs. With extractable reserves of 157 MT of high-grade iron ore and 706 MT of banded hematite quartzite (BHQ), LMEL ensures a steady supply of raw materials, reducing production costs.

This strategic use of captive resources, coupled with the avoidance of premium payments to the government, enhances the company's profitability and operational efficiency, supporting its long-term goals in the steel industry.

India's crude steel capacity experienced a 3.2% CAGR from FY 2018–19 to FY 2022–23, reaching 161 MT. It is estimated to be 176 MT in FY 2023–24 and projected to further increase to 234 MT by FY 2027–28, with a 7.8% CAGR.

The Ministry of Steel has set an ambitious goal to further boost India’s steel production capacity, targeting an annual production of 300 MT by 2030. 

In alignment with this vision, NITI Aayog anticipates that India will emerge as the global production hub for green steel, reaching a capacity of 15-20 MT by 2030, paving the way for the worldwide adoption of green steel.

₹32,700 crore capex plan

The company is making significant progress on constructing a 10 MTPA slurry pipeline, stretching 85 kilometers from the Hedri Grinding Plant near the Surjagarh mines to the Pellet Plant under construction in Konsari, Gadchiroli District, Maharashtra. This pipeline aims to enhance operational efficiency by reducing freight costs associated with road transport.

The company recently launched pellet trading and is set to complete new pellet plants at Ghughus and Konsari, expected to boost pellet production to 12 MTPA. As industries worldwide strive to reduce their environmental impact and ensure compliance, demand for effective iron ore pellets is expected to rise rapidly, creating growth prospects for the target market.

In addition, the company is expanding its sponge iron production capacity from the current 340,000 tonnes to 630,000 tonnes. Production of 70,000 tonnes of DRI at Konsari has contributed to a historic high in DRI production for FY 2023-24, the company said in its FY24 annual report. 

All expansion and other projects are scheduled for phased implementation over the next 5–7 years, with a total capital expenditure (capex) of ₹32,700 crore. This investment will be financed entirely through internal resources, without relying on debt.

Upon completion of this Capex, the company will achieve a well-diversified product mix, including ore, pellets, and steel. Additionally, the share of value-added products (VAP) is expected to exceed 50%.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.