RATING RATIONALE
07Oct2022

Lloyds Metals and Energy Ltd

Brickwork Ratings upgrades the long-term rating for the Bank Loan Facilities of Rs. 100.00 Crs. of Lloyds Metals and Energy Limited

Particulars
Facilities** Amount (Rs.Crs.) Tenure Rating#
Previous Present Previous
(19 Aug 2021)
Present
Fund Based 100.00 100.00 Long Term BWR BBB/Stable
Upgraded
BWR BBB + /Stable
Upgrade
Grand Total 100.00 100.00 (Rupees One Hundred Crores Only)
#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure


RATING ACTION / OUTLOOK

The rating revision reflects the improvement in the operating efficiency following the commencement of the mining & extraction activity in October 2021 at the Surajgarh Iron ore mines, allotted on lease to Lloyds Metals & Energy Limited (LMEL or “the company”) till the year 2057. The company’s operating profile is supported by benefits from the improvement in the capacity utilization levels as well as a partially integrated nature of operations supported by captive iron ore mines, captive power generation, and sponge iron manufacturing capacity which in turn lead to an efficient cost structure. The captive sourcing of the iron ore ensures continuous availability resulting in improved capacity utilization levels and a reduction in the cost of iron ore procurement by nearly 50 percent leading to significant improvement in the profitability of the company. Also, the surplus iron ore produced over the requirement is available for sale and hence contributes to the revenue of the company. The steel industry also witnessed a sharp rebound in the second half of FY2021 which supported the overall performance of the company. 

The company is also setting up a mineral based Steel plant at Konsari, Gadchiroli district for manufacturing sponge iron with a capacity of 75000 metric tonnes per annum (MTPA) at the initial stage, and subsequently capacity to manufacture other value-added products will be set up. The forward integration being undertaken by the company is expected to further enhance its business risk profile. The rating revision also considers the significant infusion in the capital of the company during the current year leading to a significant reduction in overall debt and interest outgo for the company. The capital infusion will also support the ongoing & future capital expenditure plan of the company.  

The rating continues to draw comfort from the established market presence of the Company supported by the extensive experience of the promoters in the iron & steel industry. The rating also derives comfort from the partially integrated nature of operations wherein the Company is engaged in manufacturing sponge iron and also has a 30MW captive power generation capacity. Further, the rating also derives comfort from the unsecured loans provided by the promoters as and when needed along with infusion in the capital.  

However, the rating is constrained by the susceptibility of the operations & profitability to the volatility in the sponge iron & iron ore prices along with cyclicality in the steel industry. The rating is also constrained by the presence of the highly competitive and fragmented sponge iron manufacturing industry.  

Outlook: Stable

BWR believes that LMEL’s business risk profile will be healthy considering the favorable demand outlook for the steel industry and the company's captive iron ore sourcing arrangement. The business risk profile is also supported by the company’s established market presence, experienced promoters along with long-standing relationships with the customers. The “Stable” outlook indicates a low likelihood of rating change over the medium term.

 

KEY RATING DRIVERS

Credit Strengths:


Credit Risks:

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has principally relied upon the standalone audited financials up to FY22, publicly available information, and clarification/information provided by the Company. 

 

 

RATING SENSITIVITIES

Going forward, BWR will monitor the following key rating sensitivity factors for any rating change. 

Positive:

The rating can be upgraded if the company reports:

Negative:

The rating can be downgraded if the company reports:

LIQUIDITY INDICATORS - Strong

The company has reported a significant increase in net cash accruals from Rs.13.95 crore in FY 2021 to Rs. 105.78 crore in FY 2022. The current ratio comfortably stood at 2.61 times as on 31st March 2022. Further, the company’s average working capital limit utilization stood at around 8.40 percent for the period from August 2021 to August 2022. 

The unencumbered cash and cash equivalents stood at Rs. 21.87 crores as on 31st March 2022. Further, the repayment of around Rs. 42.28 crores is estimated during the period from FY2023 to FY2025 and the same is expected to be met through internal accruals and infusion in the share capital by promoters. Also, the company had raised around Rs. 202.00 crores through the issue of new shares and application money for convertible warrants during FY 2022. Going forward, the company is to expected infuse promoters' funds in order to meet additional working capital requirements and any capital expenditures. 

 

 

ABOUT THE ENTITY

Lloyds Metals and Energy Limited [Erstwhile Lloyds Metals & Engineer Limited] was initially incorporated as a private limited company under the name “Nagarjuna Metals and Engineer Private Limited” in the year 1977. Subsequently, in 1986 the constitution of the entity was converted into a public limited company and listed on the Bombay Stock Exchange in February 1987 however the name was changed to Lloyds Metals & Engineer Limited in January 1990 and to the latest name in April 2011. The Company is promoted by Mr. B. L. Agarwal & family along with TEMPL members holding around 74.63 percent; public shareholding stood at 25.09 percent and the non-promoter & Non-public group is 0.28 percent as on 31st March 2022. The day-to-day operations of the Company are handled by Mr. Babulal Agarwal who possesses more than five decades of experience in the iron & steel industry. 

The company is engaged in the manufacturing of sponge iron and its by-products along generation/distribution of power. The by-products of the sponge iron include Char, Fly Ash, ESP Dust, Bed Material, and Iron Ore Fines. The company’s sponge iron plant is located in the Chandrapur district of Maharashtra with an installed capacity of 300000 MTPA and also the captive power plant with a 30 MW capacity which runs on the waste heat gasses produced in the sponge kiln. The Company possesses certifications including ISO - 9001, 14001, OHSAS 18001 ISO 9001:2008. Sponge iron is an intermediate product; a source of metallics for secondary steel making through Electric Arc Furnace (EAF) or Induction Furnace (IF)  route. The sale of sponge iron contributed around 64 percent, iron ore contributed around 29 percent whereas power contributed around 7 percent to the total revenue for FY 2022. The main raw material required by the company is iron ore and non-coking coal. The iron ore is sourced from the iron ore mine located in Surjagarh village, Gadchiroli district Maharashtra which it has leased for a period of 50 years starting from 2007; the mining extraction activity commenced in October 2021. It also procures iron ore from other suppliers located in Raipur and Odisha. The company procures coal from Western Coalfields Limited under long-term linkages.

The company has only one associate under the name Thriveni Lloyds Mining Private Limited (TLMPL) effective from 28th May 2020 and has a 40 percent holding in it as on 31st March 2022. 

KEY FINANCIAL INDICATORS (Standalone)
Key Parameters Units FY 21-22
(Audited)
FY 20-21
(Audited)
Operating Revenue Rs.Crs. 697.50 253.41
EBITDA Rs.Crs. 145.63 10.87
PAT Rs.Crs. 97.30 0.13
Tangible Net Worth Rs.Crs. 481.58 182.11
Total Debt/TNW Times 0.16 0.85
Current Ratio Times 2.61 1.63
KEY FINANCIAL INDICATORS (Consolidated)
Key Parameters Units FY 21-22
(Audited)
FY 20-21
(Audited)
Operating Revenue Rs.Crs. 697.50 253.41
EBITDA Rs.Crs. 145.63 10.87
PAT Rs.Crs. 97.30 0.13
Tangible Net Worth Rs.Crs. 481.65 182.11
Total Debt/TNW Times 0.16 0.96
Current Ratio Times 2.61 1.63
KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.


STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable

ANY OTHER INFORMATION

None

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
Facilities Current Rating (2022) 2021 2020 2019
Type Tenure Amount
(Rs.Crs.)
Rating Date Rating Date Rating Date Rating
Fund Based LT 100.00
BWR BBB+/Stable
(Upgrade)
19Aug2021
BWR BBBStable
(Upgraded)
26May2020
BWR BBB-Stable
(Reaffirmed)
30Jan2019
BWR BBB-Stable
(Assigned)
Non Fund Based ST 0.00
NA
19Aug2021
BWR A3
(Withdrawn)
26May2020
BWR A3
(Reaffirmed)
30Jan2019
BWR A3
(Assigned)
Grand Total 100.00 (Rupees One Hundred Crores Only)
COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria
Analytical Contacts

Shashikala Umanath Hegde

Senior Ratings Analyst Board : +91 22 2831 1426, +91 22 2831 1439 shashikala.h@brickworkratings.com

Vidya Shankar

Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com
Lloyds Metals and Energy Ltd
ANNEXURE-I
Details of Bank Facilities rated by BWR
SL.No. Name of the Bank/Lender Type Of Facilities Long Term(Rs.Crs.) Short Term(Rs.Crs.) Total(Rs.Crs.)
1 Aditya Birla Finance Limited Term LoanOut-standing 19.20 _ 19.20
2 Citizen Credit Co-operative Bank Cash CreditSanctioned 10.00 _ 10.00
3 Citizen Credit Co-operative Bank Term LoanOut-standing 17.12 _ 17.12
4 Kotak Mahindra Bank Term LoanOut-standing _ _ 0.00
5 Others Cash CreditProposed 24.88 _ 24.88
6 TATA Capital Financial Services Limited Term LoanOut-standing 28.80 _ 28.80
Total 100.00 0.00 100.00
TOTAL (Rupees One Hundred Crores Only)
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