Nomura maintains Neutral on Lloyds Metals, raises target price to Rs 2,000 as steel plant faces delay

Nomura has maintained its 'Neutral' rating on Lloyds Metals and Energy but raised its target price to Rs 2,000 from Rs 1,950, as it rolled forward its valuation to December 2028. The brokerage expects faster growth in non-ferrous operations to partly offset delays in the company's steel plant project. In its November 4 report, Nomura said reported EBITDA of Rs 18 billion in the second quarter of FY27, down 35% sequentially, was 11% above its estimate, although 4% below the Bloomberg consensus estimate. The performance was driven by stronger-than-expected volumes and realisations. Higher pellet volumes reflected a faster-than-anticipated ramp-up.

Realisations for iron ore and pellets were 15% and 10% above the benchmark prices tracked by Nomura, respectively. "Management attributing the premium to superior product quality and favourable geographical mix," the brokerage said. Meanwhile, the Thriveni MDO business' EBITDA margin moderated to 12% in the second quarter from 25% in the first quarter due to monsoon-led production disruptions and geopolitical issues affecting coal prices. Management expects margins to recover in the second half of FY27. Steel plant commissioning pushed to FY31 Nomura said management had enhanced the environmental clearance for the upcoming steel plant to 4.5 million tonnes.

However, construction activity has commenced only for the power plant, which will be used for the BHQ beneficiation plant. "Given the delayed execution, we anticipate the steel plant commissioning will not occur before FY31F," the brokerage said. It has moved its assumption for the 3-million-tonne steel plant's capacity commissioning to FY31 from FY29 earlier. This reduces its FY29 standalone EBITDA estimate by around 17%. Nomura said it had kept the core business valuation multiple unchanged as land and clearances were in place, adding that it would raise the multiple only when there was greater execution visibility.

CHEMAF copper assets to ramp up faster In contrast, Nomura expects the ramp-up of acquired CHEMAF copper assets to be faster. Earlier, the brokerage had factored in 15,000 tonnes of volumes from the Etoile asset, which has a capacity of 24,000 tonnes per annum, in FY28. However, management indicated that the entire 74,000-tonne capacity is expected to be commissioned by FY28. Accordingly, Nomura has raised its FY28 volume estimate to 37,000 tonnes, assuming 50% utilisation, and its FY29 estimate to 44,000 tonnes from 20,000 tonnes earlier. The faster non-ferrous ramp-up lifts Nomura's FY28 consolidated EBITDA estimate by 4%.

However, its FY29 estimate falls 4% as the delay in steel operations outweighs higher non-ferrous earnings. It has also cut its FY27 EBITDA estimate by 7% after factoring in escalated costs amid the West Asia crisis. Target price raised to Rs 2,000 Nomura's target price increase of 2.5% is largely driven by the valuation roll-forward, based on a target EV/EBITDA multiple of 8.5 times against 8.3 times earlier, while segment multiples remain unchanged. The stock currently trades at 9.7 times one-year-forward EV/EBITDA. The brokerage has maintained its 'Neutral' rating despite raising the target price to Rs 2,000.