Buy Lloyds Metals and Energy; target of Rs 1615: ICICI Securities

ICICI Securities research report on Lloyds Metals and Energy

We initiate coverage on Lloyd Metals and Energy (LMEL) with BUY recommendation. Key points: 1) Structural iron ore cost advantage compared to peers; 2) capex of INR 327bn for 4.2mpta steel plant likely to be value accretive; 3) various cost initiatives may provide a cumulative benefit of USD 2.4bn over the next 10 years; 4) acquisition of TEIL likely to be cost efficient; and 5) superior returns vs peers. Going ahead, we expect EBITDA/PAT CAGR (FY24-31E) of 35% and RoE/RoCE in excess of 23% (best among steel peers).

Outlook

As the benefits of ongoing capex would be visible only post FY29, we value LMEL on DCF-based methodology, resulting in TP of INR 1,615. Besides, the option value from TEIL acquisition is an extra INR 320/share, to be realised once the transaction is over.

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