Lloyds Metals and Energy (LMEL)

Bond Opportunities
1

Have been reading quite a lot about Llyods Metals and Energy. LMEL also recently filed a GID for a ₹2,500 crore NCD programme via private placement. This is the first time LMEL is tapping the bond market at this scale, and given it’s one of the few non-NBFC issuers we’ve seen with a fresh AA rating, I thought it was worth a deep look.

For those unfamiliar, LMEL is not a financial services company. It’s a Maharashtra-based integrated metals and mining company. The core asset is the Surjagarh iron ore mine in Gadchiroli district, which is now the largest single-location private iron ore mine in India by permitted capacity (55 MTPA after they got environmental clearance in June 2025). The company also runs DRI plants, a 4 MTPA pellet plant at Konsari that was recently commissioned, and an 85 km slurry pipeline from Hedri to Konsari.

The company was incorporated in 1977 but honestly the real story starts from fiscal 2022, when Thriveni Earthmovers came in as the mine developer and operator (MDO). Before that the mine was significantly underutilised. After Thriveni’s entry they ramped up to full 10 MTPA capacity by FY25. So the operational track record in the current form is roughly 3-4 years.

The NCD details from the GID dated October 13, 2025:

  • Issuer: Lloyds Metals and Energy Limited (CIN: L40300MH1977PLC019594)

  • Programme size: Up to ₹2,500 crore

  • Rating: CRISIL AA/Stable and IND AA/Stable (dual rated)

  • Debenture Trustee: Axis Trustee Services Limited

  • RTA: Bigshare Services Private Limited

Financials (from the CRISIL rationale and GID disclosures):

  • Revenue FY25: ₹6,721 crore (FY24: ₹6,525 crore)

  • PAT FY25: ₹1,450 crore (21.6% margin)

  • EBITDA margin FY25: 29.1%

  • Net worth as of June 30, 2025: ₹7,021 crore

  • Total debt FY25: ₹1,004 crore (up from ₹162 crore in FY24)

  • Gearing: 0.16x

  • Interest coverage: 71.76x

  • Cash and equivalents (Jun 25): ~₹29 crore

  • Total debts to total assets: 0.09x

That interest coverage number , 71.76 times , is probably the highest I’ve seen on any issuer we’ve discussed on this forum. For context, most well-rated NBFCs we track are in the 2-4x range. Even after the debt ramp-up that’s coming (more on that below), CRISIL expects it to stay above 8x.

What makes the credit story strong:

The mine is allocated, not auctioned. This is huge. LMEL pays royalties at roughly 20% of average selling price. Auctioned mines pay upwards of 150% of iron ore price as revenue share. So LMEL has a structural cost advantage that is virtually impossible for any new entrant to replicate. This is the kind of moat you rarely see in commodity businesses.

They also have JORC-compliant reserves of 863 million tonnes, 157 MT of direct shipping ore and 706 MT of BHQ (banded hematite quartzite). At 10 MTPA, that’s 86+ years of mine life. Even at the expanded 55 MTPA capacity, it’s a multi-decade runway. For bondholders, long reserve life means long cash flow visibility.

The pellet plant and slurry pipeline are already commissioned, so this isn’t a “we plan to” story, these are operational assets generating revenue now.

Revenue is expected to cross ₹13,000 crore in FY26 with EBITDA margins expanding to 35-40%, driven by pellet plant operations, expanded mining, and consolidation of Thriveni’s MDO revenue.

Now, the parts that need careful watching:

  1. The ₹32,700 crore capex plan. LMEL is in the middle of a massive expansion DRI, sinter, coke ovens, hot metal, flat steel products, BHQ beneficiation. Of this, ~₹5,400 crore was spent till FY25 and another ₹10,000-12,000 crore is expected across FY26-27. The integrated steel plant alone is earmarked at ₹16,000 crore, though management says they’ll only start that after the preceding phases are commercially proven. The stated philosophy is that 60-70% of internal cash accrual gets earmarked for capex. That discipline sounds good in a presentation, but we’ll have to see if it holds when steel prices are high and the temptation to accelerate spending kicks in.

  2. The Thriveni acquisition. LMEL acquired ~80% of Thriveni Earthmovers Infra (TEIPL) their own MDO operator at an enterprise value of ~₹4,900 crore. The equity component was only ₹70 crore; the rest sits as debt and redeemable preference shares in TEIPL. LMEL has given an irrevocable guarantee of up to ₹2,500 crore on the preference shares. They’ve also guaranteed ₹1,745 crore of NCDs at Mahaprabhu Projects (a Thriveni group entity) as an interim arrangement. Post-consolidation, total debt is expected to jump to over ₹7,000 crore. So the 0.16x gearing we see today is going to look very different soon.

CRISIL expects net debt/EBITDA to exceed 1.5x in FY26 because of this. Management has guided for a steady-state policy of below 0.5x net debt/EBITDA (excluding TEIPL consolidation), and they’re saying leverage should come back down after a potential IPO of TEIPL. That’s a lot of “should” and “expected to” for bondholders to bank on.

Geographic concentration. Everything mine, plants, pipeline is in Gadchiroli and Chandrapur districts of Maharashtra. This is an area with a documented history of Naxal activity. Operations have stabilised post-2021 due to CSR, community engagement and law enforcement, but the risk isn’t zero. A single prolonged disruption hits the entire business.

  1. Promoter history. CRISIL explicitly notes that the Gupta family (one of the dual-promoter groups) has experienced financial distress in the past in their steel and finance entities. No current outstanding liabilities, but legacy litigations remain active. The other promoter is B Prabhakaran of the Thriveni group. The dual-promoter setup with defined functional responsibilities seems to work currently, but promoter dynamics in Indian corporates can change.

  2. Steel cycle exposure. As LMEL transitions from a pure iron ore miner to an integrated steel producer, it takes on full steel price cyclicality. Mining iron ore with a cost advantage and selling to third parties is a fairly resilient model. Making steel yourself means you’re now exposed to HRC/CRC pricing, demand from real estate and construction, and global trade dynamics. Different risk profile entirely.

My net take:

For a bondholder, the current financial position is very strong arguably too strong for a AA, you’d almost expect AA+ if not for the capex execution risk and the Thriveni acquisition complexity. The question is whether the credit story stays this strong through a ₹32,700 crore capex cycle and a ₹7,000+ crore debt ramp-up.

CRISIL’s downgrade triggers are: net debt/EBITDA exceeding 1.0-1.2x on a sustained basis, or operating margins falling below 20%. Those aren’t impossible scenarios if steel prices drop 25-30% during peak capex years.

That said, this is fundamentally a very different beast from the BBB/BBB+ NBFCs we usually discuss here. LMEL has real hard assets, a cost moat that’s structural, and the kind of interest coverage that makes you wonder why they even need to borrow.

Would be keen to hear from others:

  • For people who follow metals/mining credits, how does LMEL compare to Tata Steel, JSW, JSPL etc. from a bondholder’s perspective?

  • Anyone concerned about the Mahaprabhu Projects guarantee structure? That ₹1,745 crore interim guarantee feels like it’s doing a lot of work to make the Thriveni deal close cleanly.

  • The BHQ beneficiation JV with Sinosteel, anyone tracking how this technology is playing out? LMEL is essentially pioneering this in India and pilot results look good (>66% iron concentrates), but scaling 45 MTPA of beneficiation is uncharted territory.

Disc: Not invested. Going through the GID in detail.

2

Thanks for covering this one, it’s a welcome change from the NBFC-heavy discussions that are there in the Forum. A few observations from my side after reading through the CRISIL rationale:

The thing that stands out most to me isn’t the interest coverage or the margins , it’s the funding structure of the Thriveni acquisition. Let me unpack this because it’s very unusual.

LMEL paid only ₹70 crore in equity for ~80% of a business valued at ₹4,900 crore. The remaining ~₹4,830 crore is structured as existing debt in TEIPL’s books plus redeemable preference shares. LMEL guarantees up to ₹2,500 crore of the preference shares. And separately, LMEL has guaranteed ₹1,745 crore of NCDs sitting in Mahaprabhu Projects, which is a Thriveni group entity , and this guarantee is supposed to be released only after the debt facility is fully repaid.

So effectively, LMEL’s contingent liabilities have jumped by ₹2,500 crore (RPS guarantee) plus ₹1,745 crore (Mahaprabhu guarantee) in one transaction. That’s ₹4,245 crore of guarantee exposure that doesn’t show up in the headline gearing number but absolutely matters for bondholders.

The argument for the deal is sound, they’re acquiring their own MDO, getting cost savings of ₹400-500/tonne on mining costs, bringing in additional ₹4,000 crore revenue at ~25% EBITDA margins, and resolving the related-party dynamic. But the way it’s been structured pushes most of the financial risk into guarantees rather than upfront equity. That’s fine when everything goes well. It gets messy if TEIPL’s cash flows disappoint.

I’d want to track two things specifically: (a) how quickly the Mahaprabhu NCDs get repaid so that guarantee is released, and (b) whether the TEIPL IPO that management keeps referencing actually happens, because that’s the main deleveraging event.

3

One angle I haven’t seen discussed much about the Issuer is the royalty structure risk. Right now the allocated mine means 20% royalty vs 150%+ for auctioned mines. That’s the core of the cost advantage and the reason margins are what they are.

But this kind of regulatory advantage can change. If the government decides to revise the royalty framework or auction terms for existing allocations, even partially the impact on LMEL’s cost structure would be material. It wouldn’t need to go to 150%, even moving to 40-50% would significantly compress margins.

I don’t think this is imminent, and the CRISIL report flags it as a monitorable rather than a near-term risk. But for anyone buying a 3-5 year NCD, this is the kind of tail risk to keep in mind. The entire investment thesis rests on the mine economics staying as they are today.

On the positive side, I think the fact that ICICI Bank and Axis Bank have already extended ₹1,000 crore of term loans to LMEL is worth noting. Banks doing their own credit diligence and lending at this scale provides some independent validation beyond just the rating agency view.

4

Good thread. Just want to add context for people on this forum who primarily track NBFC bonds and might not be familiar with evaluating mining/industrial credits.

The key difference is what you’re really underwriting. With an NBFC, you’re underwriting a diversified loan portfolio , thousands of borrowers, portfolio-level default rates, collection efficiency, ALM management. The risk is primarily about portfolio credit quality and liquidity management.

With LMEL, you’re underwriting a single hard asset (one mine in one district) and a commodity price cycle. The cash flows are concentrated , Surjagarh is the entire business. There’s no portfolio diversification. If the mine faces operational disruption or iron ore prices crash, there’s no other business segment to fall back on.

The trade-off is that LMEL’s margins are structurally protected by the royalty advantage, and the asset base is physical and tangible , unlike an NBFC’s loan book, which is essentially a bunch of receivables. In a worst case, the iron ore reserves are still worth something.

For portfolio construction, I’d think of LMEL NCDs as industrial diversification in a fixed income portfolio that’s probably too heavy on financial services paper. The risk drivers are completely uncorrelated with NBFC stress , which is actually a feature, not a bug.

5

The numbers CRISIL is projecting for FY26 are worth highlighting because they represent a pretty dramatic step-up:

Revenue expected to cross ₹13,000 crore (vs ₹6,721 crore in FY25 , essentially doubling) EBITDA margins expanding to 35-40% (vs 29.1% in FY25) Cumulative cash accrual of ₹9,000-10,000 crore over the next two fiscals

If those projections are even directionally correct, the concern about debt servicing on a ₹2,500 crore NCD programme feels manageable. Even at the peak consolidated debt of ₹7,000 crore+, with ₹4,500-5,000 crore of annual EBITDA, the coverage ratios stay comfortable.

What I’d push back on is the certainty around these projections. Revenue doubling in one year assumes the pellet plant ramps fully, the Thriveni MDO revenue consolidates cleanly, and mining volumes increase , all simultaneously. Each of those individually is reasonable but expecting all three to go right in the same year is optimistic.

Also, note from the GID that as of H1 FY26 (quarter ended June 2025), net sales were ₹2,384 crore. If you annualise that, you get to roughly ₹9,500 crore , which is materially short of the ₹13,000 crore target. Granted, Q1 might have been ramp-up quarter, but it’s something to watch in the next couple of quarterly updates.

6

Good points all around. Let me try to pull this together for anyone who’s evaluating this practically.

The way I think about LMEL as a bond investment:

There are really two phases to consider. Phase 1 is the current situation , strong balance sheet, low leverage, massive interest coverage, proven mine operations, dual AA rating. If you’re buying a short-duration NCD (say 1-2 years), you’re mostly underwriting this phase. The risk of anything going materially wrong in 12-18 months is genuinely low given the current financial cushion.

Phase 2 is 3-5 years out, when the capex is in full swing, consolidated debt has ramped up, and the company is mid-transition from iron ore miner to integrated steel producer. The rating sensitivity factors become much more relevant here , margins below 20%, net debt/EBITDA above 1.0-1.2x. This is where steel cycle risk, capex execution risk, and the guarantee exposures all come into play.

So for me, a lot depends on what the actual tranches look like when they’re issued. Short duration at a fair spread over comparable AA paper seems reasonable. Longer duration means you’re betting on the execution story, which is a different kind of risk.

Will update this thread when the first KID comes out with actual coupon and tenor. In the meantime, if anyone spots LMEL paper trading in the secondary market or has dealer-level colour on pricing, do share.

Disc: Not invested. Evaluating.

7

@Anshul Spent some time pulling numbers together on this. LMEL is a very different animal from Tata Steel, JSW or JSPL as a bond investment, even though they’re all in the metals space. The comparison is actually more useful for understanding what makes LMEL unusual than for finding a direct peer.

Here’s how the key bondholder metrics stack up roughly:

Tata Steel:

  • Domestic rating: ICRA AA+/Stable, CRISIL AA/Stable (for standalone)
  • Consolidated net debt: ~₹81,800 crore (Dec 2025), down from ~₹85,000 crore in June 2025
  • Consolidated EBITDA FY25: ~₹25,800 crore
  • Net debt/EBITDA: ~3.3x (consolidated FY25, per ICRA). Was 2.3x in FY23, spiked to 3.6x in FY24 because of weak European operations
  • India EBITDA margin: 21-24% range. Consolidated margin around 11-15% because Europe drags it down significantly
  • Gross debt: ~₹95,600 crore
  • Key overhang: UK operations were loss-making, now transitioning to EAF-based steelmaking. ₹1.25 billion GBP capex for UK decarbonisation with £500 million UK government funding
  • Parent backstop: Tata Sons (rated ICRA AAA) ICRA explicitly factors in “high likelihood of parent extending financial support”

JSW Steel:

  • Domestic rating: IND AA/Rating Watch Positive (India Ratings), Moody’s outlook changed to positive Oct 2025
  • EBITDA FY25: ~₹22,300 crore. Expected ₹30,000 crore in FY26, ₹35,000 crore in FY27
  • Net debt/EBITDA: Expected to reduce to 2-2.5x over FY27-28. Currently higher
  • Capacity: 35.7 MTPA, plans for ~20% further increase by 2028
  • Recent JV with JFE Steel for BPSL, expected to generate ~₹32,000 crore cash inflows for JSW Steel, which would meaningfully reduce net debt
  • Key differentiator: largest steel producer in India by capacity, diversified product mix with high share of value-added products

JSPL (Jindal Steel & Power):

  • Rating: ICRA AA/Stable, CARE AA/Stable
  • Net debt has been coming down but the company has significant capex commitments (expanding from ~10 MTPA to 15.9 MTPA)
  • EBITDA margins historically in the 20-25% range
  • More domestic-focused than Tata Steel, which is actually a positive from a volatility standpoint

Now, LMEL:

  • Rating: CRISIL AA/Stable and IND AA/Stable
  • Net debt/EBITDA FY25: 0.51x. Even post-Thriveni, expected to be ~1.5x in FY26
  • EBITDA margin FY25: 29.1%, expected to expand to 35-40%
  • Interest coverage: 71.76x
  • Gearing: 0.16x current

The differences that matter for bondholders:

  1. Leverage is in a completely different league. LMEL at 0.51x net debt/EBITDA vs Tata Steel at 3.3x or JSW at 2-2.5x. Even after the Thriveni acquisition pushes LMEL to ~1.5x, it’s still comfortably below the large integrated players. For someone who has been burned by steel cycle leverage before and many bondholders were in 2015-16 when the whole sector was in distress, LMEL’s balance sheet is almost absurdly clean by comparison.

  2. The cost moat is structural and unique. The 20% royalty vs 150%+ for auctioned mines is something Tata Steel, JSW and JSPL simply don’t have at this level. Tata Steel benefits from captive iron ore mines too, but these are subject to MMDR Act auction provisions post-FY30, which is a known overhang. SAIL has captive mines with PSU exemption, but SAIL has its own operational issues. LMEL’s allocation-based mine is essentially the lowest cost iron ore source among all private producers. This translates to margin resilience even if iron ore and steel prices fall 20-30%, LMEL’s margins compress less than peers because their base cost is so much lower.

  3. But LMEL has zero diversification. Tata Steel has India, UK, Netherlands operations across ~35 MTPA. JSW has 35.7 MTPA across multiple locations in India. JSPL has Angul and Raigarh. LMEL has one mine in one district. If Gadchiroli faces a prolonged disruption — political, environmental, logistical the entire credit story is on hold. The big three can absorb a plant outage at one location without existential risk to the business.

  4. Parent/group support is night and day. Tata Steel has Tata Sons (AAA rated) explicitly providing a safety net. JSW has the broader JSW Group ecosystem. JSPL has the Jindal family’s diversified interests. LMEL has the Gupta family (with a history of financial distress in other entities) and the Thriveni/Prabhakaran group. There is no rated, deep-pocketed parent standing behind LMEL. If things go south during the capex cycle, LMEL has to figure it out on its own.

  5. The AA rating means different things. Tata Steel’s AA+ from ICRA is partly a function of Tata Sons backstop, the standalone credit profile on a consolidated basis with 3.3x leverage would arguably be lower. LMEL’s AA is a function of genuinely strong standalone financials plus cost moat. In some ways LMEL’s AA is more “earned” from the business itself rather than group support, which is a positive from a fundamental credit analysis standpoint.

Practically, what does this mean for pricing? I’d expect LMEL NCDs to price a few basis points wider than Tata Steel or JSW paper of similar tenor, primarily because of the concentration risk and the smaller issuer premium. The secondary market liquidity will also be thinner, Tata Steel bonds trade regularly on both exchanges, LMEL paper will have much wider bid-ask spreads.

For someone building a fixed income portfolio: if you already hold Tata Steel or JSW NCDs, LMEL doesn’t give you diversification within the steel sector. What it gives you is a structurally different credit profile, lower leverage, higher margins, unique cost moat, but higher concentration and execution risk. Whether that trade-off works depends on your portfolio construction and how much conviction you have in the capex execution.

One thing I keep coming back to: LMEL’s India EBITDA margin of 29% already exceeds Tata Steel India’s 21-24% and is comparable to or better than JSPL’s best quarters. If the 35-40% FY26 projection materialises, LMEL would be the highest-margin steel/iron ore company in India by a wide distance. That margin buffer is ultimately what protects bondholders through the cycle.