Lloyds Metals’ Q1 Earnings Surge as Pellet, DRI Expansion Accelerates Shift Toward Integrated Steelmaking

Lloyds Metals and Energy Limited (LMEL) reported a sharp increase in earnings in the April-June quarter of FY2026-27, as higher iron ore production and rapidly expanding pellet and direct reduced iron (DRI) operations strengthened the company's transition toward a more integrated mining and steelmaking business.

Consolidated revenue from operations increased to around 875 USD million (73.54 billion INR) in Q1 FY27, from 23.84 billion INR a year earlier, while consolidated profit after tax climbed to 17.34 billion INR from 6.52 billion INR in the corresponding quarter.

The increase reflects not only higher mining volumes but also a significant change in LMEL's product mix, with an increasing proportion of its iron ore moving downstream into pellets and DRI.

Iron ore output rises 53%; pellet and DRI volumes ramp up

LMEL's iron ore production increased 53% year on year to 6.05 million tonnes during Q1 FY27, while iron ore sales rose 58% to 5.46 million tonnes. The company has maintained its FY27 iron ore production target at around 26 million tonnes.

DRI production increased 131% year on year to 182,460 tonnes, compared with around 79,000 tonnes in Q1 FY26, supported by two new kilns operating at full capacity. Pellet production reached approximately 1.69 million tonnes during the quarter.

The company has now expanded its annual pellet capacity to 8 million tonnes following the commissioning of its second 4-million-tonne-per-year pellet plant in May 2026. The first pellet plant has also reached full utilisation.

The ramp-up is significant for India's iron ore and steel markets because LMEL is progressively moving from predominantly selling iron ore into the merchant market toward consuming more of its production internally.

Management indicated that this shift is already visible in its mining business. While overall iron ore production has increased substantially, greater internal consumption means part of the margin previously captured at the mining stage is increasingly being transferred downstream into pellets and other value-added products.

As pellet, DRI and eventually finished steel production increases, the proportion of LMEL's incremental iron ore output available to third-party buyers will therefore become an increasingly important factor for the merchant ore market. However, the company's targeted increase in overall mine production to around 26 million tonnes in FY27 should partly offset the increase in captive consumption.

Value-added products increasingly drive earnings

The change in LMEL's earnings mix provides one of the clearest indications of its downstream transition.

Value-added products accounted for around 41% of standalone revenue and 40% of EBIT in Q1 FY27, compared with just 13% and 2%, respectively, a year earlier.

Standalone revenue from operations increased 127% year on year to around 644 USD million (54.13 billion INR), while EBITDA rose 172% to around 252 USD million (21.20 billion INR). Profit after tax increased 141% to around 182 USD million (15.27 billion INR). EBITDA margin reached 39.2%, its highest quarterly level, supported by higher iron ore volumes, faster pellet ramp-up and increased sponge iron production.

The stronger contribution from downstream products means LMEL's earnings are becoming progressively less dependent on selling iron ore alone. Instead, a larger portion of the value contained in its captive ore is being retained through conversion into pellets, DRI and, eventually, finished steel.

The economics of this integration are also being supported by lower logistics costs. Management said its slurry pipeline is generating savings of around 500-550 INR/tonne in pellet costs, strengthening the cost advantage associated with converting captive iron ore into downstream products.

Steelmaking becomes the next stage of integration

LMEL's expansion is set to move further downstream as its steelmaking projects progress.

The company's first steel plant is already under execution and is targeted for commissioning by March 2027, according to management. This would extend the company's value chain from captive iron ore through pellets and DRI into finished steel.

LMEL is also reviewing the configuration of another planned steel project at Konsari. Management said it is studying whether capacity can be increased from the previously envisaged level of around 3 million tonnes per year, given the company's growing iron ore availability and existing land position.

The expansion therefore marks a structural change in LMEL's exposure to the Indian ferrous market. While iron ore remains the foundation of its operations, the company's earnings will increasingly reflect pellet, DRI and steel margins as downstream capacities ramp up.

FY27 will consequently be an important transition year. The key indicators for the market will be the company's progress toward its 26-million-tonne iron ore production target, the utilisation of its 8-million-tonne pellet capacity, the amount of ore increasingly absorbed through captive consumption, and the commissioning and subsequent ramp-up of its steelmaking facilities.