Gallantt Ispat Ltd Management Discussions.

Forming part of the Report of the Directors for the year ended 31st March, 2020


Global economic prospects solely rest on the pandemic fading eventually and the s mulus that governments will be able to provide their economies. Commodity prices including oil and metal remained so . Global GDP growth rate, according to Interna onal Monetary Fund (IMFs World Economic Outlook, April 2020 issue) moderated by 70 basis points (bps) to 2.9% (3.6% in 2018). With a growth rate of 3.7%, Emerging Markets and Developing Economies (EMDE) outpaced the 1.7% growth rate of Advanced Economies. The growth rate of world trade volumes decelerated to 0.9% in 2019 from a healthy 3.8% in the previous year.

2019 can be summarised as a year of rebalancing increased protec onism with protracted globalisa on that was achieved over the last two and a half decades. Heightened trade conflicts resul ng in immediate and arbitrary tari s, geo-poli cal tensions across many regions and economic realignments including uncertainty around Brexit resulted in a non-conducive environment for large scale investments and growth in consump on. The year got marked with events like frequent disturbances in Hong Kong and the Persian Gulf and blow hot - blow cold trade nego a ons betweenthe US and China.

According to the Interna onal Monetary Fund (IMF), global economic growth is likely to witness a steep de-growth of -4.9% in CY 2020, amidst ‘The Great Lockdown led by COVID-19. The contrac on in growth seeps down to over 170 na ons, and for several of them, this comes as a double whammy as they were already figh ng exis ng headwinds in their economy.

The advanced economies are mostly experiencing widespread outbreak, especially the US, the UK, Germany, France, Italy and Spain, and are therefore deploying containment measures that extract a sizable toll on economic ac vity. Addi onally, adverse market sen ments are also likely to impact economic prospects. Some par al li ing of lockdown measures has been witnessed in recent weeks.

The emerging markets and developing economies are under pressure to balance their public health scenario with their economic development goals. However, emerging and developing Asia group is expected to be the only region with some growth rate in CY2020 due to significant domes c demand and policy responses.


One of the fastest-growing economies in the world un l recent years, India recorded below 6% GDP growth on a y-o-y basis for the 1st me in seven years. During the 1st quarter of FY20 India recorded a near 5% growth, the slowest since the fourth quarter of FY13. Three of the four growth engines such as private consump on, private Investment, and exports have slowed down significantly. Consump on, the biggest contributor to Indias growth ll date, fell to an 18-quarter low of 3.1% in Q1 FY20, poin ng to the fragile consumer sen ment and purchasing ability. Private consump on which contributes nearly 60% to Indias GDP, is es mated to have grown at just 5.7% in 2019-20 compared to the 8.1% growth in the previous fiscal year. On the industry side, several core sectors including auto, real estate, and manufacturing were in deep waters for the major part of FY20. The auto sector in 2019 witnessed its worst decline in auto sales in more than two decades. Manufacturing is expected to have grown at just 2% in 2019-20, the lowest growth rate in nearly 15 years, compared to 6.9% in 2018-19. Exports grew at just 5.7% and have remained vola le owing to global uncertain es around trade and investments and geopoli cal tensions. The fourth engine, government consump on, and investment are running out of steam because of the limited elbow room the government has for counter-cyclical spending as the budget deficit remains under pressure.

Recent Developments

The return of a majority government from the same dispensa on provided poli cal stability and policy con nuity. Aiming to revive growth by way of boos ng private investment and consump ons, the Central Government and the Central Bank made many accommoda ve stances including successive lowering of policy rates and a substan ve lowering of corporate taxes. Among the key themes of the year were added thrust to doubling of farmers income, propelling the countrys economy towards the 5 trillion dollar mark, ra onalising corporate taxes, a rac ng global companies to manufacture in India, furthering ease of doing business and expanding exports.

Despite the imminent risks to the economy, Indias growth is expected to gain pace gradually in the coming months, expectedly driven by targeted measures to protect jobs, income support to the vulnerable sec ons of households and businesses, and encourage investments. The Government of India has already announced a Rs. 20 Trillion package (or ~10% of Indias GDP) to assist the na on and its people in mi ga ng the economic impacts of this pandemic. Indias economy remains resilient with robust long-term fundamentals, providing large external bu ers and reserves, which bolster the countrys poten al to increase fiscal expenditure once the pandemic recedes. Moreover, India has the capacity and scale to expand its share in the global supply chain, which has been disrupted by the COVID-19 outbreak.


Global Steel Industry

The global steel industry faced pricing pressure for mostparts of CY 2019, in the wake of a protec ve market environment in key economies. This was further aggravated due to country-specific demand slowdown that fuelled market imbalances.

In line with a conserva ve trade sen ment, consumer industries of steel undertook ac ve destocking. This led to stunted capacity u lisa on and resulted in net excess capacity globally. This was further complemented by addi on of new capaci es and resulted in downward pressure on steel prices.

Steel demand in developed economies are expected to decline 17.1% y-o-y in CY 2020, due to the COVID-19 impact with businesses struggling to stay afloat and high unemployment levels. Thus, recovery in CY 2021 is expected to be muted at 7.8% y-o-y. Steel demand recovery in the EU markets is likely to get delayed beyond CY 2020. The US market is also likely to witness a slight recovery in CY 2021. Meanwhile, Japanese and Korean steel demand will witness double-digit declines in CY 2020, with Japan being impactedby reduced exports and halted investments in automobiles and machinery sectors, and Korea being impacted by lower exports and weak domes c industry.

Steel demand in developing countries excluding China is expected to decline by 11.6% in CY 2020, followed by a 9.2% recovery in CY 2021.

The World Steel Associa on (world steel) forecasts steel demand to decline by 6.4% y-o-y to 1,654 MnT in CY 2020, due to the COVID-19 impact. However, it has asserted that the global steel demand could rebound to 1,717 MnT in CY2021 and witness a 3.8% rise on a y-o-y basis. Chinese demand is likely to recover faster than in the rest of the world. The forecast assumes that lockdown measures will be eased by June and July, with social distancing con nuing and major steel making countries not witnessing a second wave of the pandemic.

Steel demand is expected to decline sharply across most countries, especially in the second quarter of CY 2020, with a likely gradual recovery from the third quarter. However, risks to the forecast remain on the downside as economies make a graded exit from the lockdowns, without any par cular cure or vaccine for COVID-19.

Indian Steel Industry

The Indian steel industry, a er recovering from the twin shocks of demone sa on and the Goods and Services Tax (GST) reform, was on a fast track growth curve, especially in the la er part of the year 19-20. However, the COVID-19 has put a lot of uncertainty in the steel industry in the world, and more so in India, due to the lockdown announcement towards end of March.

India is the worlds second largest producer of crude steel and is es mated to become the second-largest consumer of finished steel products over the medium term, with the sector contribu ng 2% of the countrys GDP. The growth in Indias steel consump on is driven primarily by infrastructure, construc on and automobile sectors that account for 75% of the domes c demand. The growth in Indias produc on and consump on of steel is a direct result of its economic development and consistent government e orts to strengthen the industry. However, construc on and manufacturing ac vi es were subdued for most part of the year driven by a credit squeeze and prolonged monsoon season. This also translated into so er pricing and weaker spreads for finished steel, notably in the first half of FY 2019-20. Well-placed players in the industry responded by shi ing their market focus to exports, to liquidate accumulated inventory. This led to India becoming a net exporter of steel during the year under review, with non-alloy Hot Rolled Coil being the most exported item.

Worth men oning India was the worlds second-largest steel producer with produc on standing at 106.5 MT in 2018. The growth in the Indian steel sector has been driven by domes c availability of raw materials such as iron ore and cost-e ec ve labour. Consequently, the steel sector has been a major contributor to Indias manufacturing output. Indias steel produc on capacity has expanded to 137.975 million tonnes in FY19. India surpassed Japan to become the worlds second largest steel producer in 2019, with crude steel produc on of 111.2 million tonnes.

As a ma er of pride, the Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for con nuous modernisa on and up-grada on of older plants and higher energy e ciency levels.

Government Ini a ves

Some of the other recent government ini a ves in this sectorare as follows:

• Government introduced Steel Scrap Recycling Policy aimed to reduce import.

• An export duty of 30 per cent has been levied on iron ore (lumps and fines) to ensure supply to domes c steel industry.

• Government of Indias focus on infrastructure and restar ng road projects is aiding the boost in demand for steel. Also, further likely accelera on in rural economy and infrastructure is expected to lead to growth in demand for steel.

• The Union Cabinet, Government of India has approved the Na onal Steel Policy (NSP) 2017, as it seeks to create a globally compe ve steel industry in India. NSP 2017 envisages 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consump on by 2030-31.

• The Ministry of Steel is facilita ng se ng up of an industry driven Steel Research and Technology Mission of India (SRTMI) in associa on with the public and private sector steel companies to spearhead research and development ac vi es in the iron and steel industry at an ini al corpus of Rs. 200 crore (US$ 30 million).

• The Government of India raised import duty on most steel items twice, each me by 2.5 per cent and imposed measures including an -dumping and safeguard du es on iron and steel items.

Na onal Steel Policy 2017

The new Steel Policy enshrines the long term vision of the Government to give impetus to the steel sector. It seeks to enhance domes c steel consump on and ensure high quality steel produc on and create a technologically advanced and globally compe ve steel industry.

The Na onal Steel Policy, 2017, has envisaged 300 million tonnes of produc on capacity by 2030-31. The per capita consump on of steel has increased from 57.6 kg to 74.1 kg during the last five years.

Key features of the NSP 2017:

1. Create self-su ciency in steel produc on by providing policy support & guidance to private manufacturers, MSME steel producers, CPSEs.

2. Encourage adequate capacity addi ons.

3. Development of globally compe ve steel manufacturing capabili es.

4. Cost-e cient produc on.

5. Domes c availability of iron ore, coking coal & natural gas.

6. Facilita ng foreign investment.

7. Asset acquisi ons of raw materials &

8. Enhancing the domes c steel demand.

Huge scope for growth is o ered by Indias compara vely low per capita steel consump on and the expected rise in consump on due to increased infrastructure construc on and the thriving automobile and railways sectors.


I. Demand Growth:

Power and Cement industries in India will aid the growth in the metals and mining sector. Increase in iron and steel demand will also benefit the sector.

II. A rac ve Opportuni es:

The Ministry of Steel, government of India aims to more than double the steel produc on capacity to 300 million tonnes by 2030-31, indica ng new opportuni es in the sector.

III. Policy Support:

100 % FDI allowed in the mining sector and explora on of metal and non-metal ores under the Automa c Route.

IV. Compe ve Advantage:

India benefits from strategic loca on that enables convenient exports to developed as well as the fast developing Asian markets. It also has a fair produc on and conversion cost advantage in steel and alumina.

Rise in infrastructure development and automo ve produc on are driving growth in the sector. Power and cement industries are also aiding growth in the metals and mining sector. Demand for iron and steel is set to con nue, given the strong growth expecta ons for the residen al and commercial building industry.

We, at Gallan Ispat, has the following produc on data of the Fiscal 2019-20 under the Steel Segment:

Steel Segment products wise Produc on (in MT)
Sponge Iron (M.T.) 2,69,635
M.S. Billets (M.T.) 2,79,076
M.S. Round Bar & Miss Rolled 2,74,392
Bar (M.T.)
Wheat Products (M.T.) 44,745
Power Genera on (KWH) 25,83,30,603

Agro Industry (Wheat Products)

The Indian food industry is poised for huge growth, increasing its contribu on to world food trade every year due to its immense poten al for value addi on, par cularly within the food processing industry. Indian food and grocery market is the worlds sixth largest, with retail contribu ng 70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the countrys total food market, one of the largest industries in India and is ranked fi h in terms of produc on, consump on, export and expected growth.

Market Size

During 2019-20 crop year, food grain produc on was es mated to reach a record 295.67 million tonnes (MT). In 2020-21, Government of India is targe ng food grain produc on of 298 MT.Produc on of hor culture crops in India was es mated at a record 320.48 million metric tonnes (MMT) in FY20 as per second advance es mates. India has the largest livestock popula on of around 535.78 million, which translates to around 31 per cent of the world popula on. Milk produc on in the country is expected to increase to 208 MT in FY21 from 198 MT in FY20, registering a growth of 10 per cent y-o-y.

India is among the 15 leading exporters of agricultural products in the world. Agricultural export from India reached US$ 38.54 billion in FY19 and US$ 28.93 billion in FY20 (ll January 2020).

We expect therefore that the Agro business will con nue to show strong momentum driven by new markets entering these categories. Key to capturing the benefits of this economic growth will be on the one hand distribu on capabili es to reach out to consumers across the region of U ar Pradesh and nearby states and on the other a low cost structure in terms of Capital and Opera ng Costs.

The Government of India came out with Transport and Marke ng Assistance (TMA) scheme to provide financial assistance for transport and marke ng of agriculture products in order to boost agriculture exports. Further, The Agriculture Export Policy, 2018 was approved by the Government of India in December 2018. The new policy aimed to increase Indias agricultural export to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime.

India is expected to achieve the ambi ous goal of doubling farm income by 2022. The agriculture sector in India is expected to generate be er momentum in the next few years due to increased investments in agricultural infrastructure such as irriga on facili es, warehousing and cold storage. Furthermore, the growing use of gene cally modified crops will likely improve the yield for Indian farmers. India is expected to be self-su cient in pulses in the coming few years due to concerted e orts of scien sts to get early maturing varie es of pulses and the increase in minimum support price.

We, at Gallan Ispat, has the following produc on data of the Fiscal 2019-20 under the Agro Segment:

Agro Segment products wise Produc on (in MT)
Maida (refined wheat flour) 27,950
Suji (Semolina) 6,575
A a (Flour) 1,924
Choker (Wheat Bran) 8,295


With several backward and forward linkages in place, several factors catalyse the demand in the steel industry. Tradi onally, construc on, infrastructure, automobiles and consumer durable sectors generate steel demand, while the availability of raw materials and workforce have an impact on the produc on. During FY 2020, Indian steel manufacturers con nued to face the challenges of imported steel due to elevated level of imports from Japan and South Korea, besides reduced demand from the automobile and its ancillary sectors. However, the government is working towards bolstering Indias steel industry by direct and indirect policy s muli that are expected to increase demand (mul million-dollar NIP and fresh investment in power, railways, and water, coupled with renewed interest in the automobile sector) and reduced imports. Indias domes c steel industry is especially vulnerable to cheaper imports and demand fluctua on. The slump in domes c steel consump on and decrease in investment across sectors have a ected the overall growth and profitability of the steel industry. The current wave of protec onism and trade wars is further impac ng the industry.

As India works towards becoming a manufacturing powerhouse through policy ini a ves like Make in India, the steel industry has emerged as a major focus area given the dependence of a plethora of sectors on its output. India is currently the worlds second largest producer of steel and is set to become the second largest consumer of steel, with the industry contribu ng about 2% of the countrys GDP. The industry has the poten al to help India regain its posi ve trade balance in steel as well as to drive the countrys export manufacturing capabili es. The Governments con nued focus on infrastructure crea on, manufacturing and rural development is expected to lead to an accelerated momentum in the investment cycle and steel demand. The main factors that lead to a significant increase in demand for steel are new infrastructure developments and the growing needs of the increasing middle class in India specially in U ar Pradesh, Bihar, Jharkhand and Delhi. The construc on, automobile and manufacturing sectors will a ract a high demand for steel over the next decade.

The renewed importance given by Government on a ordable housing, roads, sagarmala projects and other infrastructure projects are expected to create steel demand, this will augur well for steel industry also.

Threats and Risks Covid-19

The outbreak of the deadly Covid-19 pandemic, followed bythe lockdown in the country has adversely a ected the business opera ons of the Company. Due to the rapid spread of the Covid - 19 in the Country, the health of the employees and workers of the Company has become priority of the Company over the business opera ons. This unproduc ve lockdown is resul ng inthe financial burden for the Company. The depressed market condi ons due to Covid - 19 have further resulted in decrease in manpower requirement resul ng in idling of work force.

The availability of raw material at right price remains a concern for the steel sector and then there is the threat of cheap dumping from China, say experts and industry players. The government, however, is keeping a brave face and its focus areas for the New Year include increasing per capital steel consump on, finding new markets for India-made steel and a shi in the industrys a en on towards produc on of special steel.

Indias steel industry is going through an acute shortage of labour that threatens to bring it to a halt. Apart from the labour issue, a slump in demand for the product and squeeze in the supply of a key raw material has added to the woes. The supply of coal, a key raw material has also su ered because South Africa - one of the biggest sources, is itself going through a lockdown.


Major Product-wise Turnover

FY 2019-2020

FY 2018-19

Qty Rs. In Lacs Qty Rs. In Lacs
(MT/Unit) (MT/Unit)
Agro (MT) 44,362 9,933.13 52,413.02 11,549.06
Steel (MT)* 2,88,925 91,353.61 2,71,140.93 1,10,599.97
Power (Unit) 25,83,30,603 16,661.54 26,70,65,508 19,961.21
Real Estate - 723.41 - 778.04
Un-allocable - 3,609.14 - 204.50

*Company has Integrated Steel Plant facili es at Sahjanwa, Gorakhpur. Being an Integrated Steel Plant, Company, during the manufacturing process of end products TMT Bars also manufactures Sponge Iron, Billets etc.


Indias steel consump on growth is expected to rise over the medium to long term on account of government expenditure on infrastructure and fiscal s mulus to manufacturing industries. Further, the country is looking to modernise, expand and accommodate the aspira ons of a growing popula on where industrialisa on, urbanisa on and access to technology are the key pillars of the economic growth.

Since, Infrastructure has linkages to other industries like cement, brick and steel through backward and forward linkages. The outlook for the industry looks reasonable, since India has good iron ore deposits, skilled manpower and growing demand for steel. The improved demand is expected to con nue in the current fiscal as well on the back of ongoing government funded infrastructure projects. In spite of a downturn in the Global Steel demand, Indian steel demand could survive showing an upward trend, se ng a road ahead for the growth of the domes c steel industry in the long run. The upward trend is expected to be con nued on account of fiscal measures taken by the Government such as infusion of funds for development of infrastructure sector, introduc on of s mulus packages for revival of industry besides factors like increase in consump on and produc on of steel, upcoming infrastructure and Greenfield projects, stabiliza on of prices etc. The Na onal Steel Policy has a target for taking Indian Steel produc on upto 110 MT by 2019-20.


Availability of Raw materials like Iron Ore, Coal etc. at a compe ve cost is the main area of concern for the Company. High cost of iron ore and coal impac ng the EBITDA margin. Availability and cost of required grade of Iron ore are impacted by Global movement and parity of landed cost considering price, freight, tari and exchange rates and also Domes c demand-supply gap, constraints and vendor ac ons. All these concern as well as Government policies and their impact on raw materials availability are being tracked regularly.

Global economic uncertain es have a ected Indias economy, Key risks synonymous to industry include the global recessionary trend, economic slowdown, increase in financial charges, non-availability (or undue increase in cost) of raw materials, such as, iron ore, coal and labour etc., coupled with market fluctua ons. The Company does not apprehend any inherent risk in the long run, with the excep on of certain primary concerns that have a icted the progress of our industry in general, like:

• Shortage of Labour

• Rising manpower and material costs

• Approvals and procedural di cul es

• Lack of adequate sources of finance.

Apart from this Industry is highly labour intensive and is subject to stringent labour laws. The swings on commodity prices, the vola lity of several currencies across the world, the economic condi ons of countries where our suppliers and buyers operate from and inter-country trade issues are some of the uncertain es that we face frequently. The company mi gates these risks by mely managerial interven on and by carefully to put in place robust risk mi ga on strategies and incorporate agility in opera ons to meet temporary headwinds and create opportuni es of growth.

Since steel and agro business is a highly compe ve market, the Company is prone to risks from price sensi ve markets, geographic dependencies and limited customer segments.

The Company tries to counter these risks by forging long term rela onships with buyers of products of the Company that again results from mee ng end users expecta ons consistently.


The Company has adequate internal controls commensurate with the nature of its business and size of its opera ons, to e ec vely provide for the safety of its assets, reliability of financial transac ons with adequate checks and balances, adherence to applicable statutes, accoun ng policies, approval procedures and to ensure op mum use of available resources. These systems are reviewed and improved regularly.

The Company has a comprehensive budgetary control system to monitor revenue and expenditure against approved budget on an ongoing basis. The Audit commi ee of Board of Directors on regular intervals and in co-ordina on with internal and statutory Auditors reviews the adequacy of internal control systems within the company.


The Revenue from Opera ons for the current year is

Rs. 1,02,010.15 Lacs as compared to Rs. 1, 22,927.06 Lacs in the previous year. The Profit before Tax for the year under review is Rs. 6,488.19 Lacs as against Rs. 16,631.38 Lacs in the previous year. Profit a er Tax during FY 2019-20 stood at

Rs.5,812.42 Lacs as against Rs.13,022.04 Lacs in the previous year.

Compara ve chart of Segment wise Revenue and Profits are as under:

2020 2019 % Changes
Agro 9,933.13 11,549.06 -13.99
Steel 91,353.61 1,10,599.97 -17.40
Power 16,661.54 19,961.21 -16.53
Real Estate 723.41 778.04 -7.02
Unallocated 3,609.14 204.50 1,664.86
2020 2019 % Changes
Agro 542.79 491.82 10.36
Steel 635.31 1,951.93 -67.45
Power 5,831.13 4,306.78 35.39
Real Estate 661.25 903.58 -26.82
Unallocated - - -


We believe that our intellectual capital is the true asset of our business and losing them could have an adverse e ect on the Companys performance. At Gallan Ispat, we believe that to ensure skill development and to be able to face major challenges, we need teams who deliver and whoare mo vated. Our human capital is our greatest tool for shaping the future of the Company and isalso cri cal for our smooth func oning. Discovering talented people and retaining them is the key aim of our HR policy. Our people are our greatest strength as a company and the bedrock of our organiza on. Thats why our highest priority is to provide a rewarding workplace thats safe, welcoming, and suppor ve of professional development. Employees work with great zeal with the feeling in mind that the interest of employer and employees is one and the same, i.e. to increase produc on. Every worker feels that he is a co-owner of the gains of industry. The employer in his turn must realize that the gains of industry are not for him along but they should be shared equally and generously with his workers.

Companys Learning and Development Programs cater to a wide variety of employee profiles addressing Sales and Marke ng, Manufacturing and Leadership. Our company enjoys the support of commi ed and well sa sfied human capital. The manpower strength of the Company as on 31st March 2020 was 1,453 permanent employees including Execu ve Directors, Chief Execu ve O cer, Chief Financial

O cer, Company Secretary and other management sta across di erent loca ons.

The Company maintained harmonious industrial rela ons in all units of the Company during the financial year 2019-20.


During the year, the significant changes in the financial ra os, compared to the previous year which are more than 25% as compared to the previous year, are summarised below:

Financial Ra o FY 2019 20 FY 2018-19 Change (%) Reason for change
Debtors Turnover 17.16 19.48 -11.91% -
Inventory Turnover 8.01 8.01 -0.01% -
Interest Coverage Ra o 6.56 18.18 -63.90% Opera ng profit decreased during the year due to sluggish market situa on and overall subdued performance of steel Industry.
Current Ra o 2.68 3.15 -14.90% -
Debt Equity Ra o 0.36 0.37 -2.92% -
Opera ng Profit Margin (%) 9.51 13.19 -27.86% Opera ng profit decreased during the year due to sluggish market situa on and overall subdued performance of steel Industry.
Net Profit Margin (%) 5.51 10.58 -47.88% Net profit decreased during the year due to sluggish market situa on and overall subdued performance of steel Industry.
Return on Net Worth 0.07 0.17 -58.42% Opera ng profit decreased during the year due to sluggish market situa on and overall subdued performance of steel Industry.


Certain Statements in the Management Discussion and Analysis describing your Companys view about the Industry, objec ves and expecta ons, etc. may be considered as ‘forward-looking statements within the meaning of applicable laws and regula ons. Actual results may di er substan ally or materially from those expressed or implied in the statement. Your Companys opera ons may be a ected by supply and demand situa on, input prices and their availability, changes in Government regula ons, tax laws and other factors such as Industrial rela ons and economic developments, etc. Investors should bear the above in mind. The Company assumes no responsibility to publicly update, amend, modify or revise any forward-looking statements, based on any subsequent development, new informa on or future events or otherwise except as required by applicable law.

Date: June 29, 2020 Place: Gorakhpur

On behalf of the Board

C. P. Agrawal