Gallantt Ispat Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT Forming part of the Report of the Directors for the year ended 31st March, 2021


FY 2020-21 has been an unprecedented year in modem times, with the COVID-19 pandemic impacting human life extensively across the globe. In 2020, the world experienced a crisis like no other and it is expected to continue in 2021. Its impact on the economic front, too, has been significant. The slowdown across economies witnessed in 2019 exacerbated further in 2020 by the shock delivered by the pandemic. As a result, the global GDP is believed to have contracted by ~3.3% in 2020, with all major economics moving into negative territory. China was the only exception amongst the major economies to have posted a positive growth in 2020, albeit at a much lower rate of 2.3%. The pandemic has caused heavy toll on life and livelihood and pushed millions into poverty. This may impact economic activities and the income level for some time. Assuming success of the vaccine rollout, the World Bank indicated that the global economy will expand by 4% in 2021. However, the latest surge of Covid-19 infection in the leading economies may dent the expansion to some extent.

The economic upheaval could have been much more severe had it not been for the quick and synchronised response from central banks and governments globally, although this too varied across countries. The increase in balance sheet sizes of almost all central banks and the supportive measures undertaken by governments globally ensured easy availability of funding and support for both private and public consumption. This support has been instrumental in the progressive recovery seen in the last two quarters of the calendar year as compared to the significant contractions observed in the first two quarters. The sequential recovery in global trade coupled with the easy liquidity conditions have also led to a sharp rise incommodity prices, especially in the last quarter of FY 2019-20. This has been further aggravated by large- scale disruptions in the global supply chain, with shipping line capacities and container availability posing a major challenge.

The steel industry (excluding China) also witnessed a significant decline in production and demand during the first half of 2020. However, an almost equally stronger recovery has been witnessed in the second half of the year. According to World Steel Association (WSA), global crude steel production reached 1,864 million tonnes in 2020, down by 0.9% as compared to 2019. China has produced 1,053 million tonnes of crude steel in 2020, up by 5.2% over 2019. Chinas share of global crude steel production has also increased from 53.3% in 2019 to 56.5% in 2020. Global steel demand has also seen only a minor contraction of ~0.2% in 2020 due to a very strong recovery in China during H1 (Half-Year) 2020 and a better than expected rebound in the rest of the world during H2 (Half-Year) 2020.


The pandemic hit the economy when the growth was declining. The Government action on managing the pandemic as well as the economy helped to arrest the degrowth to 9.6% for the financial year (FY) 2020-21. This is a significant improvement considering 23.9% shrinkage recorded in GDP for April-June quarter. Considering positive sentiments of the last two quarters of FY 202021, the World Bank estimates that the Indian economy will recover by 5.4% in FY 2021-22. However, the surge in Covid-19 positive cases and the death toll starting April 2021 may slow down the economy to some extent and may adversely impact the forecast growth.

However, India has witnessed a gradual resumption of economic activity from Q2 FY 2021 onwards. The initial recovery was driven by government spending on infrastructure, exports and rural economy. The recovery has gained momentum since August 2020 with pickup in consumption demand driven by festive buying and return of urban consumption resulting in GDP growth of 0.4% in Q3 FY 2021. Despite this recovery, India is estimated to see a contraction of ~8% in the annual GDP of FY 2021 due to sharp fall seen in H1 FY 2021.

Indias steel industry has also suffered from production losses due to lockdown in Q1 FY 2021 and recovered gradually since then, initially drivenby exports followed by gradual recovery in domestic demand. A strong rebound in manufacturing and infrastructure development activity during H2 FY 2021 has led to a sharp rise in both production and consumption of steel in India. According to the Joint Plant Committee, Indias crude steel production has reached ~92 million tonnes during the period April 2021 to February 2022 and is estimated to reach 103 million tonnes by end of FY 2021, registering a decline of ~5.5% over the last year. Indias finished steel demand is estimated to be ~93 million tonnes for FY 2021 as against ~100 million tonnes in FY 2020, a drop of ~7%.


Disruption on both demand and supply resulted in global steel demand in 2020 to fall by 0.2% against a growth of 3.7% in 2019. The total demand in 2020 was 1,772 MnT against 1,775 MnT in 2019. The impact of COVID-19 has been much more benign for the steel industry due to resurgent demand in China and better than expected post lockdown recovery globally in second half of 2020. China and Turkey were two key countries that saw an increase in finished steel demand of 9% and 13% respectively in 2020. North America and the European Union (EU) have experienced strong decline in steel demand owing to the COVID-19 pandemic. Both regions experienced demand decline of around 11%-16%. India also contributed to global decline, as steel consumption in India declined by 13.7% to 88.5 MnT in 2020 against 102.6 MnT in 2019.

The Steel pricing scenario has remained buoyant since Q4 FY 2020-21, which has seen highs not witnessed in over a decade. In CY 2020, average global steel price was about US$582/tonne. However, as CY 2021 commenced, average price in the first five months jumped to US$883/tonne. China, the largest steel making country, is limiting production, restricted exports, encouraging import of semi-finished steel and is focusing on domestic consumption. This means that excessive supply and dumping experienced earlier from China are expected to be under control. Similarly, across the world, the under investment for past several years on infrastructure is now an opportunity to stimulate economic activity with huge spending on infrastructure through massive fiscal stimulus. This presents a case for sustained and growing demand. However, on the supply side the increase is not proportionate, with rising scrutiny on Environmental, Social and Governance (ESG) aspects. In light of this, steel demand and pricing are expected to remain firm in the near-to-medium-term, with bouts of short-term corrections.

Indian Steel Industry

Indias steel industry has also suffered the production loss due to lockdown last year and recovered gradually since then, initially driven by export followed by gradual recovery in domestic demand. Strong rebound in manufacturing and infrastructure development activity has led to a sharp rise in both production and consumption of steel in India. In 2021, Indias steel demand is expected to grow by 20% over 2020, taking the demand higher than the pre-pandemic level of 103 MnT, driven by strong infrastructure spending and sustained demand of automotive and consumer durables.

Government focus on strengthening the domestic manufacturing base under the Atmanirbhar Bharat program presents a strong opportunity for steel consumption in India. The production linked incentive scheme, which intends to incentivise the additional production in India, is expected to boost steel demand in automobile & auto components, consumer durables, solar equipment, telecom,etc.

As a matter of pride, the Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernisation and up-gradation of older plants and higher energy efficiency levels.

Government Initiatives

Some of the other recent Government initiatives in this sector are as follows:

• Under the Union Budget 2020-21, the government allocated Rs. 39.25 crore (US$ 5.4 million) to the Ministry of Steel.

• In January 2021, the Ministry of Steel, Government of India, signed a Memorandum of Cooperation (MoC) with the Ministry of Economy, Trade and Industry, Government of Japan, to boost the steel sector through joint activities under the framework of India— Japan Steel Dialogue.

• In December 2020, the Minister for Petroleum & Natural Gas and Steel, Mr. Dharmendra Pradhan, has appealed to the scientific community to Innovate for India and create competitive advantages to make India Aatmanirbhar.

• In September 2020, the Ministry of Steel prepared a draft framework policy for development of steel clusters in the country.

• On October 1, 2020, Directorate General of Foreign Trade (DGFT) announced that steel manufacturers in the country can avail duty drawback benefits on steel supplied through their service centres, distributors, dealers and stock yards.

• Government introduced Steel Scrap Recycling Policy to reduce import.

• An export duty of 30% has been levied on iron are (lumps and fines) to ensure supply to domestic steel industry.

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

• The Union Cabinet, Government of India approved the National Steel Policy (NSP) 2017, as it intend to create a globally competitive steel industry in India. NSP 2017 envisage 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030-31.

• The Ministry of Steel is facilitating setting up of an industry driven Steel Research and Technology Mission of India (SRTMI) in association with the public and private sector steel companies to spearhead research and development activities in the iron and steel industry at an initial corpus of Rs 200 crore (US$ 30 million).

• The Government of India raised import duty on most steel items twice, each time by 2.5% and imposed measures including anti-dumping and safeguard duties on iron and steel items.

National 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 domestic steel consumption and ensure high quality steel production and create a technologically advanced and globally competitive steel industry.

The National Steel Policy, 2017, has envisaged 300 million tonnes of production capacity by 2030-31. The per capita consumption 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-sufficiency in steel production by providing policy support & guidance to private manufacturers, MSME steel producers, CPSEs.

2. Encourage adequate capacity additions.

3. Development of globally competitive steel manufacturing capabilities.

4. Cost-efficient production.

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

6. Facilitating foreign investment.

7. Asset acquisitions of raw materials &

8. Enhancing the domestic steel demand.

Huge scope for growth is offered by Indias comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.

We, at Gallantt Ispat, has the following production data of the Fiscal 2020-21 under the Steel Segment:

Steel Segment products wise Production (in MT)
Sponge Iron (M.T.) 2,32,001
M.S. Billets (M.T.) 2,61,135
M.S. Round Bar & Miss Rolled Bar (M.T.) 2,57,527
Wheat Products (M.T.) 51,731
Power Generation (KWH) 23,55,22,319

Agro Industry (Wheat Products)

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. Indian food and grocery market is the worlds sixth largest, with retail contributing 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 fifth in terms of production, consumption, export and expected growth.

"Indias Agricultural and Allied Activities sector has shown its resilience amid the adversities of Covid-19 induced lockdowns which is reflected in the sectors FY 2020-21 growth estimate of 2.3% compared to 4.3% in FY 2019-20. Agriculture remained the silver lining while contact-based services, manufacturing, construction were hit hardest and recovered steadily. Exports of agriculture and allied products recorded expansion. The share of the sector in Gross Value Added (GVA) of the country at current prices is 17.8% for FY 2019-20."

Agriculture and Input Industry

A World Bank research study estimated the impact of Covid-19 on Agriculture as (3.04)% and (1.5)% on Crop Protection [deviation from benchmark output measured in USD in %]. The report also estimates a modest growth of the crop protection market compared to previous year led by Asia and North America. The report also reflects the strong fiscal support to farmers by Governments led by the USA and followed by the European Union, China and India.

In the past, the agriculture productivity enhancement happened mostly with intensive use of the land already under cropping aided by improved farming practices, irrigation, improved varieties, modern inputs, etc. These trends are expected to continue to ensure that supplies match the increasing demand for agricultural produce in the near future.

On one hand there is high expectation from agriculture and its various stakeholders which includes regulators, consumers, food processors, retailers, etc. and on the other hand the farmer is facing increasing challenges such as climate change, soil health, evolving pest and disease incidences and ever-increasing pressure on resources such as land, water, labour, capital, etc. Volatility induced by geopolitical challenges and other environmental factors is further increasing the complexity of agriculture activities globally.

Agriculture inputs industry is continuously innovating to support the farmers to address these challenges to serve its stakeholders better. It can also be observed that the increasing role of digital not only brings efficiency to the operations of agriculture input players but also helps farmers to make informed decisions supported by big data and analytics.

We, at Gallantt Ispat, has the following production data of the Fiscal 2020-21 under the Agro Segment:

Agro Segment products wise Production (in MT)
Maida (refined wheat flour) 29,226.53
Suji (Semolina) 7,170.41
Atta (Flour) 2,799.24
Choker (Wheat Bran) 12,534.47


Government focus on strengthening the domestic manufacturing base under the Atmanirbhar Bharat program presents a strong opportunity for steel consumption in India. The production linked incentive scheme, which intends to incentivise the additional production in India, is expected to boost steel demand in automobile& auto components, consumer durables, solar equipment, telecom,etc.

The global construction industry is the worlds largest consumer of base metal commodities, including steel. TMT steel bars are one of the major significant steel products and are used as reinforcement bars in building the supportive frames of modern infrastructure. Growth in the global economy coupled with increasing rising per capita income is driving the global construction industry which will subsequently lead to the expansion of the global TMT steel bar market.

As the country transitions into an economic powerhouse, steel demand is poised to log a compound annual growth rate (CAGR) of 7-7.5% between fiscals 2022 and 2025. A large part of this growth will be spurred by the governments Rs 111 lakh crore National Infrastructure Pipeline initiative through fiscal 2025. Here, the governments initiatives on housing (Housing for All), roads (Bharatmala), ports (Sagarmala), railways (dedicated freight corridors, metros, and bullet train), and airports (Udaan) will provide impetus. The industry has the potential to help India regain its positive trade balance in steel as well as to drive the countrys export manufacturing capabilities. Mandatory road crash barriers on national highways, rising concretisation, use of pre-engineered buildings, design changes in urban housing (underground parking and bigger span) - all augur well for steel demand in the long term.

Threats and Risks Covid-19

The outbreak of the deadly Covid-19 pandemic, followed By the lockdown in the country has adversely affected the business operations 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 operations. This unproductive lockdown is resulting in the financial burden for the Company. The depressed market conditions due to Covid - 19 have further resulted in decrease in manpower requirement resulting in idling of work force.

Resurgence of infections leading to fresh lockdowns, both localized as well as at regional / national levels resulting in disruption in economic activity. Large dependence of the agricultural sector on monsoon. In the last 2 (two) years a normal monsoon has supported the growth in the agricultural sector. Slower recovery in services, which is the backbone of Indian economy.

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 consumption, finding new markets for India made steel and a shift in the industrys attention towards production 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 suffered because South Africa - one of the biggest sources, is itself going through a lockdown.


Major Product-wise Turnover

FY 2020-2021 FY 2019-20
Qty (MT/Unit) Rs In Lacs Qty (MT/Unit) Rs In Lacs
Agro (MT) 50,461 10,252.93 44,362 9,933.13
Steel (MT)* 2,60,685 99,461.41 2,88,925 91,353.61
Power (Unit) 23,55,22,319 10,709.20 25,83,30,603 16,661.54
Real Estate - - - 723.41
Un-allocable - 1,262.31 - 3,609.14

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


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 continue in the current fiscal as well on the back of ongoing government funded infrastructure projects. The domestic steel sector has witnessed a strong revival in third quarter of FY 2020-21 regaining the pre COVID-19 level because of a combination of factors such as strong retail demand emanating from a thriving rural economy, and green shoots of recovery in white goods and the automobile sector, especially from tractors, passenger vehicles and two-wheelers.

This spree of high demand is likely to continue in FY 22 backed by an uptick in the overall consumption; governments efforts to improve infrastructure, coupled with the Atmanirbhar Bharat policy and the Production Linked Incentive (PLI) initiative. Government route for investment on infrastructure and projects such as affordable housing, railway line, metro rail, shipbuilding, oil & gas distribution pipeline projects, etc., should boost steel consumption. Additionally, the governments focus on rural infrastructure projects will also give an impetus to the steel demand. The medium to long term outlook in the Products of the Company remains very encouraging.


Economic recession gripped global economy following the lockdowns and surge in infections due to the Covid-19 pandemic was sudden and unexpected. While India is facing a tough battle with the second wave, a potential third wave or other complications could again impact both the domestic and global economy. External factors such as government policies and rainfall could have a significant impact on sales of Steel Products.

Availability of Raw materials like Iron Ore, Coal etc. at a competitive cost is the main area of concern for the Company Any sharp hike in raw material costs arising out of geopolitical conflicts could stretch working capital requirements and increase short-term borrowings, impacting the Companys finance costs. Our profitability and cost effectiveness may be affected due to change in the prices of raw materials, power and other input costs. While we are typically able to pass on these costs to our customers with a slight lag. This risk is significant and is carefully monitoring.

Geopolitical conflicts and trade wars between major economies could impact global steel demand and production, leading to a decline in steel demand. Similarly, high cost of iron ore and coal impacting 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, tariff and exchange rates and also Domestic demand-supply gap, constraints and vendor actions. All these concern as well as Government policies and their impact on raw materials availability are being tracked regularly.

The Company does not apprehend any inherent risk in the long run, with the exception of certain primary concerns that have afflicted the progress of our industry in general, like:

• Shortage of Labour

• Rising manpower and material costs

• Approvals and procedural difficulties

• Lack of adequate sources of finance.


The Company has adequate internal controls commensurate with the nature of its business and size of its operations, to effectively provide for the safety of its assets, reliability of financial transactions with adequate checks and balances, adherence to applicable statutes, accounting policies, approval procedures and to ensure optimum 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 committee of Board of Directors on regular intervals and in coordination with internal and statutory Auditors reviews the adequacy of internal control systems within the company.


The Revenue from Operations for the current year is Rs 1,09,714.34 Lacs as compared to Rs 1,02,010.15 Lacs in the previous year. The Profit before Tax for the year under review is Rs 13,569.13 Lacs as against Rs 6,488.19 Lacs in the previous year. Profit after Tax during FY 2020-21 stood at Rs 10,366.30 Lacs as against Rs 5,812.42 Lacs in the previous year.

Comparative chart of Segment wise Revenue and Profits are as under:


(Rs In Lacs)

2021 2020 % Changes
Agro 10,252.93 9,933.13 3.22%
Steel 99,461.41 91,353.61 8.88%
Power 10,709.20 16,661.54 -35.73%
Real Estate - 723.41 -100.00
Unallocated 1,262.31 3,609.14 -65.02%


(Rs In Lacs)

2021 2020 % Changes
Agro 241.94 542.79 -55.43%
Steel 8,285.56 635.31 1,204.18%
Power 5,313.75 5,831.13 -8.87%
Real Estate - 661.25 -100.00%
Unallocated - - -


We believe that our intellectual capital is the true asset of our business and losing them could have an adverse effect on the Companys performance. At Gallantt Ispat, we believe that to ensure skill development and to be able to face major challenges, we need teams who deliver and who are motivated. Our human capital is our greatest tool for shaping the future of the Company and is also critical for our smooth functioning. 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 organization. Thats why our highest priority is to provide a rewarding workplace thats safe, welcoming, and supportive 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 production. 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.

The Company has established a robust Human Resources (HR) system that nurtures a high performing, conducive and inclusive work culture. It emphasises on the freedom to express views, competitive pay structure, performance- based reward system and growth opportunities and internal job opportunities, critical assignments within the organisation for career options for the employees. It has well-documented and disseminated employee- friendly policies to enhance transparency, create a sense of teamwork and trust among employees and align employee interests with organisational strategic goals. These appropriate policies assist in a holistic workplace environment and play a key role in right talent on- boarding, talent retention and leadership development.

The Company maintained harmonious industrial relations in all units of the Company during the financial year 2020-21.


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

Financial Ratio FY 2020- 21 FY 2019-20 Change (%) Reason for change
Debtors Turnover 24.09 17.16 40.38% Operating profit increased during the year and overall, very good performance of steel Industry.
Inventory Turnover 10.52 8.01 31.38% Operating profit increased during the year and overall, very good performance of steel Industry.
Interest Coverage Ratio 12.40 6.56 88.89% Operating profit increased during the year and overall, very good performance of steel Industry.
Current Ratio 1.92 2.68 -28.46% Demand of short-term loan. Operating profit increased during the year and overall, very good performance of steel Industry.
Debt Equity Ratio 0.42 0.36 16.22% -
Operating Profit Margin 15.33 9.51 61.14% Operating profit increased during the year and overall, very good performance of steel Industry.
Net Profit Margin 9.34 5.51 69.39% Better sales realisation and profitability. Also, Operating profit increased during the year and overall, very good performance of steel Industry.
Return on Net Worth 0.11 0.07 58.22% Better sales realisation and profitability. Also, Operating profit increased during the year and overall, very good performance of steel Industry.


Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward-looking statements within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include among others, climatic conditions, economic conditions affecting demand-supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors. The Company assumes no responsibility to publicly update, amend, modify or revise any forward-looking statements, based on any subsequent development, new information or future events or otherwise except as required by applicable law.

On behalf of the Board

Date: June 29, 2021 C. P. Agrawal
Place: Gorakhpur Chairman