Gallantt Metal Ltd Management Discussions.

Forming Part of the Report of the Directors for the year ended 31st March, 2018

OVERVIEW OF THE ECONOMIC ENVIRONMENT:

Global economic growth to edge up to 3.1 percent in 2018 after a much stronger-than-expected 2017, as the recovery in investment, manufacturing, and trade continues, and as commodity-exporting developing economies benefit from firming commodity prices. However, this is largely seen as a short-term upswing. Over the longer term, slowing potential growth—a measure of how fast an economy can expand when labor and capital are fully employed—puts at risk gains in improving living standards and reducing poverty around the world.

Growth in advanced economies is expected to moderate slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation and as an upturn in investment levels off. Growth in emerging market and developing economies as a whole is projected to strengthen to 4.5 percent in 2018, as activity in commodity exporters continues to recover. The slowdown in potential growth is the result of years of softening productivity growth, weak investment, and the aging of the global labor force. The deceleration is widespread, affecting economies that account for more than 65 percent of global GDP. Without efforts to revitalize potential growth, the decline may extend into

the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period.

Indian economy have a growth on Domestic Product (GDP) is on a recovery path after slowdown in the first quarter of 2017-18, and real GDP growth for the second quarter (2QFY18) increased to 6.3% from 5.7% in the previous quarter, a likely fallout of the introduction of GST. The second half of 2017-18 will witness a higher growth rate, and this is further expected to consolidate in the coming New Year, as the benefits of GST and other reforms gain traction.

If we talk about sectoral growth of Indian economy, so the agricultural sector registered moderate growth as erratic monsoon in several parts and flooding in some states impacted performance.

On the other hand, Industrial growth accelerated sharply during the second quarter of FY 2018 and jumped to 6.9% from 1.5% in the previous quarter, on account of a sharp increase in manufacturing and electricity, gas, water supply and utility services. Manufacturing registered an impressive growth at 7% in 2QFY18 as compared to 1.2% posted in the first quarter.

Services sector grew only marginally at 6.6% in the second quarter as compared to 7.8% in the previous quarter.

Agriculture (y-o-y,%)

02 03 04 01 02
FY 17 FY 18

Industry (y-o-y,%)

02 03 04 01 02
FY 17 FY 18

Services (y-o-y,%)

7.4 7.8

02 03 04 01 02
FY 17 FY 18

The impact of GST on prices is likely to become clearer in the coming year as the teething problems related to its implementation ease out. Further, the GST Councils decision to cut tax rates on 177 items is also expected to partially ease the inflationary pressure, as the companies start passing the benefits of lower prices to consumers.

The Reserve Bank of India (RBI) kept policy rates unchanged in its fifth bi-monthly monetary policy meeting on 6th December, 2017. However, industry is

hopeful that going forward, RBI would lower interest rates to boost broad-based investment and consumption activity which in turn would promote economic growth.

INDUSTRY OVERVIEW:

A more balanced market and continuation on the pathway to eliminating overcapacity should support profitability in the global steel sector. Infrastructure investment, improving European demand and sustained economic growth in the rest of the world are the main drivers. Cyclical recovery continues to underpin

growth, yet world steel demand growth will slow, to +1.6% y/y from +2.8% in 2017, due to slowing growth in China (environmental restrictions, policy induced restructuring of the economy).

Excluding China, the World Steel Association forecasts demand growth of +3% y/y for 2018. Europe is the strongest region in terms of demand growth with +5.2% y/y. Global steel output increased by +5.3% in 2017, principally on the back of strong growth in China. Even though, average capacity utilisation has improved in 2017, it still stands below 70%. Overcapacity, exacerbated by slowing Chinese demand, remains the principle challenge of the sector. Iron ore may slip back into oversupply as transitory demand switch between grades reverses.

Other metals have seen prices increase on the back of strong demand, notably copper, nickel, lithium and cobalt, the latter ones particularly prospects for batteries and electronics. Restraint on supply expansion is likely to lead to a continuation of demand growth exceeding incremental supply. Strong balance sheets and cash flows could drive M&A in the sector. However, we note risk in relation to the correlation with other sectors, notably construction in China, chiefly for copper.

The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry. The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude steel capacity is resident with integrated steel producers (ISP).

The steel sector contributes near 2% to the GDP of the nation and provides 20 lakh jobs in the country. In FY17-18, Indias crude steel output grew 5.87% year-on- year to 101.227 million tonnes (MT) in C.Y. 2017.crude steel production reached on 93.183 (MT) during April- February 2017-18.

Indias finished steel exports rose 102.1% to 8.24 (MT), while imports fell by 36.6% to 7.42 (MT) in 2016-17. Exports and imports of iron and steel stood at 14.6 (MT) and 13.1 (MT) during April to February 2017-18, respectively.

Total consumption of finished steel stood at 81.943 (MT) during April-February 2017-18.

Steel prices are now increasingly aligning to global export prices as markets strike a balance between imports and domestic demand. Chinas waning demand and resultant rise in exports poses a risk to leveraging improving domestic demand in South Asia and Europe. Further, movement of currencies against the US dollar

would also have a significant impact on the movement of global steel and raw material prices.

OPPORTUNITIES AND THREATS:

The Company has ample scope for commencing & executing its second phase expansion with its own

resources & funds from markets. The availability of surplus alumina with your Company has put it altogether in a different platform and offers attractive opportunities for participating in the JVs of overseas smelters. The continuation of second generation liberalisation process and the ongoing globalisation trend is likely to bring ample opportunities for the company in playing a key role in metal trading, hedging, tolling, technology collaboration and in redefining new areas for application of its value added rolled products and chemical business.

The threat perceptions for the company include possible worsening of geopolitical scenario across the globe, political instability, great volatility in international prices, terrorism, slowdown of demand in China, reversal in global economic scenario and levy of antidumping duties on its raw material import.

RISK AND CONCERNS:

The prime risk lies in possible international disturbances and sudden appearance of unhealthy trends in the global scenario arising out of political uncertainty in global context. Apart from this, probability of imposition of antidumping duties on its imported raw material and its cost fluctuations add to the existing concern. However, The Company enjoys a natural hedge against these concerns as it has technological edge coupled with professional approach. The cost of iron ore and coal constitute more than 80% of cost of production. Therefore, the profitability of the Company depends on market price of these raw materials. The sure way to substantially reduce the cost of iron ore and coal is to have ownership of these raw materials. The company does not have any iron ore or coal mine and sources all of it from market. The road transportation cost, both for iron ore and coal, is steadily going up over the time. Global warming and climate change have been recognized by the company as serious concerns. Increase in competition, increase in interest rates, inflation, fluctuating markets etc. are area of concern for the Companies.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUECY:

The Company has well established internal control system commensurate with the size of the Company. Purchase Manual and Contract Manual have been updated. The Company has entrusted the jobs of internal audit to outside professional accounting firms. The internal audit reports are discussed thoroughly by an independent Audit Committee constituted by the

Board. The vigilance department of your Company has taken several preventive steps in controlling corruption in the Company. Company has always adhered to the highest standards of compliance and governance and has put in place controls and an appropriate structure to ensure this. The Audit Committee of the Board also reviews the performance of the audit and compliance functions and reviews the effectiveness of controls and compliance with regulatory guidelines.

OUTLOOK FOR THE FUTURE:

Your Company expects that the current up-healthy trend in the economy shall continue in the coming days and

Indian industry as a whole is expected to perform well. With consistent track record in capacity utilisation, quality management, it has gained customers confidence. It is anticipated that LME prices for metals will remain steady in the coming years.

Your Companys future strategic growth plans include further expansion of their capacities. Its strategic plans are also directed towards meaningful utilisation of resources and full capacity utilisation of existing units with proactive financial management and with thrust

on human resource development. The Company has major plans to enter the market in a big way in the coming year to market its value-added products like rolled products, specialty alumina in the domestic and international markets.

CAUTIONERY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities 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 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.

On behalf of the Board

Place: Gorakhpur

C. P. Agrawal

Date: August 11, 2018

Chairman