gallantt metal ltd Management discussions

ECONOMY OVERVIEW AND DEVELOPMENT

Global economic shocks in the past were severe but spaced out in time. At least three shocks have hit the global economy since 2020. It all started with the pandemic- induced contraction of the global output, followed by the Russian-Ukraine conflict leading to a worldwide surge in inflation. Then, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation. The frailties of the Chinese economy further contributed to weakening the growth forecasts. Slowing global growth apart from monetary tightening also lead to a financial contagion emanating from the advanced economies where the debt of the non-financial sector has risen the most since the global financial crisis. With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.

The Indian economy, however, appears to have moved on after its encounter with the pandemic, staging a full recovery in financial year 2022 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in financial year 2023. Yet in the current year, India has also faced the challenge of reining in inflation that the European strife accentuated. Measures taken by the government and RBI, along with the easing of global commodity prices, have finally managed to bring retail inflation below the RBI upper tolerance target in November 2022. However, the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Fed. The widening of the CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year.

Despite these, agencies worldwide continue to project

India as the fastest-growing major economy at 6.5-7.0 % in financial year 2023. The worlds second-largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Vaccinations have facilitated the return of migrant workers to cities to work in construction sites as the rebound in consumption spilled over into the housing market. This is evident in the housing market witnessing a significant decline in inventory overhang to 33 months in Q3 of financial year 2023 from 42 months last year.

In the last century, several events can be recollected that have had an adverse impact on the global economy. The two world wars are still vivid in public memory, along with the Spanish flu and the great depression. Regional conflicts have been several, as also intermittent oil shocks. The previous millennium closed with the East Asian crisis, and the new millennium in its first decade opened with the technology burst, followed several years later by the global financial crisis. The second decade, apart from minor episodes of the taper tantrum and growing trade tensions between the super-powers, had gone relatively incident-free globally, although Europe had its moments of stress during the decade. Before the third decade of the new millennium commenced, incidents of global economic turbulence were generally spaced out, allowing economies breathing time to recover before preparing for the next challenge.

The Covid-19 pandemic (referred to as pandemic) notified by the WHO in January 2020 was the first challenge of the third decade that hit global growth. Two years later, as the global economy was recovering from the pandemic-induced output contraction, the Russia- Ukraine conflict broke out in February 2022, triggering a swing in commodity prices and, thus, accelerating existing inflationary pressures. This posed the second challenge. Soon after, the third challenge emerged when nations undertook monetary tightening to rein in inflation causing growth to weaken. Monetary tightening also drove capital flows to safe-haven US markets, contributed to rising sovereign bond yields, and depreciation of most currencies against the US dollar. The consequent increase in borrowing costs also stressed high levels of public and private debt, threatening the financial system. Faced with the prospects of global stagflation, nations, feeling compelled to protect their respective economic space, slowed cross-border trade, which posed the fourth challenge to growth. All along, the fifth challenge was festering as China experienced a considerable slowdown induced by its policies. The sixth medium-term challenge to growth was seen in the scarring from the pandemic brought in by the loss of education and income earning opportunities. A simultaneous occurrence of several challenges to growth is perhaps unprecedented. Like the rest of the world, India, too, faced this extraordinary

set of challenges but withstood them better than most economies.

In the last eleven months, the world economy has faced almost as many disruptions as caused by the pandemic in two years. The conflict caused the prices of critical commodities such as crude oil, natural gas, fertilisers, and wheat to soar. This strengthened the inflationary pressures that the global economic recovery had triggered, backed by massive fiscal stimuli and ultraaccommodative monetary policies undertaken to limit the output contraction in 2020. Inflation in Advanced Economies (AEs), which accounted for most of the global fiscal expansion and monetary easing, breached historical highs. Rising commodity prices also led to higher inflation in the Emerging Market Economies (EMEs), which otherwise were in the lower inflation zone by virtue of their governments undertaking a calibrated fiscal stimulus to address output contraction in 2020.

Latest World Economic Outlook Growth Projections

Particulars		Projections
	2022	2023	2024
World Output	3.4	2.8	3.0
Advanced economies	2.7	1.3	1.4
United States	2.1	1.6	1.1
Euro Area	3.5	0.8	1.4
UK	4.0	-0.3	1.0
Japan	1.1	1.3	1.0
Emerging Market Economies	4.0	3.9	4.2
China	3.0	5.2	4.5
India	6.8	5.9	6.3
Russia	-2.1	0.7	1.3

(Source - IMF, World Economic Outlook)

INDIAN ECONOMY

According to the Economic Survey, Indias economic growth in financial year 2023 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. Moreover, Worlds second- largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Still, private capex soon needs to take up the leadership role to put job creation on a fast track.

It also points out that the upside to Indias growth outlook arises from (i) limited health and economic

fallout for the rest of the world from the current surge in Covid-19 infections in China and, therefore, continued normalisation of supply chains; (ii) inflationary impulses from the reopening of Chinas economy turning out to be neither significant nor persistent; (iii) recessionary tendencies in major Advanced Economies (AEs) triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below 6%; and (iv) this leading to an improvement in animal spirits and providing further impetus to private sector investment.

The Survey says, the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been remarkably high, over 30.6%, on average during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union Government. It adds that the recovery of MSMEs is proceeding apace, as is evident in the amounts of Goods and Services Tax (GST) they pay, while the Emergency Credit Linked Guarantee Scheme (ECGLS) is easing their debt servicing concerns.

Apart from this, increase in the overall bank credit has also been influenced by the shift in borrowers funding choices from volatile bond markets, where yields have increased, and external commercial borrowings, where interest and hedging costs have increased, towards banks. If inflation declines in FY24 and if real cost of credit does not rise, then credit growth is likely to be brisk in FY24.

The Capital Expenditure (Capex) of the Central Government, which increased by 63.4 % in the first eight months of FY23, was another growth driver of the Indian economy in the current year, crowding in the private Capex since the January-March quarter of 2022. On current trend, it appears that the full years capital expenditure budget will be met. A sustained increase in private Capex is also imminent with the strengthening of the balance sheets of the Corporates and the consequent increase in credit financing it has been able to generate.

Dwelling on halt in construction activities during the Pandemic, the Survey underscores that vaccinations have facilitated the return of migrant workers to cities to work in construction sites as the rebound in consumption spilled over into the housing market. This is evident in the housing market witnessing a significant decline in inventory overhang to 33 months in Q3 of FY23 from 42 months last year.

It also says that the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been directly providing jobs in rural areas and indirectly creating opportunities for rural households to diversify their sources of income generation. Schemes like PM- Kisan and PM Garib Kalyan Yojana have helped in ensuring food security in the country, and their impact was also endorsed by the United Nations Development Programme (UNDP). The results of the National Family Health Survey (NFHS) also show improvement in rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate, household amenities, and women empowerment.

The Survey notes with optimism that Indian economy appears to have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to ascend to the prepandemic growth path in FY23. Yet in the current year, India has also faced the challenge of reining in inflation that the European strife accentuated. Measures taken by the government and RBI, along with the easing of global commodity prices, have finally managed to bring retail inflation below the RBI upper tolerance target in November 2022.

Although domestic consumption rebounded in many economies, the rebound in India was impressive for its scale. It contributed to a rise in domestic capacity utilisation. Domestic private consumption remains buoyant in November 2022. Moreover, RBIs most recent survey of consumer confidence released in December 2022 pointed to improving sentiment with respect to current and prospective employment and income conditions.

The Survey also points to another recovery and adds that the "release of pent-up demand" was reflected in the housing market too as demand for housing loans picked up. Consequently, housing inventories have declined, prices are firming up, and construction of new dwellings is picking up pace and this has stimulated innumerable backward and forward linkages that the construction sector is known to carry.The universalisation of vaccination coverage also has a significant role in lifting the housing market as, in its absence, the migrant workforce could not have returned to construct new dwellings.

Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget (Capex) of the Central Government and its public sector enterprises is rapidly being deployed.

Going by the Capex multiplier estimated for the country, the economic output of the country is set to increase by at least four times the amount of Capex. States, in aggregate, are also performing well with their Capex plans. Like the Central Government, States also have a larger capital budget supported by the Centres grant-in-aid for capital works and an interest-free loan repayable over 50 years.

Also, a capex thrust in the last two budgets of the Government of India was not an isolated initiative meant only to address the infrastructure gaps in the country. It was part of a strategic package aimed at crowding- in private investment into an economic landscape broadened by the vacation of non-strategic PSEs (disinvestment) and idling public sector assets.

Indias economic resilience can be seen in the domestic stimulus to growth seamlessly replacing the external stimuli. The growth of exports may have moderated in the second half of FY23. However, their surge in FY22 and the first half of FY23 induced a shift in the gears of the production processes from mild acceleration to cruise mode.

Manufacturing and investment activities consequently gained traction. By the time the growth of exports moderated, the rebound in domestic consumption had sufficiently matured to take forward the growth of Indias economy. Private Consumption as a percentage of GDP stood at 58.4% in Q2 of FY23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport, which registered sequential growth of 16% in real terms in Q2 of FY23 compared to the previous quarter.

Although domestic consumption rebounded in many economies, the rebound in India was impressive for

its scale. It contributed to a rise in domestic capacity utilisation. Domestic private consumption remains buoyant in November 2022. Moreover, RBIs most recent survey of consumer confidence released in December 2022 pointed to improving sentiment with respect to current and prospective employment and income conditions.

India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022.

In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1% Y-o-Y in RE 2022-23.

The Global commodity prices may have eased but are still higher compared to pre-conflict levels and they have further widened the CAD, already enlarged by Indias growth momentum. For FY23, India has sufficient forex reserves to finance the CAD and intervene in the forex market to manage volatility in the Indian rupee.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Global Steel Industry

According to The World Steel Outlook, in 2022, recovery momentum after the pandemic shock was hampered by high inflation and increasing interest rates, the Russian invasion of Ukraine, and the lockdowns in China. As a result, steel-using sectors activity went down in the last quarter of 2022. This, combined with the effect of stock adjustments, led to worse than expected contraction in steel demand.

Persistent inflation and high-interest rates in most economies will limit the recovery of steel demand in 2023, despite positive factors like Chinas reopening, Europes resilience in the face of the energy crisis, and the easing of supply chain bottlenecks. In 2024, demand growth is driven by regions outside China but faces global deceleration due to Chinas anticipated 0% growth, overshadowing the improved environment. Sustained inflation remains a downside risk, potentially keeping interest rates high.

As Chinas population declines and moves to consumption-driven growth, its contribution to global steel demand growth will lessen. Future global steel demand growth will rely on reduced drivers, primarily concentrated in Asia. Investments in decarbonisation and dynamic emerging economies will increasingly drive positive momentum for global steel demand, even as Chinas contribution to global growth diminishes"

India, however remained in a bright spot in the global steel industry in 2022. Having managed inflation well, the

Indian economy is on a healthy growth track, with a rising share of investment in GDP thanks to strong government spending on infrastructure. The residential sector is also expected to grow, backed by affordable housing projects and urban demand. Private investment is improving on the back of the Production Linked Investment (PLI) Schemes.

After suffering a sizable contraction in 2022 due to monetary tightening and high energy costs, steel demand in the developed economies is expected to increase by 1.3% in 2023 and 3.2% in 2024.

The European Union will continue to feel the impact of the Ukraine war in 2023 and will witness a rebound in steel demand in 2024.

In the US, growth in 2023-2024 is expected to be subdued by recessionary pressure, the outlook said, adding that the spillover from the recent SVB bankruptcy needs to be watched.

The US steel demand is expected to grow by 1.3% in 2023 and 2.5% in 2024. In Japan, demand is expected to increase by 4.0% in 2023 and 1.2% in 2024. South Korea will see demand rising by 2.9% this year and 2% in 2024.

Indian Steel Industry

According to the Indian Steel Association (ISA), Steel demand is expected to be 128.9 million tonnes during 2023-24, up from 119.9 million tonnes during the previous year.

Undoubtedly the steel sector in India is one of the fastest growing, in-demand and robust sectors. While the pandemic and global export/import circumstances did cause the sector to slow down for a while, recent development is bringing the sector back to its glory. Today, the Indian steel industry ranks second in global production.

The steel sector has benefited from Indias strong economic growth, and industries such as automotive and consumer durables are expected to fuel steel consumption.

The Indian steel industry outlook for 2023 looks promising with the country gearing to become a US $5 trillion economy by 2030 (or sooner). And as per market predictions and reports, the steel industry in India will play a pivotal role in steering India towards its goal.

With around 120 million tonnes of production, India is the worlds second largest producer of crude steel (after China). The distribution of iron and steel industry is spread across the states of Odisha, Jharkhand, Chhattisgarh, Karnataka, Maharashtra, West Bengal, and Gujarat, while the use of steel in construction, automotive, railways, capital goods and consumer durables, has been growing.

The domestic steel consumption growth rate in India is expected to be around 10-12% in FY2023. There is also a rise in investments in the infrastructure sector and support from the government to encourage the growth and outlook of the Indian steel industry.

According to predictions by the World Steel Association, the steel industry growth rate is estimated to be around 6.7% in 2023. After a slack period following the pandemic, the sector was able to revive in 2021-22 with global demand for steel rising.

The growth prospects and steel industry outlook in India

is favourable. Recent changes in export taxes and import duties on steel, complemented by the rising demand for affordable housing, infrastructure development and construction projects, has led to a pan-India need for steel metal. Moreover, the Governments initiative to make India self-sufficient has made room for sustainable urban development, construction of proposed logistics parks and industrial corridors - all adding to the meteoric demand for finished steel and steel as a raw material.

The iron and steel industry naturally will play a dominant role in bringing progress. Let us take a look at what are the growth prospects of the steel sector, the present outlook and future prospects of steel in India, and the multiple factors supporting and contributing to it.

Budget 2023-24: Announcements for the steel sector

In Budget 2023-34, though there were no specific funds for driving growth of the steel sector, there are several opportunities present in other industries that would directly boost the steel industry outlook.

Railways: The governments initiative to redevelop 50 + existing railway stations and the plan to provide a capital of ? 2.4 lakh crore to Railways is likely to scale the need for steel.

Logistics and Regional Connectivity: An investment of ? 75,000 crores including ? 15,000 crores from private sources is planned for 100 + critical transportation infrastructure projects that will connect ports, coal, steel, fertiliser, and food grain sectors across the first- and last-mile delivery network. This is expected to improve connectivity and transportation services across major points, in turn leading to a rise in demand for steel.

City development: Urban planning development projects will be undertaken to transform cities into sustainable cities. With the proposed ? 10,000 crores annual fund, the goal is to ramp up infrastructure development, especially in Tier II and Tier III cities. This is likely to witness a growth in steel demand, especially for steel girders in infrastructure and TMT steel bars in construction among others.

PM Awas Yojana: The budget also highlighted an outlay for Pradhan Mantri Awas Yojana - Urban (PMAY-U) that has been enhanced by 66% to over 79,000 crores. The mission addresses urban housing shortage among the economically weaker sector (EWS), lower-income group (LIG) and middle-income group (MIG). This will also create more opportunities for housing and hence additional demand for steel.

Recent developments in the steel sector

The Ministry of Steel signed 57 MoUs with 27 companies for specialty steel under the PLI scheme (Production Linked Incentive). Under the scheme the government has approved a sum of ? 6322 crores for steel sector growth. Apart from creating new jobs and contributing to making India the 3rd largest economy globally (by 2030-31), the scheme aims to create an additional capacity of 25 million tonnes of specialty steel in the next five years. ^•

• For focused production of value-added steel, collaboration between the 27 companies and the government is crucial

• Initiatives like Green Steel and Hydrogen Mission would enable low carbon emissions

• R&D, new product development, and best practices should be adopted across the steel sector

As can be seen from the recent events and Indian steel sector overview, theres a promising future for the steel sector in India.

A ?10 lakh crore capital expenditure plan was announced. The goal of this plan is to focus on domestically produced steel to make the nation self-reliant. The plan would also position India as a leading manufacturing hub and gradually scale the steel sectors contribution to Indias GDP from its current 2% to 5%.

As a raw material, the demand for steel has been steadily rising. Though there are often concerns about price hike and environmental factor, the benefits and applications of the metal are too many.

Key Factors for growth of the Indian Steel Industry Robust Demand

• Indias finished steel consumption is anticipated to increase to 230 million tonnes by 2030-31 from 133.596 million tonnes in FY22.

• As of December 2022, India was the worlds second- largest producer of crude steel, with an output of 124.5 million tonnes of crude steel and finished steel production of 117.6 million tonnes, in CY22.

Increasing Investments

• The industry is witnessing consolidation of players, which has led to investment by entities from other sectors. The ongoing consolidation also presents an opportunity to global players to enter the Indian market.

Policy Support

• In October 2021, the government announced guidelines for the approved specialty steel production-linked incentive (PLI) scheme.

• Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.6 million) to the Ministry of Steel.

Competitive Advantage

• In April-November 2022, the production of crude steel in India stood at 81.96 million tonnes.

• Easy availability of low-cost manpower and presence of abundant iron ore reserves make India competitive in the global set up.

• India is home to fifth-highest reserves of iron ore in the world.

Market Size of Indian Steel Industry in Export and Import

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-2031. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030-2031. As a result, it is anticipated that per- person steel consumption will grow to 160 kg.

OUTLOOK

Dwelling on the Outlook for 2023-24, Indias recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. It says that aided by healthy financials, incipient signs of a new private sector capital formation cycle are visible and more importantly, compensating for the private sectors caution in capital expenditure, the government raised capital expenditure substantially.

Budgeted capital expenditure rose 2.7 times in the last seven years, from FY16 to FY23, re-invigorating the Capex cycle. Structural reforms such as the introduction of the Goods and ServicesTax and the Insolvency and Bankruptcy Code enhanced the efficiency and transparency of the economy and ensured financial discipline and better compliance, the Survey added.

Global growth is forecasted to slow from 3.2% in 2022 to 2.7% in 2023 as per IMFs World Economic Outlook, October 2022. A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organisation, from 3.5% in 2022 to 1.0% in 2023.

On the external front, risks to the current account balance stem from multiple sources. While commodity prices have retreated from record highs, they are still above pre-conflict levels. Strong domestic demand amidst high commodity prices will raise Indias total import bill and contribute to unfavourable developments in the current account balance.These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure.

Entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stayhigher for longer. In such a scenario, global economy may be characterised by low growth in FY24. However, the scenario of subdued global growth presents two silver linings - oil prices will stay low, and Indias CAD will be better than currently

projected. The overall external situation will remain manageable.

The progress made by the steel sector in India from pre- 2014-15 to 2022-23 is mentioned in the table below:

(Million Tonnes)

Key parameters	FY 2014 15	FY 2022 23	% increase
Crude steel Capacity (MT)	109.85	160.3	46%
Crude steel Production (MT)	88.98	126.26	42%
Total Finished Steel Production (MT)	81.86	122.28	49%
Consumption (MT)	76.99	119.86	57%
Per capita steel consumption (in Kg)	60.8	86.7	43%

We, at Gallantt Ispat, have the following production data of the Fiscal 2022-23:

(Metric Tonnes)

Product	2022-23
	Production	Sales*
Sponge Iron (M.T.)	6,89,565.849	6.91.138.706
M.S. Billets (M.T.)	6,94,206.471	6,97,377.642
M.S. Round Bar & Miss Rolled Bar (M.T.)	6,35,962.546	6,42,317.058
Wheat Products	65,20,16,430	65,20,16,430
Power Generation(KWH)	6,89,565.849	6,91,138.706

*Sales include captive consumption also

Major Product-wise Turnover (Metric Tonnes)

	FY 2022-23	FY 2021-22
	QTY (MT/		QTY
	Unit)	In Lakhs	(MT)	In Lakhs
Steel (MT)*	7,61,568.23	3,97,786.72	60,4475 297,777.72

Company has Integrated Steel Plant facilities at Samakhiyali, Kutch, Gujarat and GIDA - Sahjanwa, Gorakhpur, Uttar Pradesh . Being an Integrated Steel Plant, Company, during the manufacturing process of end products TMT Bars also manufactures Sponge Iron, Billets etc.

OPPORTUNITIES AND THREATS

Opportunities

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.

The 2017 National Steel Policy provides for the production capacity of 300 million tonnes by 2030-31. The usage of steel per person rose during the last five years from 57.6 kgs to 74.1 kgs. The goal of the Government is to raise rural steel consumption to 38 kg/per capita by 2030-31 from the current 19.6 kilos per capita.

As per reports by CareEdge Research, the domestic steel consumption growth rate in India is expected to be around 10-12% in FY2023. There is also a rise in investments in the infrastructure sector and support from the Government to encourage the growth and outlook of the Indian steel industry.

Threats and Risks

The steel industry heavily relies on high-temperature thermal or chemical transformations to achieve the desired final outcome. However, this kind of operational environment inherently poses significant risks, making it exceptionally challenging to prevent unexpected accidents and ensure worker safety.

Compounding these concerns, the inspection and maintenance of machinery and structures within the industry present ongoing difficulties. These vital components are susceptible to corrosion, wear, and tear, and structural integrity issues, often situated in hard-to-reach locations. Furthermore, as we will delve into later, workers frequently navigate through analog processes, lacking clear insight into the real priorities of the operation.

Consequently, beyond the physical degradation of the plant infrastructure itself, the work environment becomes inherently unsafe and stressful for employees. In certain cases, due to the extreme temperatures associated with steel production, operators are subject to strict time limitations, restricting their actions and overall efficiency. These restrictions further exacerbate the challenges faced by workers, limiting their ability to perform critical tasks and compromising their well-being.

Managing logistics requirements is arduous, challenging and costly. The primary raw material for steel making is iron ore, besides coal or coking coal. Both are bulk minerals, and steel is also a bulk commodity. So, whether it is physical transportation of raw materials for steelmaking to the steel mills or physical transportation of finished steel to demand centres, transportation of bulk materials is always arduous.

The availability of raw material at right price remains a concern for the steel sector. Though India has huge deposits of high grade iron ore, her coal reserves, especially high grade cooking coal for smelting iron are limited. Many steel plants are forced to import metallurgical coal. For example, steel plant at Gujarat has to import coal from South Africa. Serious thought is now being given to replace imported coal by natural gas from Krishna-Godavari basin.

Another significant consequence stemming from the

multitude of transformation processes within the steel industry is the generation of substantial volumes of sub-products that currently find no reuse within the operation. Consequently, a significant amount of waste is generated, and regrettably, a portion of this waste is improperly released into the environment.

Steel is a capital-intensive sector. Naturally, the cost of financing any expansion or new steel capacity is usually through borrowed capital. In India the cost of finance is extremely high compared to the cost of finance in developed countries such as China, Japan and Korea. Moreover, steel demand is cyclical. So, during a downturn, the return on investments gets eroded.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE Major Product-wise Turnover

	2022-23	2021-22	% of Change
	Production	Sales*	Production	Sales*	Production	Sales*
Sponge Iron (M.T.)	6,89,565.849	6.91.138.706	4,88,999.810	4,90,310.426	41.02%	40 96%
M.S. Billets (M.T.)	6,94,206.471	6,97,377.642	6,02,726.111	6,03,459.323	15.18%	15.56%
M.S. Round Bar & Miss Rolled Bar (M.T.)	6,35,962.546	6,42,317.058	4,80,041.520	4,72,081.128	32.48%	36.06%
Power Generation (KWH)	65,20,16,430	65,20,16,430	53,27,46,256	53,27,46,256	22.39%	22.39%

*Sales include captive consumption also.

RISKS AND CONCERNS

As the world limps back into the resumption of economic activity, through the triple phase of COVID-19, the impact of the pandemic shall be visible across many sectors, including Steel. The steel industry, at large, has taken preventive measures on people and processes to minimize the impact on production.

Where possible, the industry has sustained economies of continuous production during the peak COVID-19 periods. Major reasons for a large shrink in developed economies is due to manufacturing recession coupled with distress in auto and machinery industries discouraged energy sector investments. Developing countries, including India, are the hardest hit in terms of steel demand owing to stricter lockdown measures and longer lockdown phase impacting all major consumer industries of Steel. The inherent construct of supply chains of steel for capital goods creates a base inefficiency for the Indian capital goods manufacturers. Setting up a capital goods hub or building capabilities around specialty steel has inbound cost challenges. The advantage of cheap labour gets negated with lack of skilled workers. Moreover, lack of continuous electricity supply, last mile connectivity and high cost of transportation of material are additional challenges for companies operating with thin margins.

Steel industry is a capital-intensive sector requiring an investment around Rs 6000 to Rs 8000 Crores to set up 1 ton of Steel production capacity through greenfield initiatives.

• The cost of financing for expansion or new capacity addition is majorly through borrowed capital.

• Overall, the share of bank credit to the iron and steel sector has declined between 2011 and 2020.

Further, in India, the cost of finance is higher as compared to the cost of finance in countries like China, Japan and Korea.

The rapid upward trend in steel output has put pressure on the availability of quality ore for steel production. Coking coal in India is not of adequate quality to form good coking coal on account of high impurities. The blending ratio for coal in countries such as the US is 40% whereas in India it is only 10% at present.

The Steel plants in India are in the inlands, often in remote areas with severe logistics challenge. Steel transportation till now has been heavily reliant on railways as it meets more than 70% of the Steel industrys transportation needs and high cost is resulting from the compulsion of Indian railways to subsidize passenger carrying cost of freight earnings. The capacity of Indian railways is constrained with a lot of delays and issues in rake availability and rake placements, creating bottleneck points in the entire supply chain. Moreover, Ports suffer from low productivity, slow unloading, delayed stevedoring, and other myriad issues. Lack of appropriate digitalization of the supply chain nodes, like document processing and clearances at ports, tracking and tracing of goods etc., result in inefficiency and bottlenecks.

Slowing global economic growth has forced cross imposition of duties by major steel producing nations. India had also imposed duties to safeguard its domestic Steel industry, especially against dumping of flat products in the country. The real estate sector is also witnessing a demand slump due to excess inventory and severe price pressures.

The government has reversed the export duty on iron ore with grades less than 58 percent to zero and export duty on iron ore with grades more than 58 percent has been reduced to 30 percent. Due to vagaries of weather and conflict between Russia-Ukraine, there has been huge fluctuations in coking coal as well as steel supply.

Energy represents one of the key challenges for todays Steel industry and the efficient use of energy has always been one of the Steel industrys key priorities. Over the last 40 years, the Steel industry has reduced its energy consumption per ton of Steel by 50%. Still, the cost of energy accounts for 15 to 20% of the total cost of Steel production and energy consumption is directly related to the environmental impact of the industry. Indian Steel plants need to invest more in energy efficient systems to remain competitive.

Geopolitical conflicts and trade wars between major economies could impact global steel demand and production, leading to a decline in steel demand.

All these concerns 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.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal control systems in the organization are looked at as the key to its effective functioning. The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use. The Companys internal controls are supplemented by an extensive programme of internal audit, review by management and documented policies, systems support, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial information and other data.

The Audit Committee reviews all the reports as prescribed under the regulations and compliance systems and suggests better internal control systems, policies and procedures as and when required.

It also reviews Companys financial reporting processes, disclosure of financial information, related party transactions, etc.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the financial year 2022-23 Revenue from Operations stood at Rs 4,03,458.27 Lakhs as against Rs 3,01,737.60 Lakhs during the last financial year 202122. The Profit before Interest, Depreciation and Taxation stood at Rs 36,736.17 Lakhs as against Rs 34,985.99 Lakhs in the previous year registering a growth of 5.01 %. The Net Profit after Tax for the year stood at Rs 14,091.09 Lakhs from Rs 17,583.93 Lakhs in the previous year registering a decline 19.86%. Earnings per Share (EPS) stood at Rs 5.84 (face value of Rs 10/- each) for the Financial Year ended March 31, 2023. During the year Company has reported relatively sluggish performance in terms of profitability, however, the turnover has increased considerably. Decline in profit is due to several macroeconomic head winds, volatile market environment and operational challenges.

Comparative chart of segment wise Revenue and Profits are as under: (Rs in Lakhs)

SEGMENT REVENUE	ForYear ended 31.03.2023	ForYear ended 31.03.2022	% age Change
Steel	4,03,458.27	2,99,929.81	34.52
Power	48,087.53	37,827.89	27.12
Unallocated Other Income (Net)	2,539.44	7,163.14	(64.55)
	4,54,085.24	3,44,920.84	31.65
Inter-segment revenue	48,087.53	37,822.44	27.14
Total Segment Revenue	4,05,997.71	3,07,098.40	32.20
SEGMENT RESULTS
Steel	9,501.13	11,563.39	(17.83)
Power	14,670.59	8,909.79	64.66
Total Segment Result	24,171.72	20,473.18	18.07
Interest	2,722.35	2,046.35	33.03
Other unallocated expenses /(income)	(2,539.44)	(5,303.55)	(52.12)
Profit /(Loss) before taxes	23,988.81	23,730.38	1.09

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

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. Human Resource is a continuous and ever evolving function at our Company. The Company believes

that human resources enable the Company to consistently meet customer requirements and deliver exceptional performance for all stakeholders. The Company continues to maintain its record on cordial industrial relations. The Company continues to invest in people through various initiatives viz. training programmes, upgradation of knowledge etc. which enable the work force to meet out the challenges. As on March 31, 2023, the employee strength of the Company was 2,834.

The Company maintained harmonious industrial relations in all units of the Company during the financial year 202223.

SIGNIFICANT CHANGES IN FINANCIAL RATIOS

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:

Sr. No.	Financial Ratio	2022-23	2021-2022	% age varaince	Remarks for variation more than 25%
(a)	Current Ratio	1.85	1.81	2.12	Not Applicable
(b)	Debt Equity Ratio	0.325	0.291	11.85	Not Applicable
(c)	Debt Service Coverage Ratio	9.86	13.63	(27.66)	This ratio has decreased due to decrease in net profit on account of higher provision of deferred tax during the year
(d)	Return on Equity Ratio	6.54	8.82	(25.81)	This ratio has decreased due to decrease in net profit on account of higher provision of deferred tax during the year
Sr. No.	Financial Ratio	2022-23	2021-2022	% age varaince	Remarks for variation more than 25%
(e)	Inventory Turnover Ratio	49.37	38.96	26.74	This ratio has increased due to increase in high transit inventory during March 31, 2023
(f)	Trade Receivables Turnover Ratio	27.11	20.60	31.60	This ratio has increased due to high project sale in March wherein credit period is high
(g)	Trade Payables Turnover Ratio	19.28	17.18	12.24	Not Applicable
(h)	Net Capital Turnover Ratio	8.75	7.76	12.81	Not Applicable
(i)	Net Profit Ratio	3.53	5.89	(40.06)	This ratio has decreased due to decrease in net profit on account of higher provision of deferred tax during the year
(j)	Return on Capital employed	11.08	11.64	(4.86)	Not Applicable
(k)	Return on Investment	-	-	-	Not Applicable

CAUTIONARY STATEMENT

Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" and based on certain assumptions/

expectations and current scenario and the input available. Actual results might differ substantially or materially to those expressed or implied. Important developments including global or domestic trends, political and economic environment in India or Overseas might affect the Companys operations.

	On behalf of the Board
Place: Gorakhpur	C. P. Agrawal
Date: May 29, 2023	Chairman