Retail Research

Sector: Steel
22 September 2010

Gallantt Ispat Ltd.

IPO Note Offer Price (Rs.): 50

ISSUE DETAILS:
GIL is one of the growing companies in Uttar Pradesh engaged in
the manufacturing and marketing of Sponge Iron, Mild steel Date of Opening 22nd September 2010
billets, Re-Rolled products (TMT bars and Mild Steel Structural) Date of Closing 24th September 2010
and wheat flour products. The company was incorporated in Issue Size Rs. 40.50 cr.
February 2005 at Kolkata and is promoted by Mr. Chandra Prakash No. of Shares Offered 81,00,000 (81 lac.)
Agrawal, Mr. Prem Prakash Agarwal, Mr. Nitin M Kandoi, Face Value Rs. 10
M/s Chandra Prakash Agarwal & Sons HUF and M/s Gallantt
BRLM Anand Rathi Advisors Ltd.
Metal Ltd.
Registrar Niche Technologies Pvt. Ltd.
The company has already commenced commercial productions Bid Lot 125
for Mild steel billets, Re-Rolled products (TMT bars) in May 2009 Post Issue Share Capital Rs. 26.77 Cr.
and wheat flour products in March 2009 and proposes to expand
its business into Sponge iron production and has commenced the
trial production in September, 2010.

They have appointed M/s Industrial Technical Consultant, Raipur

OBJECTS OF ISSUE (Rs. Cr.)
(ITCR) as its technical consultant for the proposed Sponge Iron
To part finance the integrated steel plant [•]
Plant, M/s Akal Sahae Engineers for the Rolling Mill Division and
To part finance the flour mill [•]
M/s. Avant Garde Engineers and Consultants Pvt. Ltd., Chennai
Listing of securities on stock exchanges [•]
(AGECPL) will be appointed for the Captive Power Plant. In case
Total [•]
of Mild steel billets, M/s Gallantt Metal Limited, their promoting
company, has already developed a technical team at its existing
Gorakhpur plant and Bhuj, Gujarat plant. The same team has been
utilized for setting up the Mild steel billets plant.

The in house consumption of entire Sponge Iron to manufacture SHAREHOLDING PATTERN

billets which is further rolled into TMT bars along with installation PRE ISSUE No. of Shares %
of captive power plant to utilize the waste heat would improve Promoter & Promoter Group 17,318,131 92.78
the profitability of the project thereby making it economically more
Non Promoter 1,348,166 7.22
viable.
Public - 0.00
Setting up the integrated steel plant and flour mill in Gorakhpur, Total 18,666,297 100.00
Uttar Pradesh also provides GIL with benefits like interest free
loan equivalent to sales tax amount for a period of 15 years,
POST ISSUE No. of Shares %
transport subsidy for 15 years, 20% subsidy of fixed capital
Promoter & Promoter Group 18,718,131 69.93
investment, 5% additional subsidy of fixed capital investment
Non Promoter 1,348,166 5.04
being first unit under this scheme and exemption of mandi tax
Public 6,700,000 25.03
2% on wheat purchase, among other benefits.
Total 26,766,297 100.00

Source: RHP, SSL Research

For complete information and a complete list of the risk factors,
please refer the Red Herring Prospectus.

SBICAP Securities Limited, Corporate Office: 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005
Tel.: (Board) +91 22 30273300/01 • Fax: (022) 30273420.
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Gallantt Ispat Ltd. Steel

Key Strengths

Strong brand recognition

GIL forms a part of the Gallantt Group. The Gallantt Group is already engaged ~ Strong brand recognition
in the manufacturing of steel products in Gorakhpur, Uttar Pradesh, selling
its product under the brand name Gallantt and has successfully marketed
their products in Northern India. The company proposes to sell its products
in Uttar Pradesh and the surrounding areas wherein it has already established
considerable brand recognition.

Management Expertise
Other than GIL, their group comprises of two other companies namely, Gallant
Udyog Limited (GUL) and Gallantt Metal Limited (GML). GML, incorporated
in 2005, is based in Gujarat, and has integrated steel manufacturing operations.
Their promoters, over the years, have gained experience in setting up and
operating integrated steel plants as well as flour mills.
The established position of the Group Companies in the local markets has
also resulted in an established customer base and a supplier network in Uttar
Pradesh, Chattisgarh, Bihar and Madhya Pradesh. In addition to their
Promoters, they have a professionally managed team with technical experts
in respective fields.

Quality Certification
GIL has met standards of Bureau of Indian Standards and has received the IS ~ Quality Certification
1786:2008 certification for high strength deformed steel bars for concrete
reinforcements (TMT). Since the company is dedicated towards quality of
products, processes and inputs, they get repetitive orders from their
customers, as they are capable of meeting their quality standards thereby
enabling them to maintain their brand image in the market.

Captive Power plant

Considering the power requirements of existing manufacturing facilities, GIL ~ Captive Power plant
also proposes to setup a 16 MW captive power plant to meet its present
requirement of power. Captive power plant will give them the stable and
uninterrupted power supply which is very crucial in manufacturing of
products. Uninterrupted power supply helps to avoid any delays in
manufacturing process thereby ensuring complete utilization of their
capacities.
GIL currently requires 12.98 MW for the purpose of running the Sponge Iron
Unit, Steel Melt Shop Unit, Rolling Mill Unit and the Flour Mill. Further
additional 1.30 MW are required to operate their common auxiliary services.
Once the Captive Power Plant is operational, the 16 MW produced by it will
be utilized by company thereby eliminating the existing dependence for power
from their current providers, being the Uttar Pradesh Power Corporation
Limited.

For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHP

SBICAP Securities Limited 22 September, 2010 • 2

Gallantt Ispat Ltd. Steel

Business Strategies

Sales and marketing

The sales and marketing strategy is based on building upon strengths and ~ Sales and marketing
results already achieved. Accordingly, their strategy is to consolidate their
position in Uttar Pradesh and penetrate in other northern, western and eastern
parts of the country. In parallel, they would also strive to build credible
partnerships as an entry strategy and build on the same for a full-scale
penetration in future.

Focus on expansion of capacity so as to attain economies of scale

To maintain the position in the Iron & Steel Industry, GIL is aiming to enhance
and optimize their manufacturing capacities of their product to cater to the
northern regions of India. This is in line with the belief that maximum values
can be created by way of making products at the locations where customers/
markets currently exists or will grow in future..

Mix of organic and inorganic models of growth

GIL strategy so far had been organic growth. At this stage of the business, ~ Mix of organic and inorganic models of growth
they believe that a combination of organic and inorganic models will help
them continue to grow. Strategic acquisitions would help them in leveraging
complementary skills to capture market opportunities as well as reduce time-
to-market and accelerate growth.

Continued focus on consistently meeting quality standards so as to

ensure product acceptance by customers
GIL has created a reputation with their suppliers who can consistently supply ~ Continued focus on consistently meeting quality
quantity without compromising on the quality and delivery schedules. They standards so as to ensure product acceptance by
customers
intend to continue to focus on this. As they are using one of the best
technologies in products manufactured by them, they intend to continue this
for the new projects of the company as well.

For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHP

SBICAP Securities Limited 22 September, 2010 • 3

Gallantt Ispat Ltd. Steel

Risk Factors

Land on Lease from the Gorakhpur Industrial Development Authority

(GIDA)
GIL has taken land on lease, from Gorakhpur Industrial Development ~ Land on Lease from the Gorakhpur Industrial
Authority (GIDA) vide a lease deed dated May 25, 2007, for a period of 90 Development Authority (GIDA)
years, for establishing an integrated steel plant, captive power plant, spinning
mill and modern roller flour mill. In the event of any breach by the company,
GIDA has a right to terminate the lease, by giving a notice thereof and to
resume possession of the entire plot leased or part thereof.

Completely dependent on the Uttar Pradesh markets for the sale of

products
The company is solely dependant on the markets in Uttar Pradesh for the ~ Completely dependent on the Uttar Pradesh
markets for the sale of products
sale of all of its products that is sponge iron, mild steel billets, re-rolled
products (TMT bars) and wheat flour products.
GIL business, results of operations and financial conditions may be adversely
affected if one or more of the following factors occur:
n negative demand for their products due to increased competition, or the
company's inability to compete with new players
n competitors further penetration
n enactment of any legislation which may not be favourable to the industry
in Uttar Pradesh

Promoter and Group Company are engaged in the same line of business
The main objects of GML, their Promoter, and GUL, their Promoter Group
Company, allow them to have same/similar business as carried out by GIL.
Further, as on the date of this prospectus, GML and GUL are engaged in the
same or allied businesses as that of their company. As a result, they are /
could be in direct competition with their company. They do not enjoy
contractual protection by way of a non - compete agreement or any other
arrangement with GML or GUL.

Company has availed incentives offered under the Heavy Industrial

Investment Promotion Policy of the Government of Uttar Pradesh
The incentives available under the scheme are capital subsidy, infrastructure ~ Company has availed incentives offered under the
subsidy, transport subsidy and interest free loan in lieu of trade tax. There Heavy Industrial Investment Promotion Policy of
the government of Uttar Pradesh
are several terms and conditions which GIL is required to comply with in
order to continue to enjoy the benefits and incentives.
GIL is eligible to receive an aggregate capital and infrastructure subsidy of
Rs. 103.56 crores. There may be a delay with regards to the funds deployment/
disbursement by the government of Uttar Pradesh. In the event of such a
delay / non receipt of the balance funds, their business and results of operations
would be materially affected.

For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHP

SBICAP Securities Limited 22 September, 2010 • 4

Gallantt Ispat Ltd. Steel

Financials & Valuations Snap Shot:

Gallant Ispat Ltd. (Rs. cr.)

Pre Issue Post Issue

FY10 FY10

Offer Price (Rs.)

Particulars 50.00

Net Sales 130.02 130.02

Total Income 130.04 130.04
EBIDTA 5.16 5.16
PAT (4.50) (4.50)
Equity Share Capital 18.67 26.77
No of Equity Shares 1.87 2.68
Face Value 10.00 10.00
EPS (2.41) (1.68)
CMP 50.00 50.00
Cash and Bank 0.67 0.67
Debt 85.18 85.18
Market Cap 93.33 133.83
Enterprise Value 177.84 218.35
Mcap/Sales (x) 0.72 1.03
EV/Sales (x) 1.37 1.68
EV/EBIDTA (x) 34.47 42.32
EBIDTA/Sales (%) 3.97 3.97

Source: RHP, SSL Research

Relative Valuations
Particulars. Adhunik Metaliks Ltd Monnet Ispat & Energy Ltd Rathi Bars Ltd Gallant Ispat Ltd.

CMP (Rs) 118.10 511.75 14.04 50.00

TTM Sales (Rs Cr) 1,317.30 1,544.94 190.76 130.02

M.cap (Rs Cr) 1,458.54 2,674.41 22.93 133.83

EV / Sales (x) 1.96 2.43 0.24 1.68

EV / EBIDTA (x) 9.56 8.19 6.41 42.32

M.cap / Sales (x) 1.11 1.73 0.12 1.03

OPM (%) 20.46 29.69 3.73 3.97

Source: RHP, Capitaline, SSL Research

For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus.

SBICAP Securities Limited 22 September, 2010 • 5

Gallantt Ispat Ltd. Steel

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