Gallant Metal, part of Gallantt Group of Industries, a steel producer in India is aggressively growing. It produces sponge iron, billets, bars, rods, captive power etc for steel industry. Another member of the Gallant Group i.e. Galant Ispat Ltd, has highest share-holding of 48.53 per cent in Galllantt Metal Ltd. and the total promoter holding as of June 2016 stands at 63.69 per cent. Company’s high quality product caters to reputed clients like Reliance Industries, L&T, Adani, Sapur Ji Palan Ji etc.The company is targeting the potential in the steel consumption regions to expand its reach. Gallantt Metal has captured market in western India (mostly Maharashtra, Gujarat and Rajasthan) in a very short span of time taking advantage of lower freight charges.

The Kutch-based company enjoys strategic locational advantages being at a close proximity of Kandla port, Gujarat in terms of regional tax and excise duty incentives plus sales tax exemption which is adding savings to the revenue of the company. The company operates in two segments - steel (82 per cent) and power segment (17 per cent). Final steel products like round bars, rods, wires etc. has major share of above 80 per cent in steel segment revenue. Demand for steel products was sluggish during the last two-three years but the company’s agile business model was able to maintain its revenue target. Gallantt Metal’s in-built captive power plant ensures uninterrupted power to home plant and eliminated dependency on state electricity board. This idea helps it to improve profitability of the project on the back of cheap power cost (Rs 1 per unit) due to easy availability of lignite for power generation vs SEB ( Rs 4 per unit). 

Gallantt is focusing on capacity expansion at its Gujarat plant. It is infusing Rs 100 crore to expand its steel segment capacity by 2,26,737 MTPA and power segment by 8 MW. This additional production unit has partially started its operation and will be completed by September 2016. The company’s second expansion plan is at Karnataka for which the company has already acquired 100 acres of land. At the Karnataka location, Gallantt will enjoy easy availability of raw material (steel and coal) due to nearest exposure to coal and steel mines. The cost of iron ore and coal constitutes more than 80% of its total cost of production. This expansion will lead to healthy profit margins in future. The company is virtually debt free except the working capital loan. It has already paid back its Rs 190 crore amount of debt well in advanced by 2014 itself.

Government of India’s initiative in infrastructure development, “Make in India” and “Smart Cities” campaign plus "Housing for All" scheme plays a vital role in sustained growth phase of steel segment in future. On financial front, steel segment revenue rose by 5.13 per cent and power segment revenue were down by 5.90 per cent in Q4FY16 on yoy basis. EBITDA and net profit expanded by 4.20 per cent and 13.39 per cent respectively in Q4FY16 on yearly basis.

On valuation front, its shares look attractive with EPS of 5.11 and TTM PE of 7.57x and P/B of 0.97x. So we recommend our reader to BUY this scrip. 

Capacity expansion plans in Gujarat and Karnataka

Virtually debt free status

Location advantage boosting profit margins 

Gallantt is focusing on capacity expansion at its Gujarat plant. It is infusing Rs 100 crore to expand its steel segment capacity by 2,26,737 MTPA and power segment by 8 MW. This additional production unit has partially started its operation and will be completed by September 2016. The company’s second expansion plan is at Karnataka for which the company has already acquired 100 acres of land. At the Karnataka location, Gallantt will enjoy easy availability of raw material (steel and coal) due to nearest exposure to coal and steel mines. The cost of iron ore and coal constitutes more than 80% of its total cost of production. This expansion will lead to healthy profit margins in future. The company is virtually debt free except the working capital loan. It has already paid back its Rs 190 crore amount of debt well in advanced by 2014 itself.