GANGOTRI IRON & STEEL COMPANY LIMITED · 2018. 8. 16. · ROC Registrar of Companies, Bihar at...

LETTER OF OFFERFor the Equity Shareholders of the Company Only

ISSUE PROGRAMME

ISSUE OPENS ON LAST DATE FOR RECEIPT OF REQUESTSFOR SPLIT APPLICATION FORMS

ISSUE CLOSES ON

MARCH 30, 2009 APRIL 13, 2009 APRIL 28, 2009

GANGOTRI IRON & STEEL COMPANY LIMITED(Reg No. – 03-05129, CIN No. L27101BR1992PLC005129)

(Originally incorporated as Esskayjay Ispat Limited on 7th December, 1992The Company’s name was changed to Gangotri Iron & Steel Company Limited on 24th May 2000.)

Registered Office: 307, Ashiana Towers, Exhibition Road, Patna-800001, BiharTel No: 0612-6510777/888, Fax No: 0612-2323959, E-Mail: [email protected], Website: www.giscotmt.com

Manufacturing Plant: Present: Naya Tola, Khagaul Road, Phulwari Shariff, Patna-801505, BiharProposed: Vill: Mahadevpur, Near Reliance Petrol Pump, Phulari, Bihta, Patna – 801103, Bihar

Contact Person: Ms. Priti Somani, Compliance Officer & Company Secretary

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE COMPANY ONLY

GENERAL RISKS

Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in thisissue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefullybefore taking an investment decision in this Issue. For taking an investment decision, investors must rely on their ownexamination of the Issuer and the Issue including the risks involved. The securities have not been recommended orapproved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or the adequacy ofthis document. Investors are advised to refer to “Risk Factors” on Page No. 6 of this Letter of Offer before making aninvestment in this Issue.

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains allinformation with regard to the Issuer and the Issue, which is material in the context of the Issue, that the informationcontained in this Letter of Offer is true and correct in all material respects and is not misleading in any material respect, thatthe opinions and intentions, expressed herein are honestly held and that there are no other facts, the omission of whichmake this Letter of Offer as a whole or any of such information or the expression of any such opinions or intentionsmisleading in any material respect.

LISTING

The existing equity shares of the Company are listed at Bombay Stock Exchange Limited (BSE) and Magadh StockExchange (MgSE). Magadh Stock Exchange is derecognized by SEBI. The Company has de-listed its equity shares fromCalcutta Stock Exchange. The equity shares offered through rights issue are proposed to be listed on BSE. BSE is theDesignated Stock Exchange. The Company has received in-principle approvals from BSE for the listing of the EquityShares to be allotted pursuant to the Issue, vide letter number DCS/PREF/JA/IPRT/ 423/08-09 dated 14.05.2008.

LETTER OF OFFER

ISSUE OF 61,53,680 EQUITY SHARES OF RS. 10/- EACH FOR CASH AT A PRICE OF RS 20/- EACH INCLUDING APREMIUM OF RS. 10/- PER EQUITY SHARE AGGREGATING TO AN AMOUNT NOT EXCEEDING RS. 1230.74 LACS TOTHE EQUITY SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 4 EQUITY SHARES FOR EVERY 5 EQUITYSHARES HELD ON RECORD DATE i.e. 20.03.2009. THE ISSUE PRICE FOR THE EQUITY SHARES WILL BE PAYABLEIN TWO INSTALMENTS: 50% ON APPLICATION AND 50% ON CALL WITHIN 12 MONTHS. THE ISSUE PRICE IS 2.0TIMES OF THE FACE VALUE OF THE EQUITY SHARE.

C M Y K

C M Y K

LEAD MANAGER TO THE ISSUE

Sumedha Fiscal Services Limited8B, Middleton Street,Geetanjali, Room No.6AKolkata-700071Ph: (033) 2229 8936/6758/3237Fax: (033) 2226 4140/ 2265 5830SEBI Regn. No. INM000008753Web Site : www.sumedhafiscal.comE-mail:- [email protected] Person:- Mr. D.K Sett

S.K.Computers34/1A, Sudhir Chatterjee Street,Kolkata-700006Ph: (033) 2219 6797Fax: (033) 2219 4815SEBI Regn. No. INR000003886E-mail: [email protected] Person: Mr.Dilip Bhattacharya

REGISTRAR TO THE ISSUE

Private and Confidential

Gangotri Iron & Steel Company Limited

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TABLE OF CONTENTS

TITLE PAGE NO. SECTION – I. DEFINITIONS AND ABBREVIATIONS 3 1. CONVENTIONAL / GENERAL TERMS 3 2. ISSUE RELATED TERMS / ABBREVIATIONS 4 3. COMPANY / INDUSTRY RELATED TERMS 5 SECTION - II. RISK FACTORS 6 1. FORWARD LOOKING STATEMENTS & MARKET DATA 6 2. RISK FACTORS 6 (A) INTERNAL RISK FACTORS 7 (B) EXTERNAL RISK FACTORS 16 SECTION - III. INTRODUCTION 20 1. SUMMARY 20 2. OFFERING DETAILS 23 3. SUMMARY OF FINANCIAL, OPERATING AND OTHER DATA 24 4. GENERAL INFORMATION 26 5. CAPITAL STRUCTURE 33 6. OBJECTS OF THE ISSUE 45 7. BASIC TERMS OF THE ISSUE 80 8. BASIS FOR ISSUE PRICE 81 9. TAX BENEFITS 84 SECTION - IV. ABOUT THE ISSUER COMPANY 91 1. INDUSTRY OVERVIEW 91 2. BUSINESS OVERVIEW 95 3. KEY INDUSTRY REGULATIONS 111 4. HISTORY AND CORPORATE STRUCTURE OF THE COMPANY 114 5. MANAGEMENT 117 6. PROMOTERS 125 7. CURRENCY OF PRESENTATION 127 8. DIVIDEND POLICY 128 SECTION - V. FINANCIAL STATEMENTS 129 1. FINANCIAL INFORMATION OF THE ISSUER COMPANY 129 2. FINANCIAL INFORMATION OF THE GROUP COMPANIES 147 3. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 155 SECTION - VI. LEGAL AND OTHER INFORMATION 159 1. OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS 159 2. GOVERNMENT APPROVALS / LICENSING ARRANGEMENTS 166 SECTION - VII. OTHER REGULATORY AND STATUTORY DISCLOSURES 167 SECTION - VIII. ISSUE INFORMATION 174 1. TERMS OF THE ISSUE 174 SECTION - IX. MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION 196 SECTION - X. OTHER INFORMATION 211 1. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 211 2. DECLARATION 213


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SECTION – I. DEFINITION AND ABBREVIATIONS

1. CONVENTIONAL / GENERAL TERMS

Terms Description

AGM Annual General Meeting

Articles Articles of Association of the CompanyAS Accounting Standard Auditor Refers to M/s. ARSK & Associates, unless otherwise specified. BSE Bombay Stock Exchange Limited Board or Board of Directors

Board of Directors of Gangotri Iron & Steel Company Limited, which term shall include a committee of the Board of Directors.

Capital or Share Capital

Share Capital of the Company

CDSL Central Depository Services (India) Limited CESTAT Custom, Excise and Service Tax Appellate Tribunal CSE The Calcutta Stock Exchange Association LimitedCompanies Act The Companies Act, 1956, as amended from time to time DP Depository Participant Depository A depository registered with SEBI under the SEBI (Depositories and Participants)

Regulations, 1996, as amended from time to time. DGCEI Directoret General of Central Excise Intelligence DGS&D Directorate General of Supplies & Disposals. Equity Share(s) or Share(s)

Means the Equity Share of the Company having a face value of Rs. 10/- unless otherwise specified in the context thereof

Equity Shareholder

Means a holder of Equity Shares of the Company

FEMA Foreign Exchange Management Act, 1999FI Financial InstitutionsFII(s) Foreign Institutional Investors registered with SEBI under applicable laws

FY / Fiscal Financial Year ending March 31 HUF Hindu Undivided Family Issuer Company / GISCO

Gangotri Iron & Steel Company Limited, a company incorporated under the Companies Act, 1956.

IT Act The Income Tax Act, 1961 and amendments thereto Memorandum Memorandum of Association of the CompanyMoU Memorandum of Understanding MGSE The Magadh Stock Exchange Association NR Non Resident NRI(s) Non Resident Indian(s)NSDL National Securities Depository LimitedRBI The Reserve Bank of IndiaROC Registrar of Companies, Bihar at Patna, located at Maurya Lok Complex, Block

‘A’ Western Wing, 4th Floor, Dak Banglow Road, Patna-800001, Bihar, India.SBI State Bank of India SCSB Self Certified Syndicate Bank SEBI Securities and Exchange Board of India SEBI Act, 1992 Securities and Exchange Board of India Act, 1992 and amendments thereto SEBI (DIP) Guidelines

The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 19, 2000 read with amendments issued subsequent to that date

SICA Sick Industrial Companies (Special Provisions) Act, 1995.SIPB State Investment Promotion Board


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2. ISSUE RELATED TERMS / ABBREVIATIONS.

Allotment Issue or transfer, as the context requires, of Equity Shares pursuant to the Offer to the successful applicants as the context requires Companies Act, 1956 and subsequent amendments thereof.

Allottee The successful applicant to whom the Equity Shares are being/have been issued or transferred

Applicant Any prospective investor who makes an application for Equity Shares in terms of this Letter of Offer

Application Supported by Blocked Amount / ASBA

The application (whether physical or electronic) used by Investors to make a Bid authorizing the SCSB to Block the Bid Amount in their specific bank account.

Bankers to the Issue HDFC Bank Limited, Central Plaza Branch, 2/6 Sarat Bose Road, Kolkata –700 020

CAF Composite Application Form Co-Lead Manager VC Corporate Advisors Private Limited Designated Stock Exchange

The designated stock exchange for the Issue shall be BSE.

Directors Directors of Gangotri Iron & Steel Company Limited from time to time, unless otherwise specified

Draft Letter of Offer Draft letter of offer dated 30.01.2009 filed with SEBI for its comments First Applicant The Applicant whose name appears first in the Application Form. Indian GAAP Generally Accepted Accounting Principles in India

Investor(s) Shall mean the holder(s) of Equity Shares of the Company as on the Record Date, i.e. 20.03.2009 and Renouncees

Lead Manager/LM Being the Lead Manager appointed for the Issue. In this case being Sumedha Fiscal Services Limited

Letter of Offer / LOF Letter of Offer dated 05.03.2009 as filed with the Stock Exchanges after incorporating SEBI comments on the Draft Letter of Offer

Managing Director Mr. Sanjiv Kumar Choudhary OCBs A company, partnership, society or other corporate body owned directly or

indirectly to the extent of at least 60% by NRIs, including overseas trusts in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined under Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000

Offer The Issue of Equity Shares pursuant to the Letter of Offer Promoters Unless the context otherwise requires, refers to Mr Ramautar Jhunjhunwala

, Mr Sanjiv Kumar Choudhary & Mr Aditya Dalmiya. Promoter Group Ramautar Jhunjhunwala HUF, Sanjiv Kumar Choudhary HUF, Vandana

Sanganeria, Manju Choudhary, Ankit Choudhary, Umesh Kumar Sanganeria, Adity Choudhary, Sunita Dalmia, Mayank Sanganeria, Shakuntala Jhunjhunwala, Tara Ispat Ltd and VIP Finstock Pvt Ltd.

Record Date 20.03.2009 Registrar or registrar to the Issue

S.K.Computers, having its office at 34/1A, Sudhir Chatterjee Street, Kolkata-700006.

Registered Office of the Company

Registered Office of the Company situated at 307, Ashiana Towers, Exhibition Road, Patna-800001, Bihar

Right Issue/ Present Issue

The issue of 61,53,680 Equity Shares of Rs.10/- each at the Issue Price of Rs. 20/- (including a premium of Rs. 10/- per share) by the Company pursuant to this Letter of Offer.

Renouncees Shall mean the persons who have acquired Rights Entitlements from Equity Shareholders

Rights Entitlement The number of Equity Shares that a shareholder is entitled to in proportion to his/her shareholding in the Company as on the Record Date

RTGS Real Time Gross Settlement SAF Split Application Form Stock Exchange(s) Shall refer to the BSE where the Shares of the Company are presently listed


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3. COMPANY / INDUSTRY RELATED TERMS

Term Description BIS Bureau of Indian Standards CAGR Compounded Annual Growth RateCI Cast Iron DC Drive Direct Current DriveEAF Electric Arc Furnace HR Hot Rolled IDC Interest During Construction ISI Indian Standard Institution ISP Integrated Steel Plant Kgs. Kilograms KVA Kilo Volt Ampere LT Cable Low Tension Cable MP Man Power MSP Mini Steel Plant MT Metric TonnesMTPA Metric Tonnes per Annum MW Mega WattNMDC National Minerals Development Corporation QST Quenching and Self Tempering PLC Programmed Logic Control PPA Power Purchase Agreement PT Per Tonne SAIL Steel Authority of India Limited TPA Tonnes Per Annum TPD Tonnes Per Day


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SECTION - II. RISK FACTORS

1. FORWARD LOOKING STATEMENTS & MARKET DATA

Statements included in this Letter of Offer which contain words or phrases such as “will”, “aim”, “will likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue” and similar expressions or variations of such expressions are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with the Company’s expectations with respect to, but not limited to:

• The Company’s ability to successfully implement its strategies, its growth and expansions, technological changes, its exposure to market risks, etc.;

• The general, economic and political conditions in India which have an impact on its business activities or

• Investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in Domestic and Foreign Laws, Regulations and Taxes and changes in competition in the industry.

• The size, timing and profitability of significant projects. For further discussion of factors that could cause the Company’s actual results to differ, see the section titled “Risk Factors” beginning on Page No. 6 of this Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI requirements, the Company will ensure that investors are informed of material developments, until such time as the grant of listing and trading permission by the Stock Exchanges for the Equity Shares being issued.

Use of Market Data

Unless stated otherwise, macroeconomic and industry data used throughout this Letter of Offer has been obtained from publications prepared by Government sources, industry sources and data generally available in the public domain. Such publications generally state that the information contained therein has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although Company believe that industry data used in this Letter of Offer is reliable, it has not been independently verified.

2. RISK FACTORS

The investors should consider the following risk factors together with all other information included in this Letter of Offer carefully, in evaluating the Company and its business before making any investment decision. Any projections, forecasts and estimates contained herein are forward looking statements that involve risks and uncertainties. Such statements use forward looking terminology like “may” believes”, “will”, “expect”, “anticipate”, “estimate”, “plan” or other similar words. The Company’s actual results could differ from those anticipated in these forward- looking statements as a result of certain factors including those, which are set forth in the “Risk Factors” below.

Materiality:

The Risk factors have been determined on the basis of their materiality. The following factors have been considered for determining the materiality:

a) Some events may not be material individually, but may be found material collectively. b) Some events may have material impact qualitatively instead of quantitatively. c) Some events may not be material at present but may be having material impacts in future.

Note: Unless specified or quantified in the relevant risk factors below, Company is not in a position to quantify the financial or other implication of any risks mentioned herein under:


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(A) INTERNAL RISK FACTORS

RISKS INTERNAL TO THE BUSINESS AND OPERATIONS OF THE COMPANY

i. Search and Seizure by the Excise Department

DGCEI has conducted search in the factory and office premises of the company on dated 09.10.2007 and seized various documents in respect of contravention of Central Excise Act, 1944 and Rules made there under and in respect of evasion of Central Excise Duty on removal of excisable products by M/s Gangotri Iron & Steel Co. Ltd. and M/s Gangotri Electrocastings Ltd. Mr. Sanjiv Kumar Choudhary, MD appeared before DGCEI, Jamshedpur on 15.01.2008 on the receipt of summon under Section 14 of the Central Excise Act, 1944 but till date no charge or demand has been levied by the DGCEI. If any charge or demand is made by DGCEI, it may have adverse financial impact on the Company.

ii. As stated in our latest certified financial statements for the period ended 30.09.2008, Company is subject to certain contingent liabilities

a) No provision for Rs. 1161905/- (Previous Year Rs. 1161905/-) has been made in the accounts towards DPS charges on annual minimum charges for electricity for the years 1995-96, 1996-97 & 1997-98 against which no amount has been paid. The matter is pending before Bihar State Electricity Board for final settlement.

b) No provision has been made for disputed Excise Duty Matters u/s 3A of Central Excise Act, 1944 pending with High Court, Patna related to year 1998-99 and 1999-2000 for which outstanding demand is Rs. 1443471/-. However, there is a discrepancy as per the Commissioner’s Order according to which the liability works out to Rs. 3740926/- which the company is in the process of getting rectified.

iii. Company, promoter(s), directors and group companies are involved in certain litigations, a summary of which is given hereunder:

Sr. No.

Particulars of litigations No. of

Cases Amount

(Rs. in Lacs)

A Company (i) Litigation filed against issuer company 7 19.12 (ii) Litigation filed by issuer company Nil Nil B. Group Companies

(i) Litigation filed against group companies 8

733.61 plus Interest & Penalty

(ii) Litigation filed by Group Companies 1 Nil C. Promoter(s) / Directors

(i) Litigation filed against promoters / Directors 3 160.00

(ii) Litigation filed by promoters / Directors 1 Nil

For further details, please refer to page no. 159 to 165 of the Letter of Offer.

iv. Search & Seizure by the Income Tax Department.

The Income Tax Department has conducted Search & Survey in the factory, office premises of the Company and the residential premises of Directors and Employees of the Company on 11.06.2008 and seized various documents and CPU/Laptops. All the cases are being transferred / centralized to ACIT, Central Circle – 1, Patna but till date no charge or demand has been raised / levied by the Income Tax Department.


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v. Any delay in Rights Issue will impact the implementation of the Project

The Cost of project is funded partly from the Rights Issue. Any delay /failure of the Rights Issue will impact the implementation of the project. The promoters will bring in additional funds or will raise unsecured loans to fund the interim requirement in case there is any delay in the Rights Issue.

vi. The deployment of funds to be raised through this Issue is completely at the company’s discretion and will not be monitored by any independent agency

Company is professionally managed with persons having sufficient experience in the business and has estimated the funds requirement based upon plans to be implemented by the company but the chances of variation in the implementation of the project may occur.

vii. Manpower Availability

In order to operate and maintain the plant facilities, including the technical and general administration needs, the estimated manpower requirement for the completion of the proposed projects has been estimated to approximately 656 numbers for 3 shift work. Out of this 86 persons will be on Company Payroll and balance will be arranged through contractors. If there is any disagreement between the contractor and the company or shortage of labour, the production of the company will be effected. The manpower has been estimated based on the following considerations.

• Production units and their capacities • Type of equipments proposed for the main production shops and corresponding auxiliary facilities • Degree of automation and mechanization envisaged in different units. • Extent of manning required for the various equipments. • Number of operating shifts • Supporting personnel for off and leave reserves

viii. Mishaps or accidents at the company’s facilities could lead to property damage, production loss and accident claims.

Any mishap or accident in the company’s facilities could result in claims against the company for damages by the employees. Company could suffer loss of production; receive adverse publicity and experience diversion of management attention and resources in defending such claims. Any such significant event could have an adverse effect on the company’s business, financial condition and results of operations.

ix. Equipment failure, production curtailment and shutdown may affect performance.

Interruptions in production will inevitably increase production costs and reduce the Group's sales and earnings. In addition to equipment failures, the Company's facilities are also subject to risk of catastrophic loss due to unanticipated events including fires, explosions or adverse weather conditions. Company’s manufacturing processes depend on critical steel making equipment, including furnaces and continuous casters, as well as electrical equipments, including transformers, and these equipments may, on occasion, be out of service as a result of unanticipated failures. Company has taken utmost care while short-listing the equipments for all the major plants and have ensured that they follow the state of art and contemporary technologies. Company may experience material plant shutdowns or periods of reduced production as a result of any equipment failures. Furthermore, any interruption in its production capability may require the company to make capital expenditures, which may have a negative effect on the profitability and cash flows.

Company’s manufacturing facilities are subject to operating risks, such as the breakdown or failure of equipment, power supply or processes, performance below expected levels of efficiency, obsolescence, labour disputes, natural disasters, industrial accidents and the need to comply with the directives of relevant governmental authorities. Although the Company take precautions to minimize the risk of any significant operational interruptions at the company’s facilities, and there have been no such interruptions


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in the past, there can be no assurance that there will be no such interruptions in the future or that any such interruptions that might occur will not have a material adverse effect on the financial condition and results of operations

The Company has already filed an application in SIPB, Bihar / with Bihar State Electricity Board, Bihar for connected load of 18000 KVA for Induction Furnace and 1500 KVA for Rolling Mill. Bihar State Electricity Board (BSEB) consented to provide the required power for the proposed facility. Order for transformer has already been placed. The power supply, if uninterrupted, ensures the higher efficiency of the production facility.

x. Company’s business may be adversely affected by environmental and safety regulations to which it is subject.

Company is required to comply with Central, State and local laws and regulations governing the protection of the environment and occupational health and safety, including laws regulating the generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into soil, air or water; and the health and safety of the employees. The Company is also required to obtain and comply with environmental permits for some of the company’s operations. There can be no assurance that Company will at all times be in complete compliance with such laws, regulations and permits. If the Company violates or fails to comply with any of the requirements under any such laws, regulations and permits, it could be fined or face other regulatory actions. In addition, such requirements may become more stringent over time and compliance with such requirements may become more costly.

The Company propose to set up the project while conforming to all pollution control and safety norms as stipulated by State Pollution Control Board. It is installing pollution control equipments (Worth Rs.25.00 Lacs) at major pollution emitting areas. Further there has not been any major accident occurred in the existing plant of the promoter which suggests their concern of safety and necessary precautionary measures being used.

xi. Company require certain approvals or licenses in the ordinary course of business and the failure to obtain or retain them in a timely manner, or at all, may adversely effect the company’s operations

Company require certain approvals, licenses, registrations and permissions for operating the company’s business, some of which may have expired and for which the Company may have either made or are in the process of making an application for obtaining the approval or its renewal. If Company fail to obtain or retain any of these approvals or licenses, or renewals thereof, in a timely manner, or at all, the company’s business may be adversely affected. For further details please refer page 166 of this Letter of Offer.

xii. A significant portion of the project cost will be financed through debt and therefore Company would have debt servicing obligations that could affect the company’s ability to declare dividends.

Company intends to finance approximately 59% of the company’s total Project Cost through debt. This debt imposes a debt-servicing obligation on the Company, which the Company would have to meet from the company’s future cash flows. The cash flows may not be sufficient to fully meet the debt servicing obligations, and the distributable profit, if any, for declaration of dividends may be consequentially affected.

Company expect that the future cash flow will be sufficient to meet the debt-servicing obligation due to increase in proposed capacity as well as capacity utilization.

xiii. Promise Vs. Performance

The Company had come out with their maiden issue on 22nd May, 1995. The Company had made certain projections on the operating and financial performances in relation to last rights issue based on then prevailing situation. However, due to various reasons, the projections could not be achieved.


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Promise v/s Performance

(Rs. In Lacs)

Particulars 1994-95 1995-96 1996-97 1997-98

Promise Actual Variance




Capacity Utilisation (%)

44 33.20 (25) 55 36.37 (34) 70 42.70 (39) 80 41.22 (48)

Production (MT)

6000 4481.88 -25.3 11880 4909.58 -58.7 15120 5765.14 -61.9 17280 5565.34 -67.8

Gross Sales 743.04 545.13 -26.6 1436.99 612.36 -57.4 1873.34 771.89 -58.8 2146.74 831.12 -61.3PBIDT 90.04 62.10 -31.0 218.55 56.47 -74.2 317.58 43.57 -86.3 365.61 41.57 -88.6Depreciation 22.77 20.93 8.0 57.34 11.29 80.3 12.54 12.06 3.8 12.54 8.92 28.9Interest 24.81 23.67 4.8 22.17 23.50 -6.0 19.92 20.98 -5.3 17.67 19.99 -13.1PBT 38.94 17.50 -55.0 135.52 21.68 -84.0 281.60 10.53 -96.3 331.88 12.66 -96.2Provision for Tax

- - - 29.00 - 100 87.71 0.65 99.3 105.44 1.25 -98.8

PAT 38.94 17.50 -55.0 106.52 21.68 -79.6 193.88 9.90 -94.9 226.44 11.41 -95.0Dividend (%) - - - 15% - - 20% - - 20% - -Dividend - - - 64.75 - 100 86.33 - 100 86.33 - -100Equity Capital 127.14 139.36 9.6 431.65 324.35 24.8 431.65 329.52 23.7 431.65 329.52 -23.7Reserve & Surplus

25.74 12.22 -52.5 67.51 33.78 -49.9 175.07 38.14 -78.2 315.18 48.82 -84.5

Net Worth 152.88 151.59 -0.8 499.16 358.13 -28.2 606.72 367.66 -39.4 746.83 378.34 -49.3 Book Value (Rs.) 12.02 11.92 -0.8 11.56 8.30 -28.2 14.06 8.52 -39.4 17.30 8.76 -49.4

EPS (Rs.) 3.06 1.29 -57.8 2.47 0.50 -79.7 4.49 0.23 -94.9 5.25 0.26 95.0

Note: Refer Page No. 171 of the Letter of Offer for details.

xiv. Cost Overrun

Due to delay in right issue proceeds, there was the delay in implementation of project and thereby resulting into cost overrun. State Bank of India has revised the term loan to Rs. 31.94 Crores over the previous term loan limit of Rs. 27.44 Crores on the basis of self appraisal done by the Company. The revised project cost as estimated by the Company amounts to Rs. 57.28 Crores. The company has already incurred a sum of Rs 51.18 crores till 31st January 2009 towards the implementation of the project which consists Rs. 7.75 Crores of unsecured loan. The company has already provided contingency of 0.35% in the project cost to consider any cost overrun. Over and above, the internal accruals of the company are sufficient to take care of any such eventualities. Further the promoters have provided an undertaking that in case of any cost overrun, the same will be financed by either the fresh promoters contribution and/ or internal accruals of the Company.

The cost of the project as per appraisal report was estimated by SBI Capital Market Limited at Rs. 48.32 crores which was subsequently reduced by State Bank of India to Rs. 44.71 crores due to the substitution of Bank Gaurantee of Rs. 0.90 crores in place of Security Deposit of Rs. 4.50 crores with Bihar State Electricity Board as originally envisaged and accordingly renewed the term loan component from Rs. 31.06 crores to Rs. 27.44 crores and is proposed to be financed by (i) Proceeds from conversion/forfeiture of warrants into equity shares issued to Promoters/Promoter Group and Non-Promoters. (ii) proceeds of the Rights Issue and (iii) Term Loan from SBI. Due to delay in the Rights Issue proceeds, the Company could not complete the project in time resulting in cost overrun and revised cost of the project estimated by the Company on self appraisal basis amounted to Rs. 57.28 crores. The Company approached the appraising bank to revise the sanction limit based on the self appraisal done. The appraising bank (State Bank of India) accordingly sanctioned the term loan of Rs. 31.94 crores in place of original sanction of Rs. 27.44 crores.

The BSEB subsequently has refused to accept the Bank Guarantee previously agreed. Hence the Company has proposed Rs. 1.02 crores against security deposit taking into account Rs. 0.68 crore for rolling mill and Rs. 0.32 crore as first installment for Induction Furnace and Rs. 0.02 crore for other security. The remaining security deposit will be paid by the Company through internal accrual from 2008-09 which are sufficient to meet this liability without disturbing the DSCR. Even in case the internal accrual is not sufficient to meet this liability, the promoter will bring own fund to meet the liability.

Initially the project cost was estimated to Rs. 44.71 crores on the basis of appraisal done by SBI Capital Markets Ltd. State Bank of India has sanctioned the term loan of Rs. 27.44 crores. Due to delay in


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implementation of the project, the cost of the project has been increased. The revised project cost estimated by the Company on self appraisal basis amounted to Rs. 57.28 crores.

xv. Time Overrun

The Company has selected reputed suppliers for supplying equipments. The Company has engaged four different consultant for its proposed project who will supply technical know how along with plant & machinery, namely:

Name AreaMegatherm Electronics Pvt. Ltd. Induction FurnaceConcast India Ltd. ConcastA.R. Engineering Works Rolling MillH & K Rolling Mill Engineers Pvt. Ltd. Quenching System

All the above-referred consultants have expertise in their respective fields and the management is very assured of timely implementation of the project.

The company wherever possible has incorporated suitable Liquidated Damages (LDs) in the agreement with the contractor/equipment supplier for timely completion of the project.

xvi. Company have reported negative cashflows from Operations, Investment activities and

Financing activities for the year 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 and for the period ended 30.09.2008.

Company has reported negative cashflows from operating activities for the year 2003-04, 2005-06 and 2007-08, from investment activities for the year 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and for the period ended 30.09.2008, and from financing activities for the year 2004-05 and 2006-07.

The Company has recorded negative cash flow from operating activities for the year 2004, 2006 & 2008 mainly due to increase in Trade & Other Receivables. The Company has recorded negative cash outflows from investing activities for the year 2004, 2005, 2006, 2007, 2008 and for the period ended 30.09.2008 due to addition of fixed assets for ongoing modernization and expansion plan. The same outflows are being met through raising funds through secured loans from banks. The Company has recorded negative cash outflows from financing activities for the year 2005 and 2007 due to repayment of loans & interest to the banks.

xvii. If Company unable to adapt to technological changes, the company’s business could suffer.

Company has adopted the latest technology for implementation of the integrated steel plant. The company’s future success will depend in part on the company’s ability to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails technical and business risks. Company cannot assure you that the company will successfully implement new technologies effectively or adapt the systems to emerging industry standards. If Company unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or technological changes, the company’s business, financial performance and the trading price of the company’s Equity Shares could be adversely affected.

The technology that the company intends to adopt for this plant is a proven technology. The company has identified various suppliers of machineries who have proven track record and technology. They shall also assist the companies personnel in technical training for operation of plant and machinery. The company has placed orders for most of the machineries required for the project & has already received delivery of majority of it & expected to receive delivery of balance shortly.


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xviii. The company’s operations rely on timely supply of raw materials and inputs to the company’s plant and transportation of finished products to customers, which are subject to risks and uncertainties.

The Company, depend upon various forms of transport, such as, rail and road to receive raw materials and for delivering the finished products to the company’s customers. These transportation facilities may not adequately support the operations due to traffic congestion and unavailability of respective fleet. Further, disruptions of transportation services because of weather –related problems, strikes, lock-outs, inadequacies in the road infrastructure and port facilities, or other events could impair the company’s ability to source raw materials and components and the company’s ability to supply the products to customers. Company can provide no assurance that such disruptions will not occur in future. In addition, significant increases in transportation cost may adversely impact the financial results. Company have not entered into any agreement with any transport agency on long term basis.

xix. Company has not placed orders for Plant & Machinery aggregating Rs 27.00 lacs.

Company has not placed order for Plant & Machinery to be purchased aggregating to Rs 27.00 Lacs, which is 1.07% of the total cost of Plant & Machinery required for the Project. Without this the operation is not getting disturbed and is readily available in the market. Company shall be placing the order at appropriate time.

xx. Dependence on Key Management Team.

The company’s operations rely heavily on key employees. In case of shortage of key employees or high attrition of employees, its operations could be adversely affected. Successful performance of the business operations depends on its trained key managerial personnel and any sudden disruption in the services of these personnel may have an adverse impact temporarily affecting the smooth operation of the business.

Company provides good remuneration package and a healthy work environment with lots of operational freedom to its employees. The company has been able to retain its key management team in the past, and expects that it would be able to retain them in future.

xxi. The company’s insurance cover may not be adequate to protect it against all potential losses to which Company may be subject.

Company have taken adequate insurance coverage to insure against all perceived risks. Even then, the insurance cover may not be adequate to protect against all potential losses.

xxii. Compliance with, and changes in, safety, health and environmental laws and regulations may adversely affect the company’s business, financial condition and results of operations.

Depending upon the nature of the projects undertaken by the Company, environmental laws and regulations such as Environment Protection Act, 1986; Water (Prevention and Control of Pollution) Act, 1974; Air (Prevention and Control of Pollution) Act, 1981; etc. may apply. If new safety, health and environmental regulations are introduced then there could be an effect on the company’s operations, which cannot be predicted. The failure to meet requirements could expose the company to administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other individuals, which could result in substantial fines and penalties against the company as well as orders that could limit or halt the operations.

xxiii. Future issuances or sales of the Equity Shares could significantly affect the trading price of the Equity Shares.

The future issuance of Equity Shares by the Company or the disposal of Equity Shares by any of the Company’s major shareholders or the perception that such issuance or sale if occur may significantly affect the trading price of the Equity Shares.


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xxiv. The Company has entered into transactions with related parties.

The Company has entered into various transactions with related parties, including with associate ventures. For detailed information on related party transactions, refer section “Related Party Transactions” beginning on Page No. 136 of this Letter of Offer.

xxv. The Company is subject to restrictive covenants in certain short-term and long term debt facilities provided to the company by the lenders

Company has taken long term and short term loans from FIs/Banks. As per the signed loan agreements with them, there are certain standard restrictions imposed on the company regarding entering into any scheme of merger, amalgamation, compromise or reconstruction, changing the ownership, control or management of the Company, amendment to the Memorandum or Articles of Association of the Company, effecting change in capital structure, incurring any capital expenditure in excess of the depreciation provided in previous financial year, declaration or payment of dividend out of reserves, undertaking any new project or expansion or make any investment or take assets on lease, not to create any additional encumbrances on the assets of the Company, not escrow future cash flows of the Company or create any charge or lien or interest of whatsoever nature thereon, making investments in or lending /advancing funds to or placing deposits with any other company, entering into secured or unsecured borrowing arrangements with banks, FIs, companies or other persons, undertaking guarantee obligations on behalf of any other companies or persons, sell, assign, mortgage, or otherwise dispose off any of the fixed assets, undertaking unrelated trading activities, invest by way of share capital in or lend or advance or place deposits with any other concern except normal trade credit or security deposits, undertake guarantee obligations on behalf of the firm, undertake guarantee obligations on behalf of any other company and other such matters. Company is required to obtain their prior approval before initiating such changes. Though these covenants restrict the operations of the Company, to a certain extent they also ensure financial discipline and help the Company in the long run in improving its financial performance. However, the Company has obtained the requisite approvals from the lending agencies for coming out with the proposed Rights Issue in terms of this offer document.

xxvi. Company will be required to cease using trademarks and/or technology in relation to the goods, in case of non-renewal or termination of the technology and/or trademark agreements.

Subject to the specific terms and conditions of the technology and/or trademark agreements entered into by us, upon termination or expiry and non-renewal of such agreements, Company shall be required to cease using of such technology and/or trademarks, in relation to the products.

The trademark is duly registered at present and the said registration is valid for a period of 10 years beginning 4th November 2003. Further the Thermex technology presently used by the Company is valid for a period of 5 years starting from the year 2005. For further details please refer to the section ‘Government and Other Statutory Approvals’ on Page No. 166 of this Letter of Offer.

xxvii. Force Majeure

Any mishap or accident in the factory could result eventually in damages, which may result into loss to the Company. Company could suffer loss of production; receive adverse publicity and experience diversion of management attention and resources in defending such damages. Any such significant event could have an adverse effect on the business, financial condition and results of operations. The Companies plant was closed for a fortnight in the month of October 2007 due to heavy rain and flood like situation in Bihar. As a result, the offtake of the Finished Goods was severally affected.

The Company has its policy to have comprehensive insurance against any such risks like damaged/loss from fire, flood, earthquake, riots, and malicious damage. Loss of production, etc. in respect of its fixed assets and inventory with Re Instatement of Value (RIV) clause in its insurance policy. The Company has taken adequate insurance cover in respect of its fixed assets and current assets.


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xxviii. Dependence on rights issue proceeds

The Company is dependent on the full subscriptions of the rights issue. Under-subscriptions to the issue may have an adverse impact on the implementation of the Company’s investment plan.

In the event of under-subscription of the issue promoters/promoter group intend to subscribe to the issue beyond their entitlements. In such a case the acquisition of additional shares by promoters/promoter group shall be exempt from making an open offer in terms of regulations 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulation 1997. The acquisition will not result in a change in the control of the management of the Company.

xxix. Any inability to manage the growth could disrupt the business and reduce the company’s profitability.

The Company expects business to grow significantly as a result of the planned capacity expansion. Company expect this growth to place significant demands and require the company to continuously evolve and improve the company’s operational, financial and internal controls across the organization. In particular, continued expansion increases the challenges in:

• maintaining high levels of customer satisfaction;• recruiting, training and retaining adequate skilled management, technical and marketing personnel; • adhering to quality and process execution standards that meet customer expectations; • preserving a uniform culture, values and work environment in operations; • developing and improving Company’s internal administrative infrastructure, particularly the financial, operational, communications and other internal systems.

xxx. Any disruption in supply of power at the company’s plants may have an adverse effect on the production.

The power requirements of the Company are presently met by purchase of electricity from the State Boards of Bihar. Although, the Company has a standby arrangement to substantially meet the power requirements through, any disruption in supply of power at the company’s plants may have an adverse effect on the production.

xxxi. You will not receive the Equity Shares you purchase in this Issue until several weeks after you pay for them, which will subject you to market risk

For shareholders holding shares in demat mode, the Equity Shares purchased in this Rights Issue will not be credited to their demat accounts with depository participants and for shareholders holding in physical form, completion of dispatch of physical share certificates may not be completed until approximately fifteen (15) days from the Issue Closing Date. You can start trading in your Equity Shares only after receipt of listing and trading approvals in respect of these shares which will require additional time after the credit of Equity Shares into your demat account. Since the Company’s Equity Shares are already listed on BSE, you will be subject to market risk from the date you pay for the Equity Shares to the date they are listed.

xxxii. The Company’s ability to pay dividends will depend upon future earnings, financial condition, cash flows, working capital requirements, capital expenditures and other factors.

The amount of future dividend payments, if any, will depend upon the future earnings, financial condition, cash flows, working capital requirements, capital expenditure and other factors. There can be no assurance that the Company will have distributable funds after the commence of commercial operations of the project.


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xxxiii. If investors who are issued partly paid shares do not pay the amount payable on calls, the amount raised through the Issue will be lower than the proposed Issue size of Rs. 12.31 crores.

As per the terms of the Issue, the issue proceeds would be raised in two steps, first 50% of the Issue price including premium would be payable on application, next 50% of the Issue price including premium would be called within 12 months from the date of allotment. If the call remains unpaid, the amount raised through the Issue may be lower than the proposed Issue size of Rs. 12.31 crores and may require the company to take steps for forfeiture of the shares. Based on the cash flow position at that point in time, Company may have to raise alternate source of funds or finance the projects from the company’s internal accruals if substantial number of shareholders decide not to pay their calls. Company cannot assure you that their will be sufficient cash flows or will be able to obtain financing on favourable terms or at all. If adequate funding is not available, the ability to continue to grow the business could be adversely affected.

xxxiv. The appraising Bank (State Bank of India) has highlighted some weaknesses and threats in its appraisal note in respect of new Bihta project of the company as detailed below:

a. The Company has not entered into any firm arrangement for raw material supply and off take of finished goods which can have the impact on the profitability of the business.

b. The Company is yet to develop a proper management information system commensurate with its scale of operations, which for time being can effect on the operation of the Company.

c. The products - Billets, MS Bars and Wire Rods – being manufactured by the Company are susceptible to price volatility.

d. Big players in the Industry having found opportunity in this product have started rolling out new projects / augmenting the existing lines with huge capacity expansion.

e. There are numerous smaller players in the market and thereby quality consciousness and brand promotion is to be done on a continuous basis.

xxxv. There is a possibility of conflict of interest within Group Companies/Firms etc. The company makes purchase of significant quantity of its raw material requirement from one of its group companies named Gangotri Electrocastings Limited.

The Company procures a significant requirement of its raw material from M/s Gangotri Electrocastings Limited, a group company, manufacturing non-alloy ingot and the purchases from them are based on competitive market related prices. During the year 2007-08, the Company has purchased non-alloy ingot from M/s Gangotri Electrocastings Limited worth Rs. 3690 lacs (100%) out of its total purchase value of Rs. 3690 lacs.


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(B) EXTERNAL RISK FACTORS

1. Company is subject to adverse impact of economic and political conditions.

Global economic and political factors that are beyond the control, influence forecasts and directly affect performance. These factors include interest rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends, terrorist threats and activities, worldwide military and domestic disturbances and conflicts, and other matters that influence consumer confidence, spending and tourism. Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude.

2. Increasing employee compensation in India may erode some of the company’s competitive advantage and may reduce the profit margins.

Employee compensation in India has historically been significantly lower than employee compensation in the United States and Western Europe for comparably skilled professionals, which has been one of the company’s competitive strengths. However, compensation increases in India may erode some of this competitive advantage and may negatively affect the company’s profit margins. Employee compensation in India is increasing at a faster rate than in the United States and Western Europe, which could result in increased costs relating to engineers, managers and other mid-level professionals.

Company may need to continue to increase the levels of the employee compensation to remain competitive and manage attrition. Compensation increases may have a material adverse effect on the company’s business, results of operation and financial condition.

3. Terrorist attacks and other acts of violence or war involving India, the United States, and other countries could adversely affect the financial markets, result in a loss of business confidence and adversely affect the company’s business, results of operations and financial condition.

Terrorist attacks and other acts of violence or war, including those involving India, the United States or other countries, may adversely affect Indian and worldwide financial markets. These acts may also result in a loss of business confidence and have other consequences that could adversely affect the business, results of operations and financial condition. Increased volatility in the financial markets can have an adverse impact on the economies of India and other countries, including economic recession.

4. Competition in the Industry

The Company may face competition from the existing established companies and future entrants into the Industry.

5. Change in the Technology for production of Steel Bars.

Initially steel bars were produced from cold twisted bars called CTD technology. Now the technology has changed to “Thermex” technology, which uses a water quenching process. Any such further changes/ advancements in technology would require deployment of additional capital, since Iron & Steel Industry is a capital-intensive industry. Any failure to keep abreast with technological advancements or the company’s inability to deploy enough capital for up gradation of technologies would affect marketability of the products and in turn impact financial performance of the Company.

6. Risk of Regulatory Uncertainty

Significant changes in the regulatory laws, Indian’s economic liberalization and deregulation policies, fiscal policies adopted by the Government of India may affect the performance of the company in the future. The Company’s operations could also be affected by various factors in the international business such as district economic and business environment, restriction on trade and legal agreements,


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multiple and possible overlapping of tax structures, change in tariff structures, exchange rate fluctuations, regulatory, socio economic, political changes, to name a few. These factors may have a material impact on the business of the company.

7. Effect of natural calamities:

Natural disasters could disrupt the operations and result in loss of revenues and increase costs. The plants are vulnerable to man-made and natural disasters such as, explosions, earthquakes, storms and floods. The occurrence of a man-made or natural disaster, or other accidents could disrupt the operations of the plant and result in loss of revenues and increased costs.

8. A slowdown in economic growth in India could cause the company’s business to suffer.

The Indian economy has shown sustained growth over the last few years with gross domestic products (“GDP”) showing sustained growth. However, any slowdown in the Indian economy could lead to a slowdown in the industries in which Company operate and adversely affect the company’s financial performance.

9. Failure to comply with environmental laws, rules and regulations may adversely affect the business or operations

Environmental laws and regulations in India are becoming stringent and it is possible that they will become significantly more stringent in the future. If, as a result of non-compliance with any environmental regulations, any of the units or the operations of such units are shut down, Company will continue to incur additional costs in complying with regulations, appealing any decision to close the company’s facilities, maintaining production at the existing facilities and continuing to pay labour and other costs which continue even if the facility is closed. As a result, the overall operating expenses will increase and the company’s profits will decrease.

10. Price volatility in Raw Material

The prices of basic raw materials i.e. Non alloy Ingot, Iron Scraps have shown an upward trend in the recent past. This increase in prices of the raw materials leads to increase in cost of production. In case the Company unable to increase the prices of the finished products the margins would be affected and impact the financial performance significantly.

11. Cyclical nature of the Industry

World over, Iron and Steel Industry, is cyclical in nature leading to imbalance in the demand supply situation. When the supply exceeds the demand, the prices of the finished products would be affected. This would adversely affect the company’s margins and impact the financial performance significantly.

12. The Issue price of the company’s Equity Shares may not be indicative of the market price of the Equity Shares after the Issue.

The Issue Price of the Equity Shares will be based on numerous factors (discussed in the section ‘Basis for Issue Price’ on Page No. 81 and may not be indicative of the market price of the company’s Equity Shares after the Issue. The market price of the Equity Shares could be subject to significant fluctuations after the Issue, and may decline below the Issue Price. Company cannot assure that you will be able to resell your Equity Shares at or above the Issue Price. Among the factors that could affect the company’s share price are:

• Quarterly variations in the rate of growth of the financial indicators, such as earnings per share, net income and revenues;

• Changes in revenue or earnings estimates or publication of research reports by analysts; • Speculation in the press or investment community; • General market conditions; and • Domestic and international economic, legal and regulatory factors unrelated to the

performance.


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13. Volatility of share prices on listing

After this Issue, the price of the company’s Equity Shares may be highly volatile, or an active trading market for the Equity Shares may not develop. The prices of the company’s Equity Shares on the Stock Exchanges may fluctuate as a result of several factors, including: • Volatility in the Indian and global securities market; • the company’s results of operations and performance, in terms of market share; • Performance of the Indian economy; • Changes in Government policies; • Changes in the estimates of the company’s performance or recommendations by financial analysts; • Significant developments in India’s economic liberalization and deregulation policies; and • Significant developments in India’s fiscal and environmental regulations

NOTES:

i) The investors are advised to refer to the para on “Basis for Issue Price”, Page No. 81, before making an investment in this issue

ii) Investors may note that in case of over subscription, the allotment shall be as per the procedure stated under the Para “Basis of Allotment” given on Page No. 192

iii) Net worth of the Company as on 31/03/2008 and 30/09/2008 is Rs. 1488.97 lacs and Rs. 1344.12 lacs respectively as per Certified Restated Financial Statements. The fall in Net worth in last six months is due to increase in Pre-operative expenses of Rs. 433.17 lacs which has been incurred against the expansion project undertaken by the Company to be capitalized on commencement of commercial production of the said project.

iv) Net Asset Value of the Equity Shares of the Company, as per its restated financials as at March 31, 2008 is Rs. 19.36 per Equity Share and for September 30, 2008 is Rs 17.47 per Equity Share.

v) Other than as stated in the section titled “Management”, “Promoters” and “Financial Statements” beginning on Page No. 117, 125 and 129 of the Letter of Offer, the Promoters/ Directors/ Key Management Personnel have no interest other than reimbursement of expenses incurred or normal remuneration or benefits.

vi) There have been no transactions in the shares of the Company on the Stock Exchanges by the Promoter /Directors of the Company during the past 6 months.

vii) Other than as stated in the Letter of Offer, the other ventures of promoters have no business Interests /other interests in the issuer company.

viii) All information is being made available by the lead manager and the Company to the public and investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever including at road shows, presentations, in research or sales reports, etc.

ix) The Rights Issue comprises of 61,53,680 equity shares of Rs.10/- at a price of Rs 20/- per share ( including a premium of Rs 10/- per share) aggregating to Rs. 1230.74 Lacs in the ratio of 4 equity shares for every 5 equity shares held as on 20.03.2009 (i.e. record date)

x) Cost per share to the promoter. Name of the promoter Average cost of

acquisition per share (Rs.)

Mr. Ramautar Jhunjhunwala 16.50 Mr. Sanjiv Kumar Choudhary 16.64 Mr. Aditya Dalmiya 15.00


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xi) The Company, its promoters / Directors, Company’s Associates or Group companies have not been prohibited from accessing the Capital Market under any order or direction passed by SEBI. The promoters, their relatives, Issuer, group companies, associate companies are not declared as willful defaulters by RBI / Government authorities and there are no violations of securities laws committed in the past or pending against them.

xii) Related Party Transactions entered into by Gangotri Iron & Steel Company Limited during the preceding five financial years and also six months period ending 30.09.2008 are given at Page No. 141 of the Letter of Offer.

xiii) No loans and advances have been made to any person(s)/companies in which directors are interested except as stated in the Auditors Report. For details please refer Page No. 129 to 146 of this Letter of Offer.

xiv) The lead manager and the Company shall update this Letter of Offer and keep the shareholders/public informed of any material changes till the listing and trading commencement and the company shall continue to make all material disclosures as per the terms of the listing agreement.

xv) The investors are advised to refer the Paragraph on promoter’s background and past financial performance of the Company before making an investment in the proposed issue.

xvi) There are no relationships with statutory auditors to the Company other than auditing and certification of financial statements.

xvii) For the Contingent Liabilities not provided for as on 30th September, 2008 please refer to Annexure IV in Page No. 135 of this Letter of Offer.

xviii) Investors may contact the Lead Manager or the Compliance Officer for any complaint/ clarification/information pertaining to the Issue.

xix) Details of Compliance officer & fax, e-mail address

Ms. Priti Somani 16B, Shakespeare Sarani, Kolkata-700071 Ph. No: 033- 2282 4605 Fax: 033 – 22824605 E-mail: [email protected]


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SECTION - III. INTRODUCTION

1. SUMMARY

Industry Overview

The steel industry is one of the major industries in India and the Indian government plays a very important role in the development of the steel industry in India. The origin of the modern Indian steel industry can be traced back to 1953 when a contract for the construction of an integrated steelworks in Rourkela, Orissa was signed between the Indian government and the German companies Fried Krupp und Demag AG. The initial plan was an annual capacity of 500,000 tonnes, but this was subsequently raised to 1 million tonnes. The capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL (Steel Authority of India Ltd.) group, is presently about 2 million tonnes. At a very early stage the former USSR and a British consortium also showed an interest in establishing a modern steel industry in India. This resulted in the Soviet-aided building of a steel mill with a capacity of 1 million tonnes in Bhilai and the British-backed construction in Durgapur of a foundry, which also has a million ton capacity.

Till 1990, the Indian steel industry operated under a regulated environment with insulated markets and large-scale capacities reserved for the public sector. Production and prices were determined and regulated by the Government, while SAIL and Tata Steel were the main producers, the latter being the only private player. 1992 saw the onset of liberalization and the Indian economy was opened to the world. Indian steel sector also witnessed the entry of several domestic private players and large private investments flowed into the sector to add fresh capacities. The last decade saw the Indian steel industry integrating with the global economy and evolving considerably to adopt world-class production technology to produce high quality steel. The nineties were crucial for Indian steel industry too. The controlled environment has changed drastically, in the post-liberalization scenario. The sector was opened up to the entry of private players, while quantitative restrictions foreign trade have been removed. The last ten years has also seen inefficient steel mills with outdated technology perishing, while new capacities too have come up that possess latest technology expertise. The potential demand for steel in India is vast with the per capita steel consumption India being 26.7 kg compared to the global average of 121.0 kg in 2000-01. This offers a huge potential to steel manufacturers, both domestic and global.

The steel industry showed signs of recovery in the beginning of 2002 from the recessionary trend. The signs of revival were due to the increased demand for the steel products. The demand has increased due to increased demand from China. Steel Industry in India is on an upswing because of the strong global and domestic demand. India's rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map. According to the latest report by International Iron and Steel Institute (IISI), India is the seventh largest steel producer in the world.

(Source: indiansteelalliance.com)

Industry Structure

The Indian steel industry can be divided into two distinct producer groups:

• Major producers: Also known as Integrated Steel Producers (ISPs), this group includes large steel producers with high levels of backward integration and capacities of over 1 MT. Steel Authority of India Limited (SAIL), Tata Steel, Rashtriya Ispat Nigam Limited (RINL), Jindal Vijayanagar Steel Limited (JVSL), Essar Steel and Ispat Industries form this group.

• Other producers: This group consists of smaller stand-alone steel plants producing small quantities of steel (flat/long products) from materials procured from the market or through their own backward integration system, stand alone units making pig iron and sponge iron and small producers using scrap-sponge iron-pig iron combination produce steel ingots (for long products) using Electric Arc Furnace (EAF) or Induction Arc Furnace (IAF) route.

(Source: indiansteelalliance.com)


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Indian Steel Industry

National Steel Policy 2005

National Steel Policy, as formulated by Indian Ministry of Steel envisages the following -

• Crude steel production of 110 million tonnes by 2019-20 at CAGR of 7.1% from 2004-05.

• The demand of steel by 2020 is likely to be 90 million tonnes at CAGR of 6.9% from 04-05.

• Steel exports by 2020 are likely to grow at CAGR of 13.3% from 04-05 to 26 million tonnes.

• Steel imports to the country by 2020 shall grow at CAGR of 7.1% from 04-05 to 6 million tonnes.

(Source: www.steel.nic.in)

Business of the Company

Gangotri Iron & Steel Company Ltd (GISCO), formerly known as Esskayjay Ispat Ltd, was incorporated in 1992 having its registered office in Patna, Bihar for manufacturing of re-rolling products. In 1994, a manual steel re-rolling unit with a capacity of 12,000 MT per annum was set up and commissioned at Patna.The management modified the unit and converted the same into fully automatic plant with an expanded capacity of 22,000 MT per annum. In the year 2003, the company modernized its production facility by adopting new technology of making TMT bars and started manufacturing GISCO TMT bars in November 2003. The product, because of its better quality over other local manufacturers, was well accepted in the market and commands price premium over its competitors. Its products got ISI certification and in the year 2005 the company became an ISO 9001 and 14001 certified company. In 2006, the company has further expanded its capacity to 33000 tonnes per annum by adopting latest German THERMEX technology for the first time in state of Bihar and started Brand building process in the name and style of GISCO THERMEX TMT bars. This product, because of its high quality, has been successful in creating a niche in the market with high premium for itself in a very short period.

GISCO has been in the business of manufacturing of re-rolling products over more than a decade and has established itself as a reputed quality manufacturer of TMT bars. The Company has showed improved financial performance on a continuous basis. The turnover has increased from Rs. 27.77 crores in 2005-06 to Rs. 39.19 crores in 2006-07 and further to Rs. 45.66 crores in 2007-08 thereby showing a growth of 41.12% and 16.51% respectively over the previous years. The break up of sales is as follows

(Rs. in crores)

Particulars 31.03.06 31.03.07 31.03.2008 30.09.2008 Sale of Finished Goods 27.30 38.44 44.91 28.32

Sale of Scrap 0.46 0.64 0.75 0.60

Trading Goods 0.01 0.11 - -

Total 27.77 39.19 45.66 28.92

The company has been successful in creating brand awareness through advertising and sales promotion and has a team of 200 dedicated dealers for Companies products. The company has appointed Mr. Manoj Tewari as a brand ambassador, who is a widely renowned cine-star in Bihar & Jharkhand.

Our Financials

Total Income and Profit before Tax have increased by 16% and 5% respectively, compared to previous year ended on 31.03.2007. This was achieved due to operational efficiencies despite several adverse factors, particularly substantial increase in prices of inputs and enhanced competition. The company has been thus effective in implementing cost control measures.


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The tangible net worth of the company has increased from Rs. 8.76 crores in 2005-06 to Rs. 14.89 crores in 2007-08 due to profit and security premium during the year 2007-08. The current ratio for the period ended 30.09.2008 is at 1.12 which may be considered satisfactory.

The company has achieved a turnover of Rs. 25.04 crores (net of excise duty) and PAT of Rs. 0.75 crores for the six months ending September 2008.

Our Business strategy

Company is in the manufacturing of steel products for more than 15 years and has grown to the present level by developing quality of products, building trust in the customers. The Company wants to leverage this strength to its benefit in future so as to become an effective player in the steel industry. To provide best quality products and services to the customers is the main business strategy of the Company. Keeping in view the above, the business strategy of the Company is as under:

1. Improving the cost competitiveness. 2. Widening the customer base 3. Optimum utilization of the production capacity 4. Maintain and further consolidate the company’s position in key markets through capacity expansion. 5. Continue focus on operational efficiency improvements.

Our Competitive Strengths

The Company faces competition from large as well as small producers of the product. However, after completion of the proposed projects, the Company will be in a position to consolidate its position in the market and also to improve upon its margins.

The following inherent strengths would help in increasing our competitive capacities:

a. The promoters of the Company has sufficient past experience on this industry and has built a strong marketing network on the state of Bihar.

b. The proposed unit is going to manufacture long products like Billets, Ingots, CTD Bars, TMT bars, Wire Rods etc. They find wide application in general construction activities, engineering activities.

c. The State Government is allowing preference on price and supply factor to local industries. The unit will get price preference to the tune of 7.5% over producers of other states.

d. DGS&D approval clears the way for direct Government & Institutiional sales and the Company has already acquired the same.

e. Most of the rolling mills in Bihar are manual and not producing quality products whereas the Company is already producing quality products.

f. The Company has a distinct and established brand image. g. The Company has network of more than 200 dealers in all over Bihar. h. The new Bihar Industrial Act 2006 provides enabling provisions for establishment of new industries in

the state with attractive financial incentives. The new investments will increase the demand for steel products in the state.

i. Our Products meet BIS 1786:1985, ISO 9002 specifications. We have talented, skilled and qualified manpower to look after different activities at various levels in the organization.

For more details on our business and on our competitive strength, please refer to the section titled “Business Overview” starting from Page 95 in this Letter of Offer.


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2. OFFERING DETAILS

Issue of 6153680 Equity Shares of Rs.10/- each for cash at a price of Rs. 20/- per Equity Share (including premium of Rs. 10/- per Equity Share) aggregating to Rs 1230.74 Lacs on rights basis to the existing Equity Shareholders of the Company in the ratio of 4 (four) Equity Shares for every 5 (five) Equity Shares held on Record Date i. e. 20.03.2009.

No. of Equity Shares to be issued 61,53,680 Equity Shares Issue Size Rs.1230.74 Lacs Entitlement Ratio 4:5 Record Date 20.03.2009 Face Value Rs 10/- Offer Price Rs.20/- Application Money Rs.10/- (including premium of Rs. 5/- per Equity Share) Equity share outstanding prior to issue 76,92,100 Equity Shares Equity share outstanding after the issue 1,38,45,780 Equity shares of Rs 10/- each (7692100 fully

paid up Equity Shares and 6153680 partly paid up Equity Shares.)

Terms of the Issue Please see the section entitled “Basic Terms of the Issue” on Page 80 of this Offer Document.

TERMS OF PAYMENT

Due Date AmountOn application Rs. 10/- which constitutes 50% of the Issue Price of Rs.

20/-, including share premium On call Rs. 10/-, which constitutes the remaining 50% of the Issue

Price of Rs. 20/-, including share premium.


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3. SUMMARY OF FINANCIAL, OPERATING AND OTHER DATA

Rs. in thousands STATEMENT OF ASSETS & LIABILITIES AS RESTATED

Particulars As at As at 31st March30.09.2008 2008 2007 2006 2005 2004

Fixed assetsGross Block 95869.39 86698.81 76819.99 62571.76 31709.96 30578.90Less: Depreciation 24875.88 22088.18 16495.15 13990.92 11244.83 10811.33Net Block 70993.51 64610.63 60324.84 48580.84 20465.13 19767.57Capital Work-in-Progress 345514.09 233550.75 2461.90 385.02 - -Total (A) 416507.60 298161.38 62786.74 48965.86 20465.13 19767.57Investments (B) 1188.60 1188.60 4835.16 4993.41 - -Current Assets, Loans & Advances Inventories 41311.11 25312.42 26826.97 23644.48 14489.42 9442.52Sundry Debtors 59342.77 38973.63 44567.92 69105.96 12768.78 16309.83Cash & Bank Balances 8144.03 8174.60 8865.50 10422.53 3409.35 817.36Other Current Assets - - - - - -Loans & Advances 85914.27 160350.68 35536.79 27967.43 34639.10 16148.05Total (C) 194712.19 232598.33 115797.18 131140.40 65306.65 42717.76Liabilities & ProvisionsSecured Loans 326028.43 308327.39 40702.95 49659.41 16334.70 16369.23Unsecured Loans 48132.96 16100.00 6600.00 576.54 576.54 576.54Deferred Tax Liability 6334.99 6276.38 5569.60 6302.06 5673.00 2370.84Current Liabilities 87866.96 46930.52 37696.26 42461.50 20413.67 6994.82Provisions 9633.17 5629.64 5204.72 2721.45 971.84 -Total (D) 477996.50 383263.93 95773.53 101720.96 43969.75 26311.43Net Worth (A+B+C-D) 134411.89 148897.38 87645.55 83378.71 41802.03 36173.90Represented by:I. Equity Share Capital 76921.00 76921.00 52571.00 52571.00 34156.00 32952.00II. Reserves & Surplus 101994.84 94452.17 38794.95 30827.04 7831.74 3631.06III. Miscellaneous Expenditure not written off and adjusted Preliminary expenses 1187.44 881.24 - - 185.73 409.16Pre-operative expenses* 43316.51 21594.55 3720.40 19.33 - -Total Net Worth (I+II+III) 134411.89 148897.38 87645.55 83378.71 41802.03 36173.90* Pre-operative expenses of Rs. 43316.51 has been incurred against the expainsion project undertaken by the Company to be capitalized on commencement of commercial production of the Bihta project.

STATEMENT OF THE BUILDUP OF RESERVE Rs. in thousands

STATEMENT OF ASSETS & LIABILITIES AS RESTATEDParticulars As at As at 31st March

30.09.2008 2008 2007 2006 2005 2004

Opening Reserve & Surplus 94452.17 38794.95 30827.04 7831.74 3631.06 7039.36Profit & Loss Account 7542.67 8625.97 10429.30 7790.79 4200.68 (3408.30)Less : Dividend paid - 2461.39 2836.49Capital Reserve 1468.75 - 18041.00Share Premium 45562.50Closing Reserve & Surplus 101994.84 94452.17 38794.95 30827.04 7831.74 3631.06


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Rs. in thousands SUMMARY STATEMENT OF PROFIT & LOSS ACCOUNT AS RESTATED

Particulars For 6

months ended

For the year ended 31st March

30.09.2008 2008 2007 2006 2005 2004IncomeSales: Of Products Manufactured by the Company (TMT Bars) (Net of Excise Duty)

250449.61 395289.00 337356.16 239371.71 201211.06 137578.25

Of Products traded in by the Company (TMT Bars)

- - 1099.20 94.64 946.63 -

Sub Total 250449.61 395289.00 338455.36 239466.35 202157.69 137578.25Other Income 350.52 1037.64 1272.92 2111.31 236.85 8754.36Increase / (Decrease) in Inventories

13410.69 1473.44 2911.06 6836.17 8861.75 (5442.70)

Total Income (A) 264210.82 397800.08 342639.34 248413.83 211256.29 1408899.91ExpenditureRaw Materials Consumed 201224.34 308196.89 262019.63 189445.95 172256.99 124093.18Trading Goods Purchased - - - 1064.41 1046.72 -Staff Cost 2241.25 4131.83 4502.30 2333.73 1827.38 1759.58Other Manufacturing Expenses

19132.86 23112.35 19250.15 13538.56 11918.75 9010.59

Administrative Expenses 12401.99 17299.10 13073.46 11014.83 4705.29 3285.12Other Expenses - - - -State VAT 11001.15 17366.90 15046.68 10587.27 6449.86 -Interest (Net) 3712.79 7090.41 6680.66 3740.28 2442.32 1846.72Depreciation 2663.78 5452.01 7624.39 5585.73 2134.28 2296.13Total Expenditure (B) 252378.15 382649.49 328197.27 237310.76 202781.59 142291.32Net Profit / (Loss) Before Tax (A-B) 11832.66 15150.58 14442.07 11103.07 8474.70 (1401.41)

Taxation: Current Tax (4145.39) (4959.07) (4615.69) (2523.45) (971.84) -Deferred Tax (58.61) (706.77) 732.46 (629.05) (3302.17) (2004.25)Fringe Benefits Tax (86.00) (213.01) (136.21) (161.80) -Income Tax of Earlier Years Written Back/Short Provision

- (645.77) 6.66 2.02 - (2.64)

Net Profit / (Loss) After Tax (E) 7542.66 8625.97 10429.29 7790.79 4200.69 (3408.30)

Appropriations:Dividend - - 2158.65 2487.60 - -Tax on Dividend - - 302.70 348.89 - -Balance Brought Forward (F) 29379.92 20753.95 12786.05 7831.75 3631.06 7039.36

Balance Carried to Balance Sheet (E+F) 36922.58 29379.92 20753.95 12786.05 7831.75 3631.06


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4. GENERAL INFORMATION

Gangotri Iron & Steel Company Limited (Company Registration No.: 03-05129) (Corporate Identity No.: L27101BR1992PLC005129) [Incorporated on 7th December, 1992 under the Companies Act, 1956 as ‘ESSKAYJAY ISPAT LIMITED ’ vide Certificate of Incorporation issued by the Registrar of Companies, Bihar at Patna. The name of the company was changed subsequently to GANGOTRI IRON & STEEL COMPANY LIMITED and a fresh certificate of incorporation was received on dt 24th May, 2000 from Registrar of Companies, Bihar at Patna]

Registered Office: 307, Ashiana Towers, Exhibition Road, Patna-800001, Bihar Tel : (0612)-6510-777/888 Fax :(0612)-2323959 Website : www.giscotmt.comE-mail : [email protected]

Corporate Office: 16B, Shakespeare Sarani, Kolkata-700071 Tel : (033) 2282-4605 Fax : (033)22824605 E-mail : [email protected]

Manufacturing Plant Present: Naya Tola, Khagaul Road, Phulwari Shariff, Patna-801505 Tel : (0612)-2555-233 Fax : (0612)-2555-687 Proposed: Vill: Mahadevpur, Near Reliance Petrol Pump, Phulari, Bihta, Patna – 801103, Bihar

Registrar of Companies Bihar at Patna.Maurya Lok Complex, Block ‘A’ Western Wing, 4th Floor, Dak Banglow Road, Patna-800001. Tel : (0612) 2222-172 Fax :(0612)-2222-172 E-mail : [email protected]

Contact Person: Ms. Priti Somani, Compliance OfficerTel : (033)-2282-4605 Fax: (033)-2282-4605 E-mail : [email protected]

Listing: - The existing equity shares of the Company are listed at BSE and MGSE. The Company has delisted its equity shares from CSE. MGSE is derecognized by SEBI. The equity shares offered through rights issue are proposed to be listed on BSE. BSE is the Designated Stock Exchange.


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Dear Shareholder(s),

Pursuant to the resolutions passed by the Board of Directors of the Company at its meetings held on 13.12.2007 and the resolution approved by the shareholders in the Extra-Ordinary General Meeting held on 11.01.2008 & subsequent meeting of The Board of Directors held on 16.04.2008, it has been decided to make the following offer to the Equity Shareholders of the Company:

ISSUE OF 61,53,680 EQUITY SHARES OF RS. 10/- EACH FOR CASH AT A PRICE OF RS 20/- EACH INCLUDING A PREMIUM OF RS. 10/- PER EQUITY SHARE AGGREGATING TO AN AMOUNT NOT EXCEEDING RS. 1230.74 LACS TO THE EQUITY SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 4 EQUITY SHARES FOR EVERY 5 EQUITY SHARES HELD ON THE RECORD DATE I.E. 20.03.2009 (“ISSUE”). THE ISSUE PRICE FOR THE EQUITY SHARES WILL BE PAYABLE IN TWO INSTALLMENTS: 50% ON APPLICATION AND 50% ON CALL WITHIN 12 MONTHS. THE ISSUE PRICE IS 2.0 TIMES OF THE FACE VALUE OF THE EQUITY SHARE.

Important Information:

This Issue is applicable to those Equity Shareholders whose names appear as beneficial owners based on the list to be furnished by the Depositories in respect of the Shares held in the electronic form and on the Register of Members of the Company at the close of business hours on the Record Date 20.03.2009.


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Board of Directors of the Company

The Company is run and managed by Board of Directors comprising of 6 (six) Directors. The day-to-day affairs of the Company are being managed by Sri Sanjiv Kumar Choudhary, Managing Director of the Company. Our Board of Directors comprises of the following:

Name of the Director Designation StatusMr. Ramautar Jhunjhunwala Chairman Non – Executive & PromoterMr. Sanjiv Kumar Choudhary Managing Director Executive & PromoterMr. Aditya Dalmiya Director Non – Executive & PromoterMr. Ashok Agarwal Director Non – Executive & IndependentMr. Debabrata Banerjee Director Non – Executive & IndependentMr.Narendra Kumar Jaiswal Director Non – Executive & Independent

BRIEF DETAILS OF THE CHAIRMAN:

Mr. Ramautar Jhunjhunwala

Mr. Ramautar Jhunjhunwala is the Chairman and non- executive director of the Company since incorporation. He is having a work experience of 53 years out of which 19 years as the CEO of M.L.Dalmiya & Co., a leading construction company of India involved in successful implementation of civil & structural engineering contracts in India & outside India to mention a few like Ravindra Sadan, Airtel Hotel, New Termi

GANGOTRI IRON & STEEL COMPANY LIMITED · 2018. 8. 16. · ROC Registrar of Companies, Bihar at...

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