lgb forge ltd Management discussions

ANNEXURE - D

Post pandemic the world is facing recessionary and inflationary pressures..

The global economy has weathered a year filled with inclement conditions such as post pandemic challenges with surges in demand and supply, continuing geo political conflict which has lead to supply chain disruption, world wide surges in inflation, leading to recessionary conditions. All these factors have lead to the lowering of the global growth forecasts indicated by the IMF in the World Economic Forum in 2023. According to the report, the global growth is recorded at 3.4% in 2022 and the growth is expected to be at 2.8% in 2023. These conditions will continue to persist into 2023, with the main focus to curb inflationary pressures and financial stability to maintain interest rates.

Thankfully, India in spite of the above is still on a growth path, and is targeting a growth rate of 6 to 7 % as against 2 to 3% in the western world.The key drivers for Indias growth are the Governments prudent financial policies and relationship with other nations, strong consumption rebound and robust revenue collections.

Our company, LGB Forge Limited (LGBFL) engaged in the business manufacturing Hot and Cold Forged parts caters to various industries. Due to market conditions, During FY 2022-23 our company has shown lower growth and generated RS.11,760 LAKHS in annual sales through its products ranging from intricate closed die stainless, alloy and carbon steel forgings as finished and semi-finished machined components. The strategy of specialisation in catering to custom-made and small quantity orders continues has made the Company the preferred supplier to its customers. Our Companys expertise in making deliveries in short lead times helps the customers to keep low level of inventories at their end.

Our Company being equipped with Hot Forging, Cold Forging & Open hammer presses as well as various CNC machines uses design and analysis software to design & manufacture dies and tooling in house that play a key role in the efficient and timely production of prototyping. The manufacturing plants are fully integrated with complete facilities for inspection, testing, cutting, forging, heat-treatment, finishing, machining, cleaning, surface treatment & dies & tool making.

BUSINESS ENVIRONMENT OUTLOOK & PROSPECTS:

Forging is important to industry, and it caters to various sectors.. The last few years have not been favourable with extreme rise in the prices of steel, aluminium and nickel, and consequent rise in production costs. The automotive sector is a major end user of metal forging and takes the major share of production (at 58%) according to The Association of the Indian Forging Industry.

Our company has had a challenging year post Covid, having to over come supply chain disruptions and inventory corrections in the global platform, increase in raw material prices especially in the first half of the year. Our company is specifically focused on processes which will lead to increased efficiency and productivity such as machinery maintenance, cutting process costs by improving performance, man power reduction and training programs.

Our goals for the coming year are to:

1. Ensure customer satisfaction with ontime deliveries and meet customer expectations on quality
2. Continue to implement cost cutting measures as well as value engineering activities that increase operative efficiency
3. Keep upgrading our IT systems for better monitoring and safety
4. Work towards meeting customer expectations for carbon foot print reduction.

Though the outlook for the company based on the Indian economy looks bright, the new management team which has been put in place the last year has been tasked to upgrade and replace the plant and machinery and the infrastructure, to modernise the plant to the required levels of customer expectations. The team is studying the possibilities to carry out such modernisation and is planning its implementation also. On these lines a financial blueprint will also be prepared.

OPPORTUNITIES AND THREATS OPPORTUNITIES:

Post pandemic, many global manufacturers are looking for strong alternate suppliers, and India is emerging as one of the strongest suppliers with a high degree of credibility. This opens up significant potential for new business.

THREATS:

The forging industry has matured with the support of the internal combustion engines (ICE) in the automotive segment. Any shift towards electric vehicles (EV) may impact the industry. Forging is dependent on large volumes of ferrous and non-ferrous raw materials such as steel, iron, and other alloys. Fluctuations in raw material prices are a concern for the forging market, as they have a major impact on the overall revenue, if the increases are not passed on to the end customer.

RISKS AND CONCERNS:

Our company has put in place a risk management framework which enables diligent assessment of various activities for identifying, responding and mitigating potential risks both internally and externally. The key risks for our company include raw material, technology, talent and cyber security. We have a comprehensive internal control system which monitors adherence to policies and procedures and alerts the management in a timely manner.

SEGMENT:

Your Company operates in only one segment– Forging and machining.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

In the opinion of the Management, LGBFL has an adequate internal audit and control systems to ensure that all transactions are authorised, recorded and reported correctly. The internal control systems comprise extensive internal and statutory audits. The Corporate Governance practices instituted by the Company are discussed in detail in the chapter on Corporate Governance which forms part of this Annual Report.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The following are the summary of results of operations, break up of expenditures and cash flows of your company.

Results of Operations: (Rs. in Lakhs)

Particulars	2022-23	2021-22	Growth %
Net Sales	11622	13,006	-10.64
Other Income	138	65	112.31
Total Income	11760	13,071	-10.03

Break up of major heads of Expenditures: (Rs. in Lakhs)

Particulars	2022-23	2021-22	Growth %
Cost of materials consumed	6239	7,330	-14.88
Changes in inventory of Finished Goods, Work-in-progress and Stock in trade	20	(642)	-103.12
Employee benefit expense	2313	2,060	12.28
Finance Cost	216	225	-4.00
Depreciation/ Amortisation	479	453	5.74
Other expenses	3423	3,303	3.63
Total Comprehensive Income Before tax	(930.48)	341	(372.87)
Total Comprehensive Income after tax	356	388	(8.25)

Cash Flows: (Rs. in Lakhs)

Particulars	2022-23	2021-22
Operating cash and cash equivalents	0.61	1.03
Net cash from operating activities	(906.58)	224.87
Net cash from Investing activities	(210.64)	22.64
Net cash from financing activities	1117.32	202.65
Change in cash and cash equivalents	0.10	0.42
Closing cash and cash equivalents	0.71	0.61

Key Financial Ratios (Standalone Refer No. 48): (Rs. in Lakhs)

Particulars	2022-23	2021-22	Variance %
Debtors Turnover	3.37	3.78	-10.85
Inventory Turnover	4.13	5.73	-27.92
Interest Coverage Ratio	(3.30)	2.53	-230.43
Current ratio	1.29	1.45	-11.03
Debt Equity ratio	0.90	0.34	164.71
Operating Profit Margin %	(6.12)	4.38	-239.73
Net Profit Margin %	(8.01)	2.65	-402.26
Return on Net worth%	(26.78)	9.17	-392.04

HEALTH, SAFETY, SECURITY ENVIRONMENT:

The Company accords high priority to health, safety and environment. The Company has two manufacturing plants and two machining units in operation. The Company emphasizes on maintaining a healthy and safe environment in and around its factory. Safety awareness is inculcated through regular Safety awareness program.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT:

Human Resource Development is the integrated use of training and development, organizational development, career development to improve individual group and organizational effectiveness. The HR development climate of LGBFL plays a very important role in ensuring the competency, motivation and development of our employees and helps to provide learning related with goals of organization. It influences morale and the attitudes of the individual towards his / her work and work environment.

The Industrial relations were peaceful and harmonious throughout the year. As on the date, the number of permanent employees on roll is 177.

INDUSTRIAL RELATIONS FRONT:

Industrial Relations in our company continue to be highly cordial and harmonious. The participative way of functioning of management facilitates settling the disputes / grievances amicably through discussions, which in turn has resulted in maintaining over all healthy ethos of relationship in LGBFL.

LGB FORGE is committed to maintaining healthy industrial relations which in turn helps in creating an

atmosphere of industrial peace and harmony, which is necessary for better management, high productivity as well as growth of LGBFL.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report contains forward looking statements based upon the data available with the Company, assumptions with regard to global economic conditions, the government policies etc. The Company cannot guarantee the accuracy of assumptions and perceived performance of the Company in future. Therefore, it is cautioned that the actual results may materially differ from those expressed or implied in the report.

By Order of the Board

Place : Coimbatore Date : 15.05.2023

Rajsri Vijayakumar MANAGING DIRECTOR DIN:00018244

P.Shanmugasundaram INDEPENDENT DIRECTOR DIN:00119411