Lokesh Machines Ltd Directors Report.

Dear Share Holders,

Your Directors are pleased to present the 36th Annual Report of the company along with the Audited financial Statements for the financial year ended March 31, 2020.

FINANCIAL RESULTS

Rs in Lakhs

Particulars (2019-20) (2018-19)
Net Sales 12,584.07 19,044.07
Other Income 42.89 94.75
Captive Consumption 210.90 424.15
Total Income 12837.86 19562.97
Profit before Depreciation, Interest and Taxes 1251.96 3220.93
Less: Depreciation 890.00 912.58
Profit before Interest and Taxes 361.96 2308.35
Less: Interest and Finance Charges 1174.71 1289.73
Profit/ (Loss) before Taxes (812.75) 1018.62
Less: Provision for Taxes 344.33 342.08
Profits/ (Loss) after Taxes (468.42) 676.54
Other Comprehensive Income (57.30) (27.85)
Total Comprehensive Income/ (Loss) (525.72) 648.69

PERFORMANCE REVIEW:

The turnover decreased by 34%, during the year.

3 During the year, the Company recorded Revenue from Operations by way of Net Sales of Rs.125.85 Crores as against Rs.190.45 Crores in 2018-19 a reduction of about 34%.

3 The Machine Tool Division has registered a de-growth in terms of sales value as compared to the previous year; primarily lead by the General Purpose machinery division which itself showed a sharp fall down of around 45% as compared to previous year. GPM Machines export sale has also shown considerably lower numbers in comparison to previous financial year. Sale of SPM machines registered marginal fall during the year in terms of total sales value.

3 The Component division had also shown a decreased movement in comparison to previous year.

3 The overall reduction in Turnover and the loss suffered by the Company was due to the slowdown of the economy especially in Auto sector. This has resulted into poor performance of the Company.

IMPACT OF COVID-19 AND FUTURE COURSE OF ACTIONS

The spread of COVID-19 virus caused global disruption, with negative impact on human health, business enterprises and the global economy in general. The rapid outbreak of the COVID-19 pandemic during Q4 of FY 2019-20, has severely impacted the physical and financial health of people across India and to prevent the contagion in the Country, phases of nationwide lockdown was announced by the Government of India ("GOI").

Based on the directive given by the GOI for closure of activities to control COVID-19 pandemic, your Company suspended its production across all its factory locations, manufacturing plants since March 23, 2020 and resumed operations in its plants during second week of May 2020 in a phased manner, after obtaining necessary approvals from the relevant authorities. Your Company has been abided and compliant to the Ministry of Home Affairs and State Government guidelines on administration and social distancing.

During this uncertain period, your Company has implemented detailed business continuity plans with its partners and suppliers in an effort to secure the continuation of operations while caring for the health, safety and well-being of its employees.

As a result of COVID-19, the demand for your Companys products has seen a drastic slowdown and has hampered the supply chain for the automotive industry as a whole. This in turn has an impact on the supply chain of your Company and could pose challenges relating to procurement of raw materials in the foreseeable future.

Your Company is taking a number of measures to mitigate substantial negative impact including manpower, cost control and in close collaboration with customers, banks, financial institutions, suppliers and employees. These actions are an acknowledgement of current events as well as uncertainty around the timing and showing path of recovery.

Your Company is prepared to focus its efforts on securing supplies, manufacturing and logistics for growth amidst this crisis and also has plans to develop its market for its products to enhance visibility of demand and customer needs. Liquidity and other risks are being monitored on an on-going basis. The Company has taken Cash flow control and overhead control measures to manage the operations. Weekly review mechanism adopted to review the account receivables and measures taken to control the capital expenditure.

However, with a good monsoon, the rural demand is expected to be robust and therefore we foresee business from customers catering to this sector.

FUTURE OUTLOOK

The automotive industry in India has been witnessing a slowdown and 2019-20 was a challenging year for the Company in terms of Sales as well as Profit. The Indian automotive and related industries witnessed several head winds in the Financial year 2019-20 due to slowdown in the economy and regulatory changes such as emission norms, axle load & other norms, which hindered the industrys performance.

The impact of COVID-19 will be felt in the Financial Year 2020-21 as it is expected to further drag the slowness in the auto industry and the revival is bound to be slow. However, the Tractor industry expects a strong growth in the year 2020-21 due to good rainfall in the previous year, increased Minimum Support Prices, credit availability, positive farm sentiment and normal monsoon expected in the current year. The long-term outlook remains positive for the Automotive Industry with most major global players having a base in India for manufacturing, global sourcing and engineering.

Your directors are confident of putting in an improved performance over the previous year.

1. The CNC machines division is expected to post substantial growth with improving market conditions. While the current capacity utilization is at its peak, the company is making significant improvements in productivity improvement and further increase in capacity utilization thus squeezing the assets to the maximum. With Europe showing signs of recovery and situation in Russia easing, there would certainly be an uptick in the Export performance as well.

2. The SPM order book reflects a reasonable growth. Almost all the orders are from the existing customers only for capacity expansion and not for any new products.

3. On the component division front, the Connecting Rod production is in stabilization mode. With a reasonable monsoons prediction, the Tractor industry in particular and the Auto sector in general are expected to do well and thereby help us increase the overall revenues.

DIVIDEND

In view of inadequacy of profit, your directors regrets to recommend any dividend for the financial year ended 31st March, 2020.

TRANSFER TO GENERAL RESERVE

The Company does not propose to transfer any amount to General Reserve for the Financial year 2019-20.

SHARE CAPITAL

The paid-up Equity Share Capital as on 31st March, 2020 was Rs. 1789.67 Lakhs

SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

The company does not have any Subsidiary company either in India or abroad.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Composition

The Corporate Governance Report annexed to this Boards Report contains the composition of the Board of Directors of the Company.

Mr. M. Krishna Swamy, Director of the company retires by rotation at the ensuing Annual General Meeting, and being eligible offer themselves for re-appointment.

The detailed profile of the above directors is given at Notice and Explanatory statement calling the Annual General Meeting.

As required by SEBI (LODR) Regulations, 2015 with the Stock Exchanges, the information on the particulars of the Directors seeking re-appointment are given in the notice to the AGM.

Mr. M. Lokeswara Rao, Managing Director, Mr. V. Sudhakara Reddy, Chief Financial officer, Mr. Matru Prasad Mishra, Company Secretary hold the office of Key Managerial Personnel.

There is no change in Key Managerial Personnel during the said financial year 2019-20.

Noting of Appreciation of Services:

The Board places on record the appreciation for guidance and valuable services provided by Mr. A. Vijay Kumar, non-executive independent director who resigns from the office of Director with effect from 28th Feb, 2020 on account of his preoccupancy. The Board also places on record the appreciation for guidance and valuable services during his tenure. The Board wishes him good health, fortune and carrier in the days to come.

The Board also noted down the resignation of Mrs. Bhavana Rao from the Companys Board w.e.f. 29/11/2019 and Board noted down the same and wishes her good health, fortune and carrier in the days to come.

Independent Directors

The Independent Directors have fulfilled the criteria of Independence as defined under Section 149(6) and requisite declarations in terms of Section 149(7) of the Companies Act, 2013 have been received. During the year under review a separate meeting of independent directors was held on 13th February 2020. A separate meeting of Independent Directors of the Company, without the attendance of Non-Independent Directors, was held during the year, as required under Schedule IV to the Companies Act, 2013 (Code for Independent Directors) and Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All the directors of the Company have disclosed their interest to the Company pursuant to Sec 184(1) of Companies Act, 2013.

BOARD MEETINGS

During the year, four meetings of the Board of Directors were held. The details of the meetings are furnished in the Corporate Governance Report which is attached to this report.

COMPANYS POLICY RELATING TO DIRECTORS APPOINTMENT, PAYMENT OF REMUNERATION AND DISCHARGE OF THEIR DUTIES

The provisions of Section 178(1) of the Companies Act, 2013 relating to constitution of Nomination and Remuneration Committee are applicable to the Company and hence, the Company has devised a policy relating to appointment of Directors, payment of managerial remuneration, Directors quali?cations, positive attributes, independence of Directors and other related matters as provided under Section 178(3) of the Companies Act, 2013. The said policy is posted on the Companys website www.lokeshmachines.com.

AUDITORS Statutory Auditors

As per the provisions of Section 139, 142 and other applicable provisions, if any, of the Companies Act, 2013 (the Act), and the Companies (Audit and Auditors) Rules, 2014 (including any statutory modification(s) or re-enactment thereof, for the time being in force) and pursuant to recommendation of the Audit Committee and the Board of Directors, M/s. K.S.Rao & Co., Chartered Accountants, Hyderabad, (ICAI Firm Regn. No.003109S) has been appointed as Statutory Auditors of the Company for a term of five years from conclusion of 33rd Annual General Meeting till the conclusion of 38th Annual General Meeting at such remuneration plus reimbursement of out of-pocket, travelling and living expenses, etc., as may be mutually agreed between the Board of Directors of the Company and the said Auditors.

Cost Auditors:

The Board has appointed M/s. DZR & Co, Cost Accountants for conducting the audit of cost records of the Company for various segments for the financial year 2019-20 as recommended by the Audit Committee. As required under section 148 and Rule 14 of the Companies (Audit and Auditors) Rules, 2014 a resolution is being placed at the ensuing AGM for ratification of remuneration payable to said Cost Auditors.

Secretarial Auditors:

M/s. L.D. Reddy & Co., Practicing Company Secretaries, was appointed to conduct the Secretarial Audit of the Company for the financial year 2019-20, as required under Section 204 of the Companies Act, 2013 and Rule 9 there-under. The Secretarial Audit Report for FY 2019-20 forms part of this Report as Annexure.

Reply to the observations of Secretarial Auditor:

Company has appointed Ms. M. Likhitha (DIN: 08765043) as Non-Executive (Non-Independent) director of the Company w.e.f. 18/06/2020. She has also been considered as Woman director of the Company w.e.f 18/06/2020 under respective sections of Companies Act, 2013 and SEBI (LODR) Regulations, 2015. Company has filed necessary forms on MCA for her appointment and intimated to both the stock exchange regarding the same.

Your Company is law abiding entity and filed the necessary forms and returns with Regulatory authorities. However there was some delay filings occurred during the year. Management is taking measures to avoid the delay filings in future.

The Company is regular in complying the regulatory compliances under Relevant Acts/Regulations. The gratuity amount was due during the last week of March, 2020. But due to unprecedented effect of Covid-19 and the country wide lockdown, Company was unable to pay the gratuity amount and renew the policy thereof. However, management has taken measures to pay for the gratuity amount and renewal of policy thereof. The Company will be cautious for compliance of the said laws/acts.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The details are provided in the Management Discussion and Analysis Report attached to this report. The Internal Auditors reviews the efficiency and effectiveness of the systems and procedures. The Audit Committee approves and reviews the internal audit plan for the year.

SECRETARIAL STANDARDS

The Directors have devised proper systems and processes for complying with the requirements of applicable Secretarial Standards issued by the Institute of Company Secretaries of India and that such systems were adequate and operating effectively.

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT-9 is annexed with this report in Annexure.

As per recent MCA notification dated 28th August, 2020 pursuant to Sec 92(3) of the Companies Act, 2013 as amended, once the Annual Return of the Company will be prepared, such Annual Return shall be published on Companys Website i.e., www.lokeshmachines.com under "Investor center" tab.

INDUSTRIAL RELATIONS

The employee relations have remained cordial throughout the year and industrial harmony was maintained. Measures for the safety, training and development of the employees continued to receive top priority. The Directors wish to place on record their appreciation of the valuable contribution made by the employees of the Company at all levels towards the performance and growth of the Company.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THE COMPANIES ACT, 2013

The Company has not given any loans or guarantees covered under the provisions of Section 186 of the Companies Act, 2013. The details of the investments made by Company are given in the financial statements.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The CSR Policy of the Company and details about the initiatives taken by the Company on CSR during the year as per the Companies (Corporate Social Responsibility Policy) Rules, 2014 have been disclosed as part of this report in Annexure attached hereof. Further details of composition of the Corporate Social Responsibility Committee and other details are provided in the Corporate Governance Report which forms part of this report.

INTERNAL COMPLAINT COMMITTEE

The Company has in place a policy for prevention, prohibition and redressal against sexual harassment of women at workplace to protect women employees and enable them to report sexual harassment at workplace. An Internal Committee has been constituted consisting of optimum number of women for the said purpose.

PERFORMANCE ANNUAL EVALUATION MADE BY THE BOARD OF ITS OWN PERFORMANCE AND OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS

As required under the provisions of Schedule IV of the Companies Act, 2013 the performance evaluation of independent directors has been done by the entire Board of Directors, excluding the director being evaluated. The evaluation of all the directors and the Board as a whole was conducted based on the criteria and framework adopted by the Board.

The Nomination and Remuneration Committee has defined the evaluation criteria, procedure, and time schedule for the Performance Evaluation process for the Board, its Committees and Directors.

Directors were evaluated on aspects such as attendance and contribution at Board/ Committee Meetings and guidance/ support to the management outside Board/ Committee Meetings.

LISTING:

The equity shares of the Company are listed with Bombay Stock Exchange Limited (BSE), and National Stock Exchange of India Limited (NSE). There are no arrears on account of payment of listing fees to the said Stock Exchanges

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134 (5) of the Companies Act, 2013 Your Directors confirm that:

In preparation of annual accounts for the financial year ended 31st March, 2020 the applicable Accounting Standards have been followed along with proper explanation relating to material departures; The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2020 and of the profit of the Company for the financial year; The Directors have taken proper and sufficient care for their maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

i. The Directors had prepared the annual accounts on a ‘going concern basis; ii. The directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and iii. The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

OTHER DISCLOSURES: Board Meetings

During the year under review, five Board Meetings were held on 13th May, 2019, 25th May 2019; 14th August, 2019; 12th November, 2019 and 13th February, 2020.

Committees of Board

Your company has the following committees namely:

1. Audit Committee

2. Nomination and Remuneration Committee

3. Stakeholders Relationship Committee

The constitution of all the committees is as per the Companies Act, 2013 and SEBI (LODR) Regulations, 2015. The details of the Constitution of Committees are mentioned in Corporate Governance Report, which forms part of this Annual Report.

Corporate Governance Report

Your Company has complied with the requirements of Regulation 34(3) read with Schedule V of SEBI (LODR), Regulations, 2015 and provisions of the Companies Act, 2013, Report on Corporate Governance including Auditors Certificate on compliance with the code of Corporate Governance has been annexed with this report.

CERTIFICATE FROM COMPANY SECRETARY IN PRATICE

L. Dhanamjaya Reddy, Practicing Company Secretary, has issued a certificate as required under the Listing Regulations, confirming that none of the directors on the Board of the Company has been debarred or disqualified from being appointed or continuing as director of companies by the SEBI/ Ministry of Corporate Affairs or any such statutory authority. The certificate is enclosed as Annexure.

NOMINATION AND REMUENRATION POLICY

On the recommendation of the Nomination and Remuneration Committee the Board of Directors has formulated a policy of the Company on directors appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters and to frame proper systems for identification, appointment of Directors & KMPs, Payment of Remuneration to them and Evaluation of their performance.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

The information required pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, will be provided upon request. In terms of Section 136(1) of the Companies Act, 2013, the reports and accounts are being sent to the members and others entitled thereto,excluding the information on employees particulars which is available for inspection by the members at the Registered office of the Company during business hours on working days of the Company up to the date of ensuing Annual General Meeting.

The Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annexure forming part of the Annual Report.

With regard to the provisions of Section 136(1) read with its relevant provision of the Companies Act, 2013, the Annual Report excluding the aforesaid information is being sent to the members of the Company. The said information is available for inspection at the Registered office of the Company during working hours and any member interested in obtaining such information may write to the Company Secretary at cosecy@lokeshmachines.com or can write at the registered office address of the Company

Boards response on Auditors qualification, reservation or adverse remark or disclaimer made:

During the year, there were no instances of frauds reported by auditors under Section 143(12) of the Companies Act, 2013.

INSURANCE:

The Company takes a very pragmatic approach towards insurance. Adequate cover has been taken for all movable and immovable assets for various types of risks.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS:

There are no significant material orders passed by the Regulators /Courts/ Tribunals which would impact the going concern status of the Company and its future operations.

Management Discussion and Analysis

A brief note on the Management discussion and analysis for the year is enclosed as Annexure to this report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE OUTGO

Information required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) 2014, is enclosed herewith as Rules, in Annexure.

DEVELOPEMNT AND IMPLEMENTATION OF A RISK MANAGEMENT POLICY

The Company has been addressing various risks impacting the company policy of the company on risk management is provided elsewhere in this Annual Report in Management Discussion and Analysis.

The Company has developed and implemented a risk management policy for the company including identification therein of elements of risk, which in the opinion of the Board may threaten the existence of the company.

VIGIL MECHANISIM

In pursuant to the provisions of section 177 of the Companies Act, 2013 a Vigil Mechanism for directors and employees to report genuine concerns has been established. All permanent employees of the Company are covered under the Whistle Blower Policy.

PUBLIC DEPOSITS:

The Company has not accepted any deposits from the public.

RELATED PARTY TRANSACTIONS:

Related party transactions entered during the financial year under review are disclosed in Note No.39 of the Financial Statements of the Company for the financial year ended 31st March, 2020. These transactions entered were at an arms length basis and in the ordinary course of business. There were no materially significant related party transactions with the Companys Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company.

All transactions entered by the Company with Related parties were in the Ordinary Course of business and Arms Length pricing basis. There are no materially significant related party transactions made by the Company during the year. The Audit Committee granted approval at every quarterly held meeting and subsequently as per the recommendation of the Audit Committee it has been ratified by the Board of Directors.

ACKNOWLEDGEMENTS

Your Directors wish to place on record their appreciation for the support and co-operation extended by the Shareholders, Bankers, Financial Institutions, Government Authorities, Stock Exchanges, Customers, Suppliers and other associates.

Your Directors also wish to place on record their appreciation for the enthusiastic support received from the team of dedicated employees in the activities of your Company.

On behalf of the Board

For Lokesh Machines Limited

Place: Hyderabad Sd/- Sd/-
Date : 02/09/2020 M. Srinivas M Lokeswara Rao
(Whole Time Director) (Managing Director)