1. A Corporate Information

LGB Forge Limited was incorporated on 07.06.2006. The company is into manufacturing of Cold and Hot forged components and has its manufacturing unit at Tamilnadu, Karnataka and Pondicherry. The company concentrates in manufacturing high volume Auto, Electrical & Transmission forged components for automobiles, non automotive segments like Valve Industry and infrastructure equipment industry including machining for customers in automotive, off-road and non-automotive segments.

Application of new and revised Indian Accounting Standards

The Company has applied all the Indian Accounting Standards (hereinafter referred to as ‘Ind AS’) notified by the Ministry of Corporate Affairs (MCA) to the extent applicable to the Company.

The following standards have been notified by Ministry of Corporate Affairs and are not effective as of 31st March 2019:

Ind AS 116 - Leases (Effective from April 1, 2019) The Company is evaluating the requirements of the above standards and the effect on the financial statements is also being evaluated.

Notes:

a) There are no Goods in Transit as on 31/03/2019

b) For method of valuation of inventories, refer Note No. 1.B.IX

c) Inventories with the above carrying value, pledged as security against borrowings, are stated in Note No 19

d) Cost of Inventory recognised as expenditure

Notes:

a) Allowance for ECL

In determining the allowances for doubtful trade receivables, the company uses ECL allowance method.Expected credit losses are accounted after taking into account historical credit loss experiences of the company.

b) Trade receivables with the above carrying value, pledged as security against borrowings, are stated in Note No 19.

c) Credit period offered to customers varies between 30 to 90 days.

b. Terms/ Rights attached to the Equity Shares

i. The Company has only one class of Equity Shares having par value of Rs.1/- per share. Each holder of Equity Shares is entitled to one vote per share. The company declares and pays Dividend in Indian Rupees.

ii. The Dividend Proposed is as recommended by the Board of Directors and subject to the approval of the Shareholders’ in the Annual General Meeting.

iii. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders

c. The Company does not have any holding company or ultimate holding company as on 31.03.2019

1) The company has not defaulted in the repayment of loans and interest as at the balance sheet date.

2) Repayment and interest terms:

i) Term Loan from Bajaj Finanace Limited is repayable in 13 quarterly instalments of Rs. 50 lakhs each. Interest rate: ‘PLR minus 7.5%’, payable on monthly basis.

ii) Term Loan from Bajaj Finanace Limited repayable in 20 quarterly instalments of Rs. 10 lakhs each .”Interest rate : ‘PLR minus 8.25%’, payable on monthly basis.

3) Security Details

The loan is secured by way of :

a) Factory Land and Building at No. 80 & 81, 5th Mile, Matagalli post, KRS Road,Mysore, Karnataka, and

b) Charge on all Movable Fixed Assets of the Company both present and future.

Terms and conditions of short term loans taken from banks and financial institutions:

1) Cash Credit from Axis Bank carries an interest rate of ‘3 Months MCLR 1%’ payable at monthly intervals and are secured by first pari passu charge on entire current assets and second pari passu charge on the entire movable fixed assets of the Company, both present and future.

2) Cash Credit from ICICI Bank carries interest rate of ‘6 Months MCLR 1.50%’ payable at monthly intervals and are secured by first charge of the Company’s entire stock of raw materials, semi finished and finished goods, consumable stores and spares and such other movables including book debts, bills whether documentary or clean, outstanding monies, receivables, both present and future, ranking pari passu with other participating bank.

3) Cash Credit from IDBI bank carries interest rate of ‘6 Months MCLR 3.15%’ payable at monthly intervals and are secured by pari passu first charge over the current assets of the Company , Collateral pari passu second charge over the fixed assets of the company except those that are exclusively charged to term lenders.

4) Working Capital Loan from Bajaj Finance Limited carries interest of ‘PLR minus 9%’ and is secured by way of:

a) Factory Land and Building at No. 80 & 81, 5th Mile, Matagalli post, KRS road, Mysore Karnataka, and

b) a charge on all Movable Fixed Assets of the company both present and future.”

5) The above loans are further secured by Corporate Guarantee by L.G. Balakrishnan & Bros Limited.

2. DEFERRED TAX ASSET

Deferred tax asset has not been recognised in respect of the following items because it is not probable that future taxable profits will be available against which the company can use the benefits thereon.

3. OPERATING LEASE ARRANGEMENTS

The Company has entered into operating leases, having a lease period ranging from one year to five years, with an option to renew the lease. The total amount of lease rents recognised on operating leases during the year is Rs. 104.69 Lakhs ( Previous Year Rs.72.16 lakhs).

4. Corporate Social Responsibility

The average net profit of the immediately proceeding three financial years is negative, accordingly, the company is not mandated to spend any amount towards CSR activitities for the financial year 2018-19.

5. Disclosure as required under Regulation 34(3) and 53 (f) of SEBI (LODR) Regulations,2015

Loans and advances to firms/ companies in which directors are interested - Rs. Nil (Previous year - Rs. Nil)

6. Disclosure in relation to Section 186 (4) of the Companies Act, 2013

Rs. Nil (Previous year - Rs. Nil)

7. Financial Instruments

A. Capital management

The Company manages its capital to ensure that entities in the Company will be able to continue as going concern, while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The Company determines the amount of capital required on the basis of annual operating plans and longterm product and other strategic investment plans. The funding requirements are met through equity, long term and short-term borrowings.

For the purposes of the Company’s capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders. Debt includes Long Term Loans and Short Term Loans.

C. Financial risk management objectives

The Company’s businesses are subject to several risks and uncertainties including financial risks.

The Company’s activities expose it to credit risk, liquidity risk, market risk - interest rate risk and foreign currency risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements.

i. Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks.

The company’s credit risk generally arises from Cash and cash equivalents, trade receivables, and other financial assets.

Credit Risk Management

The Company assesses and manages credit risk of financial assets based on following categories arrived on the basis of assumptions, inputs and factors specific to the class of financial assets.

A: Low credit risk

B: Moderate credit risk

C: High credit risk

Based on business environment in which the Company operates, a default on a financial asset is considered when the counterparty fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are based on actual credit loss experience and considering differences between current and historical economic conditions. Assets are written off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or litigation decided against the Company. The Company continues to engage with parties whose balances are written off and attempts to enforce repayment. Recoveries made are recognized in statement of profit and loss.

As per simplified approach, the Company makes provision of expected credit losses on trade receivables based on past experiences to mitigate the risk of default in payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk.

ii. Liquidity risk

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company invests its surplus funds in bank fixed deposit . The Company also constantly monitors funding options available in the debt and capital markets with a view to maintaining financial flexibility.

iii. Market risk

Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Company actively manages its currency and interest rate exposures through its finance division and uses derivative instruments such as forward contracts and currency swaps, wherever required, to mitigate the risks from such exposures. The use of derivative instruments is subject to limits and regular monitoring by appropriate levels of management. Interest Rate risk

The Company is exposed to interest rate risk because it borrow funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings

Interest rate sensitivity analysis

If interest rates had been 100 basis points higher / lower and all other variables were held constant, the Company’s profit for the year ended 31st March 2019 would decrease / increase by Rs. 2.51 Lakhs (for the year ended 31st March 2018: decrease / increase by Rs. 2.66 Lakhs). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.

iv. Foreign currency risk management

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The Company actively manages its currency rate exposures through a centralised treasury division and uses natural hedging principles to mitigate the risks from such exposures. The use of derivative instruments, if any, is subject to limits and regular monitoring by appropriate levels of management.

Fair Value Hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

In addition, for financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety. The three levels are explained as follows:

Level 1 - inputs are quoted prices in active markets for identical assets or liabilities that the company can access at the measurement date. These quoted prices are unadjusted.

Level 2 - inputs are inputs, other than quoted prices included in level 1, that are observable for the asset or liability, either directly or indirectly.

Level 3 - inputs are unobservable inputs for the asset or liability.

The table below categorises financial instruments and analyses those measured at fair value by the level into which the fair value measurement is categorised.

* Managerial remuneration does not include contribution made by the company towards Gratuity and Leave Encashment as the incremental liability has been accounted by the company as a whole and seperate details for individual employee is not available.

8. Retirement benefit plans

Defined contribution plans

In accordance with Indian law, eligible employees of the Company are entitled to receive benefits in respect of provident fund, a defined contribution plan, in which both employees and the Company make monthly contributions at a specified percentage of the covered employees’ salary. The contributions, as specified under the law, are made to the Provident fund as well as Employee State Insurance Fund.

The expense recognised during the period towards this defined contribution plan is Rs.107.90 Lakhs (March 31, 2018 - Rs.83.64 Lakhs).

Defined benefit plans

(a) Gratuity

Gratuity is payable as per Payment of Gratuity Act, 1972. In terms of the same, gratuity is computed by multiplying last drawn salary (basic salary including dearness Allowance if any) by completed years of continuous service with part thereof in excess of six months and again by 15/26. The Act provides for a vesting period of 5 years for withdrawal and retirement and a monetary ceiling on gratuity payable to an employee on separation, as may be prescribed under the Payment of Gratuity Act, 1972, from time to time. However, in cases where an enterprise has more favourable terms in this regard the same has been adopted.

These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk and salary risk.

b) Compensated absences

The leave scheme is a final salary defined benefit plan, that provides for a lumpsum payment at the time of separation; based on scheme rules the benefits are calculated on the basis of last drawn salary and the leave count at the time of separation and paid as leave encashment.

9. Figures have been rounded of to the nearest Lakh and two decimals thereof.

10. The amounts and disclosures included in the financial statements of the previous year have been reclassified / regrouped wherever necessary to conform to current year’s classification.