Lokesh Machines Director Report

Dear Share Holders,

The Directors are pleased to present the 34th Annual Report of the company along with the Audited financial Statements for the financial year ended March 31, 2018.

FINANCIAL RESULTS Rs in Lakhs

Particulars	(2017-18)	(2016-17)
Net Sales	17,494.48	13177.82
Other Income	84.05	35.19
Captive Consumption	352.98	1107.24
Total Income	17931.51	14320.24
Profit before Depreciation, Interest and Taxes	2941.66	2815.38
Depreciation	817.28	818.11
Profit before Interest and Taxes	2124.38	1997.27
Interest and Finance Charges	1408.88	1666.12
Profit before Taxes	715.50	331.15
Provision for Taxes	245.03	120.12
Profits after Taxes	470.47	211.03

PERFORMANCE REVIEW:

The turnover increased by 32.75 %, in the year

- The Machine Tool Division has posted significant growth compared to the previous year, primarily lead by the General Purpose machinery division which itself showed a growth of 46.72% as compared to previous year. GPM Machines export sale has also restarted this year with a marginal sale which is expected to be considerably higher in the coming year. Typically SPM movement will start once the economy reaches a reasonable uptick unlike the GPMs which pick up at the start of growth phase itself. Accordingly, the company is witnessing some movement in the SPM division too in the coming years.

- The Component division also had a marginal growth driven by an increased off take from the Connecting Rod business.

FUTURE OUTLOOK

The current market conditions are showing signs of rapid recovery and our capacity utilization is at an increased level today.

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

The Company proposes to retain profits of the current year for company’s future plans and developments. Hence, your directors have not recommended dividend for the Financial Year 2017-2018.

TRANSFER TO GENERAL RESERVE

The Company does not propose to transfer any amount to General Reserve.

DIRECTORS

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 following Directors are proposed to be re-appointed as Directors of the company under Companies act 2013

1. Mullapudi Lokeswara Rao - Managing Director

2. Bollineni Kishore Babu - Whole time director

3. Mullapudi Srinivas - Whole time director

4. Mullapudi Srikrishna - Whole time director

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

All Independent Directors have given declaration that they meet the criteria of independence as laid under section 149(6) of the Companies Act 2013 and SEBI (LODR) Regulations, 2015. 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.

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.

AUDITORS Statutory Auditors

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 reenactment 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) be and are hereby appointed as Statutory Auditors of the Company for a term of five years from conclusion of 33^rd Annual General Meeting till the conclusion of 38^th 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 2017-18 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 2017-18, as required under Section 204 of the Companies Act, 2013 and Rule 9 there-under. The secretarial audit report for FY 2017-18 forms part of this Report as Annexure.

Reply to the observations of Secretarial auditor:

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

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, 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.

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.

FORMAL 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 Board approved the evaluation results as collated by the nomination and remuneration committee.

None of the independent directors are due for re-appointment

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 31 st March, 2018 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 31 st March, 2018 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, Six Board Meetings were held on 30^th May, 2017, 31^st August, 2017; 13^th Sep 2017; 13^th December, 2017, 27^th December, 2017 and 9^th February, 2018.

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 Auditor’s Certificate on compliance with the code of Corporate Governance.

Change in Key Managerial Personnel

Mr. D. Raghavendrarao regisned from the office of Company Secretary with effect from close of business hours of 18^th October, 2017 and the Board has appointed Mr. Matru Prasad Mishra as the Company Secretary of the Company with effect from 14^th December, 2017.

Board’s response on Auditor’s qualification, reservation or adverse remarl or disclaimer made:

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

Management Discussion and Analysis

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

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.

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

B Kishore Babu M Lokeswara Rao

(Executive Director) (Managing Director)