Rationale

 The ratingstake into account LGB Forge Limited's(LGBFL/LGB Forge/'the company') healthy capital structure, coverage metrics and adequate liquidity position. LGBFL has relatively low debt levels (Rs. 13.7 crore as on March 31, 2022) and healthy capital structure (gearing of 0.3x as on March 31, 2022). The company's coverage metrics also remain healthy with interest coverage of 4.3 times and DSCR of 3.3x in FY2022. LGBFL's liquidity position remains adequate with undrawn lines of Rs. 6.4 crore as on June 30, 2022, as against repayments of Rs. 0.5 crore in FY2023 and Rs. 0.1 crore in FY2024 on its existing term loans. The ratings also draw comfort from LGBFL's established client relationships, its diversified segment presence and clientele, and the operational and financial flexibility it enjoys from being a part of larger Coimbatore-based LGB group. However, LGBFL is a modest-scaled player (with an operating income of Rs. 130.1 crore in FY2022) in the highly competitive forging industry with pressure from larger players, restricting its pricing flexibility. It also has relatively low market share with its customers because of its scale. LGBFL's operating margins are moderate and declined to 7.4% in FY2022 from 10.3% in FY2021, because of increase in RM prices and inability to entirely recover the same from clients. Going forward, the impending electrification of automotive industry could have a bearing on the company's revenues over the medium term, by virtue of LGBFL catering to auto electricals. However, company's segment diversification, presence in components that are unlikely to be impacted by the EV transition and anticipated addition of new products going forward, mitigate the risk to an extent. On the margin front, the recent softening of steel prices is likely to provide some relief. Despite the anticipated debt-funded capex for FY2023 and FY2024, the company's capital structure, coverage metrics and liquidity position are likely to remain comfortable going forward. The ratings of [ICRA]AA (CE)(Stable)/[ICRA]A1+ (CE) that were outstanding on the Rs. 27.00 crore bank lines of the company have been withdrawn as the corporate guarantee from L.G. Balakrishnan and Bros Ltd for LGB Forge's bank facilities cease to exist. This is in accordance with ICRA's policy on withdrawal and suspension.