One of the prominent Micro-Cap defence equipment manufacturers, specialising in advanced machine tools and indigenous submachine guns for military operations, has plunged 6% after being named in the US Treasury Department’s sanctions list.

Share Price Movement

Following the announcement, Lokesh Machines stock experienced significant turbulence in the market. Consequently, the defence stock dropped by 7% after the US sanctions news broke. This is a significant fall from its previous close of Rs. 353 per share. The market capitalisation now stands at approximately Rs. 608.64 crore as of November 04, 2024.

What Happened

In a surprising development, Lokesh Machines Ltd. found itself at the centre of controversy following US Treasury sanctions allegations. Initially, the company’s stock plummeted after news broke about potential sanctions related to Russian military operations. However, the company swiftly responded by issuing a clarification statement, denying any involvement with sanctioned entities.

In accordance with SEBI regulations, Lokesh Machines has maintained open communication about the situation. Additionally, they are working closely with Indian departments to understand applicable export control provisions. 

Sanctions List of the United States Department of Treasury

The US Treasury Department recently targeted nearly 400 entities across 17 countries, including Lokesh Machines. Furthermore, they alleged that the company coordinated with Russian defence procurement agent Dmitrii Vladimirovich Alikhanov. Additionally, the Treasury claimed Lokesh had been exporting machines to Russia since 2011 through various distributors.

Company’s Response

In their official statement, Lokesh Machines emphasised that they haven’t been directly contacted by the US Department of Treasury. Therefore, they are actively reaching out to gather more information about these allegations. Nevertheless, the company maintains that none of its distributors appear on any sanctions list.

Indian Government’s Stance

The Ministry of External Affairs (MEA) has stepped forward to support the sanctioned companies. As a result, MEA spokesperson Randhir Jaiswal confirmed that these companies didn’t violate any Indian laws. Furthermore, India is actively working with US authorities to clarify export control issues.

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Shareholding Pattern

As of the September 2024 shareholding pattern, Lokesh Machines Limited has majorly held a promoter by 50.76 percent and a foreign institutional investor by 0.20 percent, and the rest is owned by the public at 49.06 percent.

About the Company

Founded in Hyderabad in 1983, Lokesh Machines has established itself as a prominent advanced machine tool manufacturer. Meanwhile, the company has gained recognition for manufacturing the indigenous submachine gun called Asmi. Subsequently, they delivered 550 9x19mm calibre submachine guns to the Indian Army’s Northern Command earlier this year.

Future Outlook

The situation remains fluid as Lokesh Machines works to resolve these allegations. Meanwhile, the company continues its regular operations while maintaining transparency with stakeholders. Ultimately, the resolution of this matter could impact Indo-US defence relations and future business opportunities.

Despite the current situation, several Indian security forces maintain interest in Lokesh’s products. For instance, the National Security Guard, Assam Rifles, and Border Security Forces have shown interest in the Asmi submachine gun. Nevertheless, the sanctions impact on future defence contracts remains uncertain.

This situation represents a critical juncture for both Lokesh Machines and Indo-US defence relations. While the company maintains its innocence, the resolution of these allegations will likely influence future international defence trade dynamics. As developments continue to unfold, stakeholders await further clarification from both US and Indian authorities.

Written By Fazal Ul Vahab C H

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