Auditors raise concerns over McNally Bharat Engineering's fiscal health

Its net sales also declined by 10.89% at Rs 270.36 crore, against the net sales of Rs 303.41 crore in the Q3 period of the 2017-18 fiscal year.

Auditors vetting the financial results of McNally Bharat Engineering Company have flagged concern over the company’s finances and wasn’t sure if this Williamson Magor Group (WMG) enterprise can be treated as a going concern.

In the report - prepared by Deloitte Haskins & Sells LLP and V Singhi & Associates - the auditors have pointed that McNally Bharat’s total liabilities exceeded its total assets by Rs 168.55 crore, and its current liabilities exceeded the current assets by Rs 944.97 crore as on December 31, 2018.

According to the report, the company was unable to discharge its obligations for repayment of loans and settlement of other financial and non-financial liabilities, including statutory liabilities totalling Rs 217.59 crore. “The company’s management is in the process of preparing a debt structuring proposal for submission of a resolution plan with the lenders. There is no evidence that the debt resolution plan is likely to be accepted and implemented by the lenders, which will enable the company to continue as a going concern for 12-month period ending December 31, 2019,” the report said.

Moreover, in the face of non-cooperation from McNally Bharat, Brickwork Ratings had downgraded its ratings for the company over bank loan facilities of Rs 4863.78 crore.

Calls and messages sent to a senior official at McNally Bharat went unanswered.

The scepticism from auditors comes at a time when WMG has been pressing for resolution of McNally Bharat’s debts under a five-pronged strategy – Project Sashakt - outside the National Company Law Tribunal process. This plan, will, however, have to get positive rating from two rating agencies. Bank of India is the lead bank in the consortium. During the third quarter (Q3) of the current fiscal year, McNally Bharat’s loss widened by 11.39 per cent to touch Rs 193.30 crore.

Its net sales also declined by 10.89 per cent at Rs 270.36 crore, against the net sales of Rs 303.41 crore in the Q3 period of 2017-18.

In a statement to the BSE, the company said its financial performance has been adversely affected due to downturn in the infrastructure and core sector, working capital constraints, and other factors beyond its control due to which it wasn’t able to fulfil its commitments to the lenders, resulting in breach of covenants.

 Incorporated in 1961, McNally Bharat was a joint venture between McNally Pittsburg and Bird & Co. In 1980, it was acquired by WMG, which is in the process of paring debts across group companies.