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McNally Bharat may seek board approval to raise Rs500 crore for expansion

LiveMint logoLiveMint 31-05-2017 Soumonty Kanungo

Kolkata: After five years, Williamson Magor Group-controlled McNally Bharat Engineering Co. Ltd is again looking to secure new orders, even as the company races against time to conclude around 70 pending projects within the current financial year.

To fund the expanded operations, the management is soon likely to seek board approval to raise up to Rs500 crore through a sale of shares. The company has appointed an investment banker to weigh the options for fund raising, said Srinivash Singh, managing director of McNally Bharat.

The company stopped taking new orders five years ago as pending projects started to pile up, according to Singh. Some of the unfinished projects are five years behind schedule, he added. “Even so, to stop taking new orders was a mistake,” Singh said in an interview.

Apart from orders worth Rs2,000 crore, which are under execution from its old order book, the company’s management has set for itself a target of securing Rs3,000-3,500 crore of new orders within the current financial year, according to Singh. The key challenge now is to put the five years of disruption behind, and regain the company’s lost goodwill, he added.

On Tuesday, the company announced a net profit of Rs483.92 crore in the March quarter compared with a net loss of Rs146.68 crore in the December quarter and Rs78.05 crore in the corresponding quarter of the previous fiscal, but the figure does not truly reflect its financial health. The company reported profit for the March quarter because of a one-time exceptional non-cash gain from tax assets—an accounting adjustment.

However, March quarter loss before exceptional items narrowed to Rs7.33 crore from Rs78.05 crore in the previous year. For the full year, it expanded to Rs549.53 crore from Rs344.25 crore in fiscal 2016.

There are signs of improvement, but the company will face financial stress for a few more quarters, said a key Williamson Magor Group official, who asked not to be identified. However, the company has started to bid for new projects and all pending ones are under completion, he added.

In the current year, cash flow is expected to improve as McNally Bharat starts to book revenue from concluded projects, according to this official. Because of poor cash flow, the company is behind on paying its vendors and employees. The only way to address the problem is by securing new orders, he added.

An analyst who tracks McNally Bharat said the company is likely to book a loss on its pending projects. Because of delays, the cost of executing old projects is likely to exceed the cash flow from them, said this person, who, too, asked not to be named. It is difficult to determine the extent of the loss immediately.

The company needs to raise cash for working capital, according to the analyst. If McNally Bharat manages to overcome its “image crisis” and secure new orders, cash flow from these projects will offset the losses from the delayed projects, he added.

But the problem is not limited to securing new orders. Many of its vendors have abandoned the company because of irregularities in payment.

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