Auditors raise concern over McNally Bharat's ability to remain in business

In the last fiscal year, McNally Bharat and one of its subsidiaries was unable to discharge its obligation for repayment of loans and settlement of other financial and non-financial liabilities

McNally Bharat Engineering's auditors have raised concerns over this B.M. Khaitan Group company’s ability to remain in business unless its loan restructuring application with the lenders receives favourable response.

Deloitte Haskins & Sells and V. Singhi & Associates , in its report, said the group has incurred a net loss of Rs 783.20 crore in the last fiscal year and its current liabilities exceed the current assets by Rs 460.52 crore. 

According to the report, McNally Bharat and one of its subsidiaries were in the last fiscal year unable to discharge their obligation for repayment of loans and settlement of other financial and non-financial liabilities including statutory liabilities. 

The auditors said that as a result of these concerns, it “indicate a material uncertainty which cast a significant doubt on the group’s ability to continue as a going concern, and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business”.

The company’s management has approached banks for debt restructuring under Project Sashakt, but the auditors said doubt if that will succeed. “The ability of the group to continue as a going concern is solely dependent on the acceptance of the debt restructuring proposal, which is not wholly within the control of the group”.

Reasoning about the causes for its adverse opinion on the company, the auditors noted that McNally Bharat’s deferred tax assets aggregating to Rs 579.40 crore as on March 31, 2019 has been overstated and losses for the last fiscal year is understated by Rs 579.40 crore. The accumulated deficit in the company is also understated by the similar amount.

In a regulatory filing with the BSE, during the year ended March 31, 2019, McNally Bharat reported a net loss of Rs 783.20 crore as against a net loss of Rs 479.38 crore with net income falling by 3.18 per cent at Rs 1,730.51 crore.

The auditors have also raised concern over the claimed fair value gain of Rs. 874.82 crore by the company as the auditors were unable to obtain sufficient and appropriate audit evidence to substantiate the contractual validity of the transaction and the accounting treatment. 

In the company’s profit and loss statement, an interest expense of Rs 92.17 crore has also not been recognised. 

Besides, the auditors have also found that the McNally Bharat management is in the process of obtaining approval from banks over waiver of recovery of excess managerial remuneration of Rs 2.20 crore paid in the last fiscal year to its managing director.

Incorporated in 1961, McNally was a joint venture between McNally Pittsburg and Bird & Co. In 1980, it was acquired by the Williamson Magor Group led by the B.M. Khaitan Group. The Group has been paring debt across group companies.

On Thursday, another B.M. Khaitan Group company, McLeod Russel failed to come up with its financial results for the quarter and year ended March 31, 2019 as it wasn’t able to solve the complexity of financial calculations owing to sale of its gardens.

 

	FY 2018-19	FY 2017-18
Net Income	1730.51	1677.18
Total Expenses	2675.26	2452.87
Net Loss	783.20	479.38

All figures in Rs. crore

Source – McNally Bharat Engineering