INDUSTRY STRUCTURE AND DEVELOPMENTS:
The world has been an unstable place since the pandemic struck. The war in Ukraine and
Russia continues and the threat of a Chinese invasion on Taiwan has spread an atmosphere
of fear over the South China Sea (Dominguez, 2023). We saw the Srilankan economy face
bankruptcy, the President ousted and public rampage on the properties of the President.
Srilanka is unable to pay the foreign debt. IMF
has come forward and supported in this time of crisis, however, the problem is far from
being resolved. Inflation has been sky high in Srilanka as the economy struggles (Perera,
2023). Pakistan has entered a state of political instability with the military trying to
take control of the nation. However, at the root of this is an economic crisis (Mohan,
2023). Afghanistan is witnessing a famine and extreme poverty under the Taliban regime
(Nations, 2023).
With most of our neighbours facing turmoil, India looks much better with a projected
5.7% to 6.3% growth in GDP in 2023-24. However, two other threats hover over the business
environment. First is the liquidity crisis as a result of the series of global bank
crisis. The second is the climate risk. The World Bank reports that we may witness a lost
decade due to this ebb in global business. Deloitte reports that three elements ail
investments in India i.e slowdown in global economy and trade, rising geo-political
uncertainties and the shifting energy landscape (Majumdar, 2023). Tackling these would be
challenging during the current fiscal. The silver lining is that Non-performing loans have
been decreasing over the year. This can help ease the credit lending to attract
investments, during the liquidity freeze globally. Infrastructure spending will be the
second area of growth in the economy. The third area will be encouraging manufacturing
through schemes like production-linked incentive etc. as well as services sector.
The Company has been operating in this environment and there are opportunities for the
Company even in this scenario.
COMPETITIVE ADVANTAGES, STRENGTHS & WEAKNESSES, THREATS & OPPORTUNITIES
COMPETITIVE ADVANTAGES:
1. Technology & Intellectual Property - In sectors like Bulk Material
handling, mineral beneficiation and ash handling, the Company has its own technology in
terms of basic and detail design. In sectors like Steel, Cement, Ports and Power plants,
it works with technology suppliers and has in-house capability to scale up to handle large
expansions and green field projects.
2. Culture - The Company has been one of the great places to work for employees
in Eastern India. Its culture gives an environment to intellectuals and professional
enabling minds to grow and create. It has a history of creating innovative products in
bulk material handling, mining equipment and mineral processing areas possible out of its
strong human capital synergy. The Company has been in construction sector, but driven by
technology and engineering, where young engineers are given freedom to learn and grow.
3. Innovation & Technology absorption- The Company has its own proprietary
designs for equipment and for process. It has more than 55 years experience in
manufacturing various mining, port handling, cement mill machinery and processing
equipment and has manufactured many stacker reclaimers, bucket wheel excavators, spreaders
etc. It indigenized the port cranes and mining equipment, dropping the costs in the
country by 50% for these
equipment from those when these were imported and designed abroad. In the recent coal
handling projects, the Company once again exhibited this power by designing and supplying
centre discharge paddle feeders for Coal bunkers, both with hydraulic and electric drives.
It is working on scaling up its capacity of stacker reclaimers and wagon tipplers.
4. Project References & project management - Companys long presence in
executing projects more than 500 nos. most of which are in record time brings in customers
confidence. It is endowed with a strong project management team and processes. The Company
has developed its in-house method of agile execution and pre- and post tender project risk
management system.
STRENGHTS:
1. Resource Mobilization - Ability to deploy resources all over India to execute
large scale projects in sectors like power, steel, cement etc. with multidisciplinary
engineers, supervising personnel and highly skilled or semi-skilled workmen.
2. Supply Chain Partners & Vendor Development - Large vendor base for
construction material and equipment supply for last few decades working as partners. Even
in the financially constrained times, these partners have stayed with the Company. The
Company has existed for last 6 decades and such business partners have been created
through a continuous vendor development process. The Company has a strong vendor
development process in place.
3. Quality & Safety - In-house NABL accredited QA laboratory and a QA/QC
department with highly qualified and experience engineers. It has its inhouse Quality
assurance and safety teams.
WEAKNESSES:
1. The Company lacks finance and bank guarantee support for participating in public
sector tenders considering the ongoing insolvency process. To tackle this it is exploring
alternative methods of security for its clients. In Coal India contracts, the projects
were secured with cash deposits instead of bank guarantees. The growing surety bond
acceptance in tenders could also be a relief.
2. The Company lost its manufacturing units which were owned by its wholly-owned
subsidiary McNally Sayaji Engineering Limited. To overcome this, the Company is
strategizing manufacturing partners and has a blueprint to rebuild its in-house
manufacturing capability.
THREAT:
Effective 29 th April, 2022, a Corporate Insolvency Resolution Process (CIRP) has been
initiated against the Company, under the provisions of the Insolvency & Bankruptcy
Code, 2016. This has posed a threat to the survival of the Company. However, a fast and
agile Resolution Professional team with help of lenders has enabled it to overcome this
threat and hopes for a resolution through NCLT as a going concern within the current
financial year.
OPPORTUNITIES:
1. The Company has an open playing field as most of its competitors are weak or
vanquished with a handful of players in EPC market space.
2. Huge infrastructure growth in India is expected wherein the Company shall play a
major role as an engineering and technology house.
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:
The Company is engaged in turnkey projects in core sector and related manufacturing
activities. Following the financial stress experienced in the past 6 years, the Company
dissolved its strategic business units and restructured into departments. However, with
the Company witnessing a ray of light recovering through the NCLT process, the various
segment wise outlook are given below.
Bulk Material Handling
The Company secured 1100 Cr. orders in 2021 and has an order backlog of 600 Cr.
from 5 coal handling plant projects at SECL and MCL all of which are expected to be
commissioned in the current year. It has received enquires in pipe conveyors and belt
conveyors. It has also received enquiries for 12 stacker reclaimers from Oman, Mozambique,
Odisha and Chhattisgarh based clients. The Company has its own range of equipment and for
larger machines is in dailogue with its technological partners. It has also received
enquiries in Ash handling and pneumatic conveying of lime for which it is in discussion
with clients.
Steel
With 120 Million Tons production, India is second largest producer of crude steel in
the world. A recent report by PTI (PTI, 2022), highlights how technology in washing
minerals will be critical for making the country self-reliant. The Company has technology
in coal washeries and this shall be a critical area in the coming fiscal. It helps clients
to optimize yield in these plants and extract lost ore from tailings. The CPSEs will
add 18 Million Tonnes while Private sector will add 95 Million Tonnes the report says.
JSW is adding 14.8 Mil T in Dolvi ( Maharastra), Vijaynagar and Jharsuguda. Tata Steel is
adding 5 Mil T in Kalinganagar, JSPL is adding 6 Mil T in Angul. Most of these expect
commissioning by 2024. Tata Steel will be 25 Mil T after its Kalinganagr expansion and
wants to become 40 Mil T by 2030, JSW wants to become 50 Mil T by 2030. JSPL aims at 50
Mil T by 2030. With its experience in Sinter Plant, Raw Material handling, Coke Oven By
Product Plant etc, the Company is poised to cater to this expansion.
Cement
McNally Bharat is the only company to have executed an EPC project in cement sector for
ACC Jamul, now under the Adani group of companies. The land mark project has attracted
enquiries from Jindal Panther Cement for their 2.5 Mil T expansion. JSW has a plan to
invest 3200 Cr. Birla Corp wants to expand to 30 Mil T from 20 Mil T with a capital
layout of 2700 Cr. The Company aims to participate in turnkey projects and exhibit
execution in record time for its select customers. It shall be a strategic priority sector
along with steel.
Ports
Ports have been growing silently in India. Currently 12 major ports operate in India
handling 720 MT traffic. The capacity of major ports have doubled since 2014 till date.
The PPP mode is gearing up with the Government having a plan for 44 projects in pipeline
with an investment of 22,900 Crs. The Company has received enquiries from Vizag port for
ELL cranes and major bulk material handling equipment from JPPL. The Company expects to
play a major role in this growth with its experience in port cranes, bulk material
handling and shipyard equipment.
Power
The Company has executed several balance of plant (BOP) projects and expects to execute
work in building captive power plants of major steel plant players. With its BOP
experience it can build coal handling, ash handling, switchyards, utilities etc. except
Boiler and Turbine generator for power plants. It has also built a 100 MW solar power
plant in the green energy sector which has been commissioned and under operation and
maintenance since last 3 years. The Company shall be expecting to win orders in this
sector too.
Operation and Maintenance
This is a major silver lining for the Company and the team shall be empowered from the
present 180 team strength to 300+ over next fiscal catering to present
customers and new customers in Power, Steel, Port and Cement sectors.
Design & Engineering Services
The backbone of the Company has always been its in-house design and engineering
strength. However, till now it has not seen this as a separate business unit. With the
Company entering NCLT, and no bank guarantees to participate in EPC tenders, it took an
unorthodox stance. It participated in engineering tenders and won two orders from GMDC and
MCL Bharatpur for Design and Engineering services. This has supported the Company to
offset its fixed overheads and it is now strategizing to focus on this area. It has
received enquiries for detailed designing of structures for 10,000 MT in 3D Tekla software
and expects to book more than 30000 MT detail engineering work in this segment. It has
also received enquiries for pipe conveyor design, lime conveying design, coal washery
design, silo design etc.
OUTLOOK & BUSINESS STRATEGY:
The Company had earlier attempted restructuring outside NCLT but a claim from
international arbitration forced the lenders to admit the Company to NCLT on 29th
April 2022. Mr. Anuj Jain was appointed as the Interim Resolution Professional to
restructure the debt through NCLT. Thereafter, the Resolution Professional Mr. Ravi Sethia
and team invited expression of interest and 17 resolution applicants showed interest. In
Dec- 2022, 4 of them submitted a resolution plan to bid for the Company through NCLT. The
resolution process is currently in advanced stages.
Company has relooked its business strategy and is trying to align strategic priorities
as follows:
• Commission 5 Coal India projects won in Joint Venture (JV) companies at Dipka,
Chaal , Baroud, Sardega and Ananta. Except Ananta, the other projects are in advanced
stage and staggered commissioning of the plants is expected from June- 2023 to Dec-2023.
This will bring in positive inflows to the Company and maintain its references valid to
bid in new projects.
• Close the old legacy projects. Finishing old projects will keep customer
confidence for having your company as a trusted partner and EPC contractor. This will also
protect the lenders (stakeholder) interest by protecting the existing bank guarantees from
invokation by customers as the Resolution Applicants (RAs) in NCLT have assumed
responsibilities for those guarantees.
• Retain employees by giving them assurance of future prospects with new investors
coming in. Attrition in the Company is high and controlling it, is of top
priority. Recruiting new talent will be a strategic priority as human capital is the
second pillar after technology in the Company. A database of talented employees who left
the Company during its financial crisis is being updated so that as soon as the resolution
process ends, they can be onboarded. Also, as skill in the core sector is rare, recruiting
partners have been engaged to spot talent in segments the Company operates.
• Create confidence in the mind of lenders by speedy completion of projects and
safeguarding guarantees and investments of the lenders.
• With a free playing ground in the EPC space, and very few competitors with
Engineering, Procurement and Construction management capabilities under one roof, McNally
Bharat is at an advantageous position. Despite being admitted into Corporate Insolvency
Resolution Process, the Company has received orders from TATA Cummins for a Warehouse
Civil works project, Gujarat Mineral Development Corporation (GMDC) for a mineral
beneficiation of fluorspar project, Coal handling conveyor project from MCL Bharatpur,
Civil works project from Coke Oven, Pellet Plant, DRI, CRM and Grinding Unit from JSP
Group. This strongly indicates a lack of capability to provide Design and Execution under
one roof, the benefits of which a new acquirer has prudently evaluated and will eventually
reap in McNally Bharat.
• The major focus of the Company shall span from Design to commissioning of
integrated steel plants, Cement Plants, Coal Washeries, Port projects and Design &
Engineering services for Power, Steel, Cement, Ports and beneficiation sectors.
• The Companys strategic priority shall be to rebuild its mining equipment
segment prowess in stacker reclaimers, bucket wheel excavators, wagon tipplers, barge
unloaders etc. where the country has a demands for competent suppliers and technology
houses.
STRATEGY & RESILIENCE IN VIEW OF COVID-19, WAR DISRUPTIONS AND FORTHCOMING WAVES
The Companys operations is majorly concentrated in Odisha and Chattisgarh, but
projects in other States pan India is still operating. It will continue operating majorly
in these States for the coming year. However, it has started looking into Africa and the
Middle East for Design and Engineering possibilities.
RISKS & CONCERNS AND RISK MANAGEMENT
With the Resolution Professional team, the Company tactfully handled the supplier
anxiety and executed
around 350 Cr. orders last year. With the NCLT proceedings expected to end this year
the present suppliers and sub-contractors are finding new hopes and enthusiasm. The
supplier risk management shall be made robust over the next year and and efforts made to
regain the credit lost.
There is a strong support from the Resolution Professional to communicate with clients
and their support has been exceptional.
The risk management system architecture by KPMG in 2010 covers from initiation
of tender, bid decision and transfer of the risks envisaged to the project execution team.
For the other operational and fraud risk control the Internal Audit team has already
commenced the process last year and its integration with the ERM is underway.
As an improvement of the risk management system, supply chain risk has been developed
in further detail. This coupled with the Oracle Cloud Infrastructure (OCI) Analytics
Solutions to capture macro risks like commodity price variations, WPI Indices which impact
our projects can be a great asset and intellectual property for the Company. This digital
transformation to the Cloud opens up opportunities to create value with data enabled
solutions and also increases operational efficiencies by monitoring the Key Performance
Indices (KPIs) of the Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has a detailed well spelt internal control system in place to ensure that
all financial, commercial and legal transactions are fully authorized, recorded and
correctly reported. The Audit Committee of the Board of Directors, chaired by an
experienced Independent Director, reviews the adequacy of the Internal Control System. The
Companys Internal Audit Department is in charge of periodically carrying out detailed
audit of the transactions of the Company at various project sites, manufacturing locations
and offices in order to ensure that recording and reporting are adequate and as per the
policy of the Company. The Internal Audit team conducts periodical physical verification
of Companys assets and ensures that there is no unauthorized usage. Assets are maintained
in proper conditions and are adequately insured.
Business strategy of the organization has guided the formation of the Enterprise Risk
Management (ERM) for the Company. The process started an year ago and is under
implementation. Considering the flexibility and execution requirements for a projects
driven company the system is being continuously revaluated to establish a robust system.
The strategic focus will
now shift to undertake major expansions in the core sector like Steel, Cement, Port
etc. and hence the focus to minimize cost will be replaced by an outlook to add value in
projects through quantity saving with design optimization, compressing project duration
through better coordination and use of environment friendly material.
The risks are broadly categorized into Strategic, Operational, Financial (Compliance
& Reporting) & Hazardous Risks. The Components of Enterprise Risk Management
include:
a) Entity level controls
b) Process Risks & Controls
• Internal controls over financial reporting
• Operational controls
• Fraud risk controls
c) IT General Controls
Entity level & IT General controls are being followed as per standard practice of
EPC business.
For the rest of the components, the Implementation of ERM is divided into phases as
below:
Phase I: Implementation of Internal controls over financial reporting
Phase II: Implementation of operational & fraud risk controls
The Companies Act, 2013 mandated Indian Companies to implement internal controls over
financial reporting effective from 1st April 2018. The Management has documented all key
finance and business processes impacting financial reporting, tested the key controls for
adequacy and operating effectiveness during the financial year 2022-23.
Since majority of the business is in Projects, a project risk management framework has
been implemented in the ERP and being monitored periodically for all new projects on the
ERP. The risk framework captures Strategic, Operational, Financial and Hazardous risks.
This is supported by an issue management interface.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS INCLUDING NUMBER OF
PEOPLE EMPLOYED:
The Company firmly believes that its greatest strength lies in its Human Resources. The
organization has been increasingly emphasizing on development of knowledge and skills of
its employees to align with the changing business scenario.
The organization offers a congenial work environment
cutting across hierarchy and diverse work groups to foster a healthy work culture.
In terms of employee care, the organization provides benefits and allowances which are
in keeping with market trends. It also provides comprehensive insurance coverage for
employees to take care of medical exigencies and unforeseen situations. The Company is
continuing with its organizational transformation initiatives with a key focus on
restructuring to become a more agile and robust organization. Employee relations remained
cordial throughout 2022-23. As on 31st March 2023 number of permanent employees
of the Company was
190.
Industrial relations during the year have been cordial. FINANCIAL PERFORMANCE:
The details of financial performance with respect to operational performance have been
provided in the Report of the Board of Directors.
DETAILS OF SIGNIFICANT CHANGES (i.e. CHANGE OF 25% OR MORE AS COMPARED TO THE
IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED
EXPLANATIONS:
Key Financial Ratios |
2022-23 |
2021-22 |
Change(%) |
Reasons |
Debt Equity Ratio (Number of times) |
(1.53) |
(139.38) |
(98.90) |
During the year the Company recognised all accrued interest on
borrowings resulting in increase in Current Liabilities. Refer Note 39 & 46. |
Interest Coverage Ratio (Number of times) |
(0.28) |
(0.66) |
(57.74) |
N.A. |
Current Ratio (Number of times) |
0.29 |
0.76 |
(62.06) |
During the year the level of inventory has decreased. |
Debtors Turnover (Number of times) |
0.27 |
0.25 |
6.19 |
During the year the Company recognised all accrued interest on |
Inventory Turnover (Number of times) |
189.84 |
110.16 |
72.34 |
borrowings resulting in increase in Current Liabilities. Refer Note 39
& |
Operating Profit Margin (%) |
(2.35) |
(0.12) |
1856.12 |
46. |
Net Profit Margin (%) |
(10.83) |
(0.30) |
3465.95 |
|
Return on Net Worth (%) |
# |
# |
- |
N.A. |
# Not calculated as Net worth of the Company is eroded.
DISCLOSURE OF ACCOUNTING TREATMENT:
The Boards Report and the Financial Statements contain necessary disclosure of
accounting treatment, if any, different from that prescribed in Accounting Standards and
managements explanation regarding adoption of such treatment.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis Report in regard to projections,
estimates and expectations have been made in good faith. Many unforeseen factors may come
into play and affect the actual results, which could be different from what the Directors
envisage in terms of future performance and outlook. Industry information contained in
this Report, have been based on information gathered from various published and
unpublished reports and their accuracy, reliability and completeness cannot be assured.
For McNally Bharat Engineering Company Limited
(A Company under Corporate Insolvency Resolution Process)
Ravi Sethia Resolution Professional Registration No.
IBBI/IPA-001/IP-P01305/2018-2019/12052
|
Asim Kumar Barman |
Kasturi Roy Choudhury |
26th May 2023 |
DIN:02373956 |
DIN 06594917 |
Kolkata |
Director |
Director |
+91-9892691696
