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B M Khaitan’s McNally Bharat submits resolution plan outside NCLT purview

After failing in its financial commitments with the lenders, B.M. Khaitan Group company, McNally Bharat Engineering has proposed a resolution plan with the lenders outside the purview of the National Company Law Tribunal (NCLT). In case the plan is approved, McNally is planning to rope in a consortium of investors for capital infusion into this loss-making firm laden with debts.

Ailing for over quarters, McNally reasoned that its performance has been affected by the downturn in the infrastructure and core sector, working capital constraints and other external factors outside its control, due to which it, along with one of its subsidiary companies failed to meet its financial commitments to the lenders.

The resolution plan to the lenders was submitted based on a techno-economic viability study conducted by an independent agency appointed by the lenders.

Since McNally, along with one of its subsidiary companies, have been categorised as a non-performing asset, a majority of the banks have stopped charging interest on their loans. According to McNally, the amount of interest not provided for has been estimated to be around Rs 81.72 crore.

Moreover, McNally has deferred tax assets of Rs 579.40 crore upto March 31, 2019.

“The parent company (McNally) has also signed a non-binding Memorandum of Understanding with a consortium of investors for infusion of funds into the parent company which is subject to due diligence and other terms and conditions including approval of the resolution plan”, the company said.

Sources suggested that McNally’s current debt is estimated to be around Rs 1,500 crore.

During the quarter ended June 30, 2019, its revenue from operations declined by 56.60 per cent at Rs 222 crore while losses reduced to Rs 32.58 crore. The revenue and loss during the Q1 period of the 2018-19 fiscal year stood at Rs 511.53 crore and Rs 118 crore respectively.

On the other hand, besides McNally, two other major listed entities of the B.M. Khaitan Group posted a decline of their respective revenue during the quarter ended June 30, 2019 (Q1) with mixed results in terms of profitability and losses.

In case of Eveready Industries, the Group’s flagship firm, revenue declined by 13.59 per cent at Rs 331.24 crore with a 62.32 per cent fall in profitability at Rs 6.91 crore. This is despite this firm narrowing down its expenses by 9.35 per cent at Rs 329.46 crore. In the Q1 period of the 2018-19 fiscal year, revenue stood at Rs 383.34 crore while the net profit stood at Rs 18.34 crore.

It reasoned that owing to weak consumption demand, especially in the rural sector – as higher inflation and interest rates plagued the economy, turnover across its business segments were hit. The lighting and appliances segment was significantly impacted by supply constraints and no government orders for fans as compared to last year. The appliance segment was also impacted on account of consolidation of the portfolio and channels of distribution.

“As a result, despite superior performance in the battery and flashlight segment, the overall profitability of the company was inferior to that of the corresponding quarter of last year”, the company said.

Its auditor, Singhi & Co, however, noted that Eveready has given Inter Corporate Deposits (ICD) to group companies from time to time. However, some of these deposits amounting to Rs 348.16 crore and interest outstanding thereon amounting to Rs 38.76 crore are lying outstanding as at June 30, 2019. Furthermore, the Company has furnished certain corporate guarantees and post-dated cheques in favour of banks and other parties who have provided loans to the companies which are part of the promoter group. The outstanding amount of these guarantees and post-dated cheques is Rs 134.09 crore. However, its management is of the view that these can be recovered and hence no provision has been made.

The Group’s tea plantations entity, McLeod Russel, which has been selling its gardens to pare debt, registered a 10.51 per cent fall in its net revenue at Rs 232.90 crore while losses widened to Rs 11.64 crore. The same in the corresponding quarter of the last fiscal year stood at Rs 260.25 crore and Rs 3.26 crore respectively.

McLeod stated that its performance has continued to be sluggish due to cyclical effect in the tea industry and the prevalent market conditions. Moreover, the ICDs given to various group companies to fund them for meeting their various financial obligations are outstanding and interest against these have largely not been received.

“All these have resulted in working capital mismatch and liquidity constraints causing hardship in servicing the short term and long-term borrowings and other financial obligations”, it said.

The tea producing firm is of the view that it has taken various measures to resolve the issues which inter-alia include reduction in operational costs, monetising assets including holding of other group companies and also restructuring the borrowings, so that to reduce the overall debt burden and related cost thereto and infuse liquidity in the system.

For McLeod, ICDs given to promoter group and certain other companies amounted to Rs 2,845.95 crore as on June 30, 2019 while the interest accrued upto 31st March 2019 and remaining unpaid as on 30th June 2019 aggregates to Rs 77.03 crore.

Source: Business Standard