FY14 orderbook seen in Rs 3000-4000cr range: Mcnally Bharat

Engineering company Mcnally Bharat disappointed the street by reporting a topline growth of 5.5 percent for the quarter ended March.

Speaking to CNBC-TV18 about the financial performance of the company, wholetime director and group CFO Prabir Ghosh pointed out that the slowdown in the infrastructure industry delayed the execution of projects. However, he is hopeful of reasonable revenue growth in FY14. Mcnally Bharat's net profit for the quarter ended March fell 29 percent to Rs 16 crore against Rs 22 crore in a year ago period. Meanwhile, he added that its present order book stood at Rs 5000 crore and the company aims to improve quality of orders this year. Going ahead, Mcnally Bharat is looking to book orders worth Rs 3,000-4,000 crore in FY14. The company is close to finalising an export order in South Africa. Also Read: Lanco Infra expects power biz EBITDA margin at 45% in FY14 Below is the verbatim transcript of Prabir Ghosh's interview on CNBC-TV18 Q: The market is disappointed with your topline - 5.5 percent growth, execution still remains quite slow. Do you think it will change in FY14? A: The overall backdrop of the infrastructure sector in 2012 and 2013 and particularly the power sector and other big manufacturing sector, the top line growth though it is little lower, in the context of the environment, it is not too bad. There is definitely some slowness in execution particularly in some of the power projects which have pulled back our original plan of execution. But, our order booking scenario in 2012-13 under the backdrop, we are happy the way we have booked offer and the quality of order which we have booked. The main problem in the overall market is the slowness in the industry as a whole which delayed the execution from the point of customer. This is because in the power sector there is a lot of delay in execution from the customer perspective due to the controversy in the coal block allocation. Because of money market tightness, lot of our customers including the public sector customers, delayed their payment and execution which also resulted in our overall increase in borrowing that increased our overall interest cost. Despite slow topline growth, our EBITDA margin has gone up. Q: Do you think the revenue growth will pick up in FY14? You did 5 percent this year. Do you think it will pick up in FY14? A: It will definitely pick up in FY14, but I would not say at this stage that it will be a substantial jump. But definitely, there will be a reasonable growth which we will be able to maintain under the backdrop. Q: Your interest costs have gone up 60 percent this year, in this fiscal. How do you plan to reduce your debt which is at around Rs 700 crore? Can you give us an indication of where your debt will stand at? A: The major reason for increasing interest cost is that there is some large money being stuck in some of the public sector. There is some delay in the execution of overall project on their part. But we now have clear visibility of those projects being completed. There is large retention money. Our job is complete but the overall package in that sector is not complete. The final test run has not been made and because of that our retention money has not been due for payment. From September onwards, we expect retention money to flow into the system and that will ease overall borrowing situation. We are also re-looking on the entire portfolio of the business. We are targeting more cash positive business and order which will require less working capital in the overall working capital system. The construction business, in which we did substantially well last year, will definitely grow this year. This particular sector requires less working capital. All combination of this will have improvement in the overall borrowing scenario. _PAGEBREAK_ Q: From Rs 700 crore of debt, how much do you plan to bring down by this calendar year? A: We will be happy if we can bring down the debt to Rs 600 crore. That is what initially we are targeting but the situation can change in a better way because it depends again on how fast those projects get completed and the retention money that is stuck up comes back into the system. Once that money starts flowing into the system from September onwards, this will improve the overall cash flow of the company. Q: What about margins because at the subsidiary level there is a bit of a disappointment? Overall, there is a slight disappointment, will this quarter be better? A: Basic hit in the subsidiary level, we have made permission for impairment loss for one of the manufacturing subsidiary which is in Germany where we made some losses last year. As a prudent accounting principle, we thought we will take impairment loss on our investment which is not a cash loss but under the back drop of the subsidiaries, this year all subsidies have done better. McNally Sayaji Engineering Ltd that made an operating loss year before last, made operating profit last year and is a welcome change under the back drop of the market. Our German company in coal and mineral technology has also made a profit of about two million euros under the backdrop which is definitely well. This year things are looking little better and we are expecting much higher turnover in all the subsidiaries. Subsidiaries will perform much better and we are also having a re-look on all the subsidiaries. We will take a lot of strategic decisions on different subsidiaries seeing the overall scenario of the business. Q: Where is the order book currently and how much do you plan to grow it in FY14? A: As on today, our order book is about Rs 5,000 crore which includes about Rs 800 crore orders where we are already L1 in public sector orders which includes two NTPC orders. We expect to improve the quality of orders this year. We will target more cash positive orders. We will be little choosy about the customers because we will have a close watch on the prospective customers cash flow situation, otherwise it can again get affected on our overall cash flow. Keeping that in mind, we are confident that we should be able to book anything between Rs 3,000-4,000 crore because we are already very close to finalise our export order in South Africa which should be done in another 1-1.5 month’s time. The value of which can be as high as USD 80-100 million and these are highly profit making orders and highly cash positive orders. So we will be looking for a quality of orders rather than quantity but inspite of that, we are confident we should be able to book at least Rs 3,000-4,000 crore order book this year.