McNally Bharat Engineering Co. Ltd (MBEL) Q4FY11 standalone results were in line with our expectation. Revenue grew by 23% to Rs6.9bn. OPM declined by 132bps to 5.9% mainly due to higher employee cost. Adjusted PAT was flat at Rs223mn. On an annual basis sales grew by 18% to Rs. 17.5bn and PAT grew by 43% to Rs495mn led by higher other income. However, the performance of McNally Sayaji was not very encouraging as for FY11 sales de-grew by 4% to Rs3bn and PAT de-grew by 20% to Rs186mn.

Project business witnessed margin pressure

MBEL reported revenue growth of 23% to Rs6.9bn which was in line with our expectation. Shortage of construction labour and hiring of people for future expansion plans resulted in higher employee cost leading to decline of
132bps in OPM to 5.9%. We believe margins in the project business to remain under pressure on account increased competition and slowdown in order inflows.

Order backlog and inflows...

MBEL has an order backlog of ~Rs36bn on a SA basis down by 4% YoY. Further the company has bidded for projects worth Rs143bn and is L1 in projects worth Rs3.7bn. The total order inflows amounted to Rs22.4bn (up by 6%) and Rs3.5bn (up by 140%) in FY11 and Q4FY11 respectively

Muted performance by subsidiaries...

In FY11, McNally Sayaji’s sales de-grew by 4% to Rs3bn as recent expansion at the Asansol facility took time to ramp up production. OPM contracted by 400bps and resultantly PAT was down by 20% to Rs. 186mn. We expect the margins to stabilise at current levels. The order book remains flat at Rs2.2bn. CMT and German business reported a sales of Rs31bn and OPM of 7.6% for FY11. The order book is down by 50% at Rs1.8bn.