McNally Bharat Engineering reported strong growth in 4QFY2010, with sales and profit growth of 19% and 142% respectively, ahead of estimates. This was driven by higher EBITDA margins and lower interest costs. For the full year, standalone sales grew 50% and EBITDA margins improved 80 basis points. Going forward, the company is well positioned for robust growth over the next few years due to its large order backlog of 2.6 times FY2010 revenue. The analyst maintains a 'Buy' recommendation with a revised target price of Rs486.

1. 4QFY2010 Result Update I Capital Goods
May 18, 2010
McNally Bharat Engineering BUY
CMP Rs312
Performance Highlights Target Price Rs486
McNally Bharat Engineering (MBE)’s 4QFY2010 Sales and Adj. PAT growth of Investment Period 12 Months
19% and 142%, respectively, was ahead of our estimates. MBE’s strong
performance was on the back of a higher EBITDA margin and lower interest Stock Info
outflow. The major improvement was on the EBITDA front, where margins
Sector Capital Goods
expanded by 165bp, from 5.6% (4QFY2009) to 7.3% (4QFY2010). Interest
costs for the quarter declined by 55% yoy. Overall, MBE’s FY2010 Market Cap (Rs cr) 970
performance was ahead of our expectations. Going ahead, we expect the
Beta 1.1
company to be on a strong growth path for the next few years, on account of
its robust order book (2.6x FY2010 revenue). We have marginally revised our 52 WK High / Low 385/76
estimates upwards on account of better-than-expected sales, and maintain
our Buy recommendation on the stock. Avg. Daily Volume 66,502
Face Value (Rs) 10
Strong, execution-led growth: MBE’s (standalone) sales for the quarter grew
by 19%; however, its EBITDA grew by 54%, on the back of better execution BSE Sensex 16,876
and cost control. Overall interest costs for the quarter declined by 55% yoy, Nifty 5,066
due to better working capital management and a reduction in the average
cost of borrowing. The overall Adj. PAT for the quarter increased by 142% to Reuters Code MCNL.BO
Rs24cr from Rs10cr (4QFY2009). For the full year FY2010, standalone sales
Bloomberg Code MCNA@IN
grew by 50% to Rs1,448cr (from Rs968cr in FY2009), while the EBITDA
margin improved by 80bp to 6.8% (from 6%). Shareholding Pattern (%)
Outlook and Valuation: We believe that an improving economic scenario Promoters 30.6
(indicated by a revival in the IIP), the continuous government focus on MF/Banks/Indian FLs 28.5
infrastructure spend and a pick-up in private capex augurs well for the
companies providing EPC solutions for the core sectors of the economy. The FII/NRIs/OCBs 18.9
overall emerging opportunities for MBE are expected to be around Indian Public 22.0
Rs51,600cr over FY2010-15E. Given MBE’s strong track record, we believe
that it is well placed to capitalise on such opportunities. MBE’s current Abs. (%) 3m 1yr 3yr
consolidated order book stands at Rs5,110cr (2.6x FY2010 revenue). Going
Sensex 3.4 18.1 18.0
ahead, over FY2010-12E, we estimate the company to register a CAGR of
28% and 35% in Sales and Profit, respectively. We maintain our Buy
McNally 26.7 308.9 98.6
recommendation on the stock, with a revised Target Price of Rs486.
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,115 2,019 2,501 3,332
% chg 101.0 81.1 23.9 33.2
Adj Profit 39.7 65.0 93.6 118.7
% chg 91.1 63.9 44.0 26.8
Adj FDEPS (Rs) 12.8 20.9 27.4 34.7
EBITDA Margin (%) 9.8 7.9 9.7 9.6
P/E (x) 24.5 14.9 11.4 9.0
P/BV (x) 4.7 3.6 2.7 2.1
RoE (%) 21.7 27.2 28.0 26.1
RoACE (%) 29.4 27.0 31.0 30.3
Sageraj Bariya
EV/Sales (x) 1.0 0.6 0.5 0.4
Tel: 022 – 4040 3800 Ext: 346
EV/EBITDA (x) 10.6 7.5 5.5 4.6
E-mail: sageraj.bariya@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. McNally Bharat Engineering I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance (Standalone)
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Total Revenue 562 474 19 1448 968 50
Total RM 334 304 10 833 612 36
as % of sales 59 64 58 63
Gross Profit 228 169 615 356
Gross margin (%) 40.5 35.8 42.5 36.7
Staff cost 20 15 37 71 44 62
as % of sales 3.6 3.2 4.9 4.5
Other Expenses 167 128 30 445 254 75
as % of sales 29.6 27.0 30.8 26.2
Total Exp 522 447 17 1349 910 48
as % of sales 93 94 93 94
EBITDA 41 27 54 99 58 70
EBITDA % 7.3 5.6 6.8 6.0
Depreciation 1.4 0.3 327 4.8 2.4 99
EBIT 39.4 26.2 94.1 134.0
EBIT % 7.0 5.5 6.5 7.6
Other Income 2.7 3.5 (24) 3.1 5.8 (47)
Interest 6.9 15.2 (55) 34.0 32.8 4
PBT 35 15 142 63 28 123
Extra-ord Items 1 (23) 4 (23)
PBT 34 38 59 51
Total tax 13 12 4 20 17 15
Tax rate 36 84 32 62
PAT 22 25 (15) 39 34 14
PAT (%) 3.8 5.4 2.7 3.5
Adj PAT 23.9 9.9 142 43.0 19.2 123
Adj PAT (%) 4.3 2.1 3.0 2.0
Equity 31.1 31.1 31.1 31.1
EPS 6.9 8.2 (15) 12.5 10.9 14
Adj EPS 7.7 3.2 142 13.8 6.2 123
Source: Company, Angel Research.
Key highlights of FY2010 (McNally Bharat Engineering Co, Standalone)
• The total revenue increased by 50%, on the back of strong execution and a
robust order inflow.
• The company improved its EBITDA margin by 80%, on account of faster
execution and better cost control.
• Total adjusted PAT for the year increased by 123% to Rs43cr (from Rs19cr).
May 18, 2010 2

3. McNally Bharat Engineering I 4QFY2010 Result Update
Exhibit 2: Financial Performance – McNally Sayaji Engg Co
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Total Revenue 126 75 67.7 309 202 52.9
Total RM 81 36 128.0 180 101 77.7
as % of sales 64.8 47.7 58.2 50.0
Gross Profit 44 39 12.7 129 101 28.0
Gross margin (%) 35.2 52.3 41.8 50.0
Staff cost 7 11 (38.3) 25 24 4.9
as % of sales 5.6 15.2 8.0 11.7
Other Expenses 17 15 13.7 51 38 36.2
as % of sales 13.2 19.4 16.6 18.7
Total Exp 105 62 70.3 256 163 57.5
as % of sales 83.6 82.3 82.8 80.4
EBITDA 21 13 55.5 49 40 24.3
EBITDA % 16.4 17.7 15.9 19.6
Depreciation 3 2 17.1 9 7 31.9
EBIT 18 11 40 33
EBIT % 14.4 14.8 12.9 16.1
Other Income 0 0 (100.0) 3 2 73.6
Interest 1 (1) (362.7) 8 3 123.3
PBT 17 12 39.6 35 31 14.4
Extra-ord Items 0 0 0 0
PBT 17 0 0 0
Total tax 6 5 35.1 10 11 (9.1)
Tax rate 37 38 29 37
PAT 11 7 42.5 25 19 28.2
PAT (%) 8.4 9.9 8.1 9.6
Equity 9 7 9 7
EPS 11.7 10.0 16.7 27.7 26.4 4.9
Source: Company, Angel Research
Key highlights of FY2010 (McNally Sayaji, Standalone)
• The total revenue increased by 53%, on the back of strong execution and a
robust order inflow.
• The EBITDA margin for the company declined by almost 400bp, on account of a
one-time staff cost (change in gratuity law).
• Total adjusted PAT for the year increased by 28% to Rs25cr (from Rs19cr).
May 18, 2010 3

4. McNally Bharat Engineering I 4QFY2010 Result Update
Strong order inflow continues
MBE's Order inflow has been on the rise, having increased from Rs700cr in FY2005
to Rs3,334cr in FY2009, posting a CAGR of 48% over the mentioned period. For
FY2010, the company ended the year with an order book of Rs4,550cr, while we
estimate that on a consolidated basis it stood at Rs5,150cr. The management has
further indicated that bids for order worth Rs1,300cr have been placed and the
outcome of the same is expected during the year.
Exhibit 3: Order Book Trend (Consolidated)
5,500 5,150 5.0
4.2
4,400 4.0
3,334
3,300 2.6 3.0
2.3
(Rs cr)
2.3 3.0
(x)
2,323
1.8
2,200 2.0
1,160
1,100 700 1.0
600
- -
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010E
Orderbook Orderbook to sales
Source: Company, Angel Research
Exhibit 4: SBU wise Break-up of order book (Standalone)
Non-
Steel & Ferrous
mines 6%
7%
Port
4%
Power
32%
Infra
24%
MHE
27%
Source: Company, Angel Research
May 18, 2010 4

5. McNally Bharat Engineering I 4QFY2010 Result Update
Key takeaways from the Conference call
• The management expects the Power sector to be the key growth driver for the
company over the next few years. The key opportunity areas are in Material
handling solutions (which include coal handling, coal washer, desalination plant
and RO plant).
• After bagging 2 BoP-based orders (770 MW), MBE is qualified to bid for all
ranges of BoP projects across the power sector. BoP projects have margins in the
region of 7-8%; however, the margin improves once a company starts executing
a higher range of projects. Hence, going ahead, MBE plans to focus on
improving the average size of the orders in the BoP segment.
• Going ahead, MBE plans to build up its skill set in Cement, and the Oil and Gas
industry, as it plans to diversify its order book.
• McNally Sayaji plans to invest Rs65cr in setting up a new facility for its product,
while the Parent MBE plans to have a capex of Rs45cr.
• A decision on the rights issue would be taken by June 2010.
• Overall, the management has outlined a revenue target of around Rs5,000cr
by FY2013E, of which MBE standalone would stand at Rs4,000cr, MSE at
Rs600-700cr and the CMT group (international subsidiary) at Rs500cr.
Outlook and Valuation
We believe that an improving economic scenario (indicated by a revival in the IIP),
the continuous government focus on infrastructure spend and a pick-up in private
capex augurs well for the companies providing EPC solutions for the core sectors of
the economy. The overall emerging opportunities for MBE are expected to be around
Rs51,600cr over FY2010-15E. Over the longer term, the Port and Steel Sectors are
likely to offer the highest opportunity of Rs22,200cr, while the Power and Mining
Sectors are likely to be the key growth drivers in the near term. The government's
strong focus on the Power Sector, through "Power for all by 2012", is expected to
result in an expansion of generation capacity in the Sector, leading to higher
opportunities for BoP players.
We believe that MBE is well placed to seize the upcoming opportunities in the
above-mentioned sectors, due to the following reasons: 1) Vast experience in the
different EPC Segments across sectors, 2) Presence in the high-Margin Product
Segment through its subsidiary, McNally Sayaji, and 3) Access to key global
technology for ash handling and mineral beneficiation. MBE's consolidated Order
Book at the end of 4QFY2010 stood at Rs5,110cr, or 2.6x FY2010 sales, which
renders high Revenue visibility for the company. Going ahead, over FY2010-12E, we
estimate the company to register a CAGR of 28% and 35% in Sales and Profit
respectively.
We have marginally revised our estimates upward for FY2011E and FY2012E, on
account of the better-than-expected performance in FY2010.
May 18, 2010 5

6. McNally Bharat Engineering I 4QFY2010 Result Update
Exhibit 5: Revised Estimates (Consolidated)
Rs cr Old New % chg
FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E
Sales 2,444 3,046 2,501 3,332 2.3 9.4
EBITDA 236 291 241 318 2.3 9.3
EBITDA % 9.7 9.6 9.7 9.6
PAT 91 114 94 119 2.4 4.1
EPS 26.7 33.3 27.4 34.7 2.4 4.1
Source: Angel Research
At the CMP, the stock is trading at 9x its FY2012E Earnings and 4.6x its FY2012
EV/ EBITDA. We maintain our Buy rating on the stock, with a revised Target Price
of Rs486.
Exhibit 6: One year forward P/E band
500
400
Share price (Rs)
300
200
100
0
Dec-09
Apr-05
Jul-05
Jul-06
Aug-09
Apr-10
Mar-06
Oct-06
Feb-07
Oct-07
Nov-05
Sep-08
May-08
May-09
Jun-07
Jan-08
Jan-09
Price 7x 10x 13x 16x 19x
Source: C-Line, Angel Research
Exhibit 7: One year forward EV/EBITDA band
2,000
1,600
1,200
Rs cr
800
400
-
Jun-07
Jul-05
Jul-06
Jan-08
Jan-09
Apr-05
Apr-10
Aug-09
Mar-06
Feb-07
Sep-08
Nov-05
May-08
May-09
Dec-09
Oct-06
Oct-07
EV 4x 5x 6x 7x 8x
Source: C-Line, Angel Research
May 18, 2010 6

7. McNally Bharat Engineering I 4QFY2010 Result Update
Profit & Loss Statement (Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Gross sales 517 565 1,130 2,051 2,542 3,390
Less: Excise duty 13 13 23 40 50 66
Net Sales 504 552 1,107 2,011 2,493 3,323
Other operating income 2 2 8 8 8 8
Total operating income 506 555 1,115 2,019 2,501 3,332
% chg 49.9 9.6 101.0 81.1 23.9 33.2
Total Expenditure 475 510 1,007 1,860 2,259 3,014
Net Raw Materials 309 305 654 1,191 1,476 1,966
Other Mfg costs 31 43 70 121 150 200
Personnel 28 42 78 162 175 233
Other 14 24 25 61 63 83
EBITDA 31 45 108 159 241 318
% chg 64.6 45.1 141.5 47.0 52.0 31.7
(% of Net Sales) 6.1 8.1 9.8 7.9 9.7 9.6
Depreciation& Amortisation 2 2 10 15 19 24
EBIT 29 42 99 144 222 293
% chg 85.2 46.1 132.3 46.1 54.4 32.1
(% of Net Sales) 5.8 7.7 8.9 7.2 8.9 8.8
Interest & other Charges 12 13 39 42 76 109
Other Income 7 2 3 6 8 12
(% of PBT) 28.4 7.0 4.2 5.6 5.4 6.2
Recurring PBT 24 31 62 108 154 197
% chg 213.5 33.0 97.1 73.5 43.3 27.7
Extraordinary Expense/(Inc.) (4) 1 20 4 - -
PBT (reported) 19 32 82 112 154 197
Tax 3 10 29 36 52 66
(% of PBT) 10.9 31.8 46.4 33.7 33.8 33.8
PAT (reported) 17 22 53 75 102 130
Add: Share of earnings of
- - - - - -
associate
Less: Minority interest (MI) 0 0 5 6 7 7
Prior period items - - 4 - - -
PAT after MI (reported) 17 22 48 69 96 123
ADJ. PAT 16 21 40 65 94 119
% chg 213.6 33.0 91.1 63.9 44.0 26.8
(% of Net Sales) 3.1 3.8 3.6 3.2 3.8 3.6
Basic EPS (Rs) 6 7 13 21 30 38
Fully Diluted EPS (Rs) 6 7 13 21 27 35
% chg 209.9 24.2 76.3 63.9 30.9 26.8
May 18, 2010 7

8. McNally Bharat Engineering I 4QFY2010 Result Update
Balance Sheet (Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 27 29 31 31 34 34
Preference Capital - - - - - -
Reserves& Surplus 70 129 177 239 365 476
Shareholders Funds 96 158 208 270 399 510
Minority Interest 0 0 12 18 25 32
Total Loans 117 63 214 316 379 568
Deferred Tax Liability 1 1 14 13 12 10
Total Liabilities 214 222 448 617 814 1,120
APPLICATION OF FUNDS
Gross Block 78 99 201 271 381 476
Less: Acc. Depreciation 33 37 33 48 68 92
Net Block 45 62 168 223 313 384
Capital Work-in-Progress 11 19 11 11 11 11
Goodwill 0 0 58 58 58 58
Investments 4 14 2 2 2 2
Current Assets
Cash 55 71 42 90 114 176
Loans & Advances 67 100 114 188 294 467
Other 281 400 771 1,009 1,418 1,838
Current liabilities 249 444 717 964 1,396 1,815
Net Current Assets 153 127 209 324 430 665
Mis. Exp. not written off - - 0 - - -
Total Assets 214 222 448 617 814 1,120
Cash Flow (Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 19 32 82 112 154 197
Depreciation 9 8 13 57 96 133
Change in Working Capital (11) 37 (118) (69) (87) (177)
Less: Other income - - - - - -
Direct taxes paid (0) (4) (14) (36) (52) (66)
Cash Flow from Operations 17 73 (37) 63 111 87
(Inc.)/ Dec. in Fixed Assets (11) (29) (147) (70) (110) (95)
(Inc.)/ Dec. in Investments (0) (8) 15 - - -
Inc./ (Dec.) in loans and
- - -
advances
Other income - - - - - -
Cash Flow from Investing (11) (37) (133) (70) (110) (95)
Issue of Equity 5 19 - - 44 -
Inc./(Dec.) in loans 40 (27) 160 102 63 189
Dividend Paid (Incl. Tax) (2) (3) (4) (5) (7) (10)
Others (9) (9) (18) (42) (76) (109)
Cash Flow from Financing 34 (21) 139 55 23 70
Inc./(Dec.) in Cash 40 15 (31) 48 24 62
Opening Cash balances 16 56 73 42 90 114
Closing Cash balances 56 71 42 90 114 176
May 18, 2010 8

9. McNally Bharat Engineering I 4QFY2010 Result Update
Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 53.6 43.1 24.5 14.9 11.4 9.0
P/CEPS 48.1 38.8 19.7 12.2 9.5 7.5
P/BV 8.7 5.7 4.7 3.6 2.7 2.1
Dividend yield (%) 0.3 0.4 0.4 0.6 0.8 1.0
EV/Sales 1.8 1.6 1.0 0.6 0.5 0.4
EV/EBITDA 29.0 19.5 10.6 7.5 5.5 4.6
EV / Total Assets 4.2 3.9 2.5 1.9 1.6 1.3
Per Share Data (Rs)
EPS (Basic) 5.8 7.2 12.8 20.9 30.1 38.2
EPS (fully diluted) 5.8 7.2 12.8 20.9 27.4 34.7
Cash EPS 6.5 8.0 15.8 25.7 33.0 41.9
DPS 1.0 1.1 1.3 2.0 2.5 3.0
Book Value 36.0 55.1 66.8 86.8 116.6 149.1
DuPont Analysis
EBIT margin 5.8 7.7 8.9 7.2 8.9 8.8
Tax retention ratio 89.1 68.2 53.6 66.3 66.2 66.2
Asset turnover (x) 3.4 3.8 4.1 4.3 4.1 4.1
ROIC (Post-tax) 17.4 19.8 19.6 20.6 24.1 23.7
Cost of Debt (Post Tax) 10.9 10.0 15.2 10.6 14.6 15.2
Leverage (x) 0.7 0.1 0.4 0.8 0.7 0.7
Operating ROE 21.8 21.2 21.4 28.9 31.1 29.9
Returns (%)
ROCE (Pre-tax) 15.5 19.4 29.4 27.0 31.0 30.3
Angel ROIC (Pre-tax) 18.6 30.8 24.4 27.4 31.8 31.1
ROE 17.7 16.3 21.7 27.2 28.0 26.1
Turnover ratios (x)
Asset Turnover (Gross Block) 6 6 7 9 8 8
Inventory / Sales (days) 11 15 17 25 24 25
Receivables (days) 164 210 176 210 205 205
Payables (days) 108 132 108 120 122 125
WC cycle (ex-cash) (days) 53 46 41 32 38 41
Solvency ratios (x)
Net debt to equity 0.6 - 0.8 0.8 0.7 0.8
Net debt to EBITDA 1.9 - 1.6 1.4 1.1 1.2
Interest Coverage (EBIT / Int.) 2.7 4.2 2.7 3.4 2.9 2.7
May 18, 2010 9

10. McNally Bharat Engineering I 4QFY2010 Result Update
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this
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and should consult their own advisors to determine the merits and risks of such an investment.
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may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).
Disclosure of Interest Statement McNally Bharat
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
.
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
May 18, 2010 10