McNally Bharat adverse conclusion challenges Rs 517.07 crore asset

McNally Bharat Engineering Company Limited (McNally Bharat) received an adverse conclusion on its standalone results for the half year ended September 30, 2026, after Singhi & Co challenged a Rs 517.07 crore deferred-tax asset and said joint-operation balances were absent from the statements. The review report was issued on November 12, 2026.

Why did McNally Bharat receive an adverse conclusion?

McNally Bharat received the adverse conclusion because auditors identified a disputed deferred-tax asset, incomplete bank-account information and omitted joint controlled operation balances in the standalone results for the quarter and half year ended September 30, 2026. Singhi & Co concluded that, because of the significance of these matters, the statement was not prepared in accordance with Indian Accounting Standard 34, or Ind AS 34, and Regulation 33 of the SEBI Listing Regulations.

The conclusion was issued on a limited review rather than a full audit. Singhi & Co said a review uses analytical and other procedures to obtain moderate assurance and is substantially narrower in scope than an audit, meaning it does not result in an audit opinion. The report also noted that the preceding quarterly review dated August 12, 2026, the half-year review dated November 13, 2025, and the predecessor auditor’s May 28, 2026 annual audit report had unmodified conclusions or opinion.

The auditors’ conclusion relates specifically to McNally Bharat’s standalone financial statement, not to a quantified restatement of all reported balances. The filing says the three matters prevented the auditors from confirming compliance with recognition, measurement and disclosure requirements, while the effect of the omitted joint-operation transactions was not quantified because relevant books were unavailable.

What did auditors say about McNally Bharat’s deferred-tax asset?

Auditors said McNally Bharat lacked convincing evidence and reasonable certainty of future taxable profits needed to use its Rs 517.07 crore deferred-tax asset, or DTA. The DTA was recognised until March 31, 2018, before approval of the resolution plan. Management said it had unabsorbed business losses and depreciation available for set-off and expected business performance and profitability to improve in coming years.

Singhi & Co said that, given McNally Bharat’s continued losses and current level of operations, continued DTA recognition did not comply with Ind AS 12, the accounting standard on income taxes. Had the DTA been derecognised, reported net loss and total comprehensive loss would each have been higher by Rs 517.07 crore for both the September 2026 quarter and the six-month period. Other equity at September 30, 2026 would also have been lower by Rs 517.07 crore.

The standalone balance sheet reported the DTA unchanged at Rs 517.07 crore on September 30, 2026 and March 31, 2026. Total assets declined to Rs 816.03 crore from Rs 823.07 crore over that period, while other equity fell to Rs 496.34 crore from Rs 537.36 crore. The disputed DTA therefore remained the largest stated non-current asset during a half year in which McNally Bharat reported a Rs 40.69 crore loss after tax.

Which joint-operation balances are missing from McNally Bharat’s accounts?

McNally Bharat has not recognised revenue, expenses, assets, liabilities, receivables, payables or related disclosures for three unincorporated joint arrangements spanning five contracts. The arrangements were formed under joint venture agreements to bid for and execute contracts awarded by Mahanadi Coalfields Limited and South Eastern Coalfields Limited. McNally Bharat is lead partner and has joint and several liability to customers for contract performance.

Singhi & Co said the arrangements are, in substance, jointly controlled operations, or JCOs, and that McNally Bharat acts as principal under the agreements and related documents. Under applicable accounting standards, McNally Bharat should recognise its share of contract assets, contract liabilities, revenue, costs, receivables and payables in standalone accounts, including consideration payable to other venture partners.

Instead, transactions and balances, including revenue related to earlier periods, were recorded only in separate books maintained for the joint arrangements. The JCO books and financial statements for the period ended September 30, 2026 were not made available to Singhi & Co. The auditors therefore said they could not determine adjustments required to the September quarter, six-month results, comparative figures or disclosures; the filing gives no rupee estimate of the potential impact.

What remains unresolved in McNally Bharat’s bank accounts and legal matters?

McNally Bharat is still obtaining details from banks and financial institutions about accounts, deposits and facilities in its name, including their status and supporting statements. It excluded Rs 2.34 crore from reported bank balances even though the amount appears in its name in bank statements. The company said it is obtaining relevant details and legal advice on the treatment, and auditors could not comment on the completeness of bank balances at September 30, 2026.

The report also drew attention to an Employees’ Provident Fund Organisation demand of Rs 9.60 crore, consisting of Rs 5.65 crore in damages under Section 14B and Rs 3.96 crore in interest under Section 7Q. Recovery has been stayed by the Jharkhand High Court, the matter remains sub judice, and McNally Bharat has not recognised a provision pending the final outcome. The auditors did not modify their conclusion for this emphasis-of-matter disclosure.

A separate disclosure concerns a June 10, 2026 National Company Law Tribunal order directing the successful resolution applicant to comply with the approved resolution plan’s buyback of 5% of equity shares allotted to financial creditors for Rs 30 crore plus interest from February 17, 2026. McNally Bharat said it initiated the buyback process, while financial creditors filed a contempt application. The company said it is arranging payment, subject to required regulatory approvals.

How did McNally Bharat’s reported operations change in the half year?

McNally Bharat reported total income of Rs 37.08 crore for the six months ended September 30, 2026, up from Rs 34.50 crore in the corresponding 2025 period. Net sales and income from operations rose to Rs 34.66 crore from Rs 33.14 crore. Despite the income increase, the company reported a Rs 40.69 crore loss after tax, compared with a Rs 3,579.91 crore profit after tax a year earlier.

The year-earlier comparison included Rs 3,918.13 crore of exceptional items, compared with an exceptional expense of Rs 24.00 crore in the September 2026 half year. For the September 2026 quarter, total income was Rs 21.87 crore, compared with Rs 19.54 crore in the September 2025 quarter, while the reported loss after tax was Rs 15.42 crore. These remain unaudited standalone figures affected by the matters set out in the adverse conclusion.

Cash and cash equivalents rose to Rs 4.34 crore at September 30, 2026 from Rs 3.56 crore at March 31, 2026. However, the same balance sheet reported current borrowings of Rs 94.46 crore and total current liabilities of Rs 283.79 crore, compared with Rs 94.84 crore and Rs 249.71 crore respectively at March 31, 2026. The review report does not state that these movements resolve the DTA, JCO or bank-balance issues.

Conclusion

McNally Bharat’s adverse limited-review conclusion identifies accounting recognition and completeness issues in the September 2026 standalone results. The Rs 517.07 crore DTA is the largest specified item because auditors said removing it would increase the reported loss and reduce other equity by the same amount. Omitted JCO balances and unverified bank-account information mean the full effect on reported figures has not been determined.

Next, McNally Bharat said it will complete its review of bank accounts and obtain legal advice on the Rs 2.34 crore excluded balance. Investors can also watch for the availability of JCO books for the three arrangements and five contracts, progress on the Rs 30 crore buyback process, and developments in the provident-fund case and the Directorate of Enforcement matter disclosed in the September 2026 results.