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MSTC – cutting the fat, gaining zero figure

– one of the largest B2B e-commerce business available free..

Written by Jeevan Patwa (04/09/2020)

Company with multiple businesses always trades at valuation of bad business…this is what has
happened with MSTC so far..but after discontinuation of trading business, it should now start getting
valued for its best business i.e. e-commerce…zero debt, negligible debtors, 30%+ net profit margins and
50%+ RoCE…this will be the new Avataar of MSTC FY22 onwards…almost monopoly and huge market
opportunity…

FSNL, subsidiary of MSTC generated 46 crs EBIT in FY20 and is under divestment process as per DIPAM.
At 8x, it can be valued at 370 crs. Cero (50:50 JV with M&M), under which it had set up 2 C&D
(Collection and Dismantling) centers, two more in the pipeline with one more Shredding plant in coastal
belt of Gujarat. This business can be valued at 300-400 crs..Current market cap of MSTC is 1000 crs..with
200 crs cash on books in FY22…one of the largest B2B e-commerce business available free!!

After discontinuation of trading business, e-commerce business will have exponential growth in profits
given the fixed cost structure (100 crs fixed expenditure including 75 crs employee expense and 25 crs
other expenses as per FY20)… MSTC reported 200 crs from e-comm in FY20..at this run-rate, it can
report 75 crs PAT since majority of business is repeat business..any increase in the sales will directly flow
to bottom-line..

Growth opportunities for MSTC…

1. Scrappage policy – if approved, total scrap to come to market is 1.2 lac crs and it can potentially
generate 40,000 crs scrap every year…based on MSTC market share and 2.5% commission on
scrap trading this can be a big game changer for MSTC … In addition, once policy is announced,
Cero can setup more centers across the country and that scrap will also be traded on MSTC
e-comm platform

2. Private sector – Till now, PSUs contribute majority to e-comm business. MSTC is now casting
more focus on the untapped e-Commerce business from the private sector and in this stride
MSTC has signed big ticket agreement with Reliance Industry, Indus Tower, Tata Power, Vedanta
etc. to name a few…Bharti group is in fact the largest private sector client for company..as per
management, private sector scrap volume is much bigger that PSUs and is currently in
discussion with many such private players..

3. Government auctions – MSTC is a nominated agency for allocation of coal blocks and all major
mineral blocks in the country through its very customized e-Commerce portal. The minor
mineral blocks allocation is also happening through MSTC’s e-Commerce portal in the various
states in the country. The selection of Mine Developer-cum-Operator in many states is mostly
done through e-Procurement portal of MSTC. In addition, all the major minerals including coal
are being sold through e-Auction portal of MSTC...

4. E-procurement – MSTC is aggressively pursuing the e-procurement business which remains to


be of high potential for it. MSTC has developed e-Procurement services providing end-to-end
solution to NTPL for their purchases of coal. In addition, MSTC has developed and implemented
e-Reverse auction portal for imported Thermal Coal which has made import of coal transparent,
hassle free and economical. Taking a cue from this, other clients have also sought for the similar
services of MSTC

5. E-Retail - MSTC has carved niche for itself by developing an unique exim portal for Oil marketing
companies and in the process, MSTC has developed the required expertise for providing e-Retail
Software solutions to the Government and private organizations particularly the MSME. This
sector holds a great opportunity and potential for MSTC in future

6. e-Rakam – this enables farmers to sell their produce directly to customer from any place to any
place…frontend is already ready and now MSTC is working on creating the backend by
connecting with multiple logistics players and aggregators…it started with Jaivik Kheti portal,
selling organic products with Indian post as logistics partner..more than 60,000 farmers and
2500 farmer groups registered with the portal

7. Bank NPA auctions – MSTC collaborated with PSU Banking association under which all PSU
banks will use MSTC platform for their NPA auctions…MSTC earns 0.5% on NPA auctions.. MSTC
has been conducting regular auctions for movable and immovable assets as NPAs for
Government as well as private companies. MSTC has developed an e-auction portal to function
as an integral part of IBA’s eBKray website for sale of mortgaged properties of different banks
under SARFAESI Act. The portal is being used by all PSU Banks to sell their NPAs under SARFAESI
Act.The said portal became operational in December’2019 and upto 31.03.2019, a total of 15
Public Sector Banks had auctioned 6895 properties

8. PSU Divestment and government auctions – Telecom spectrum auctions, Oil blocks under NELP,
Coal block for commercial mining, allotment of petrol pumps etc. will be through MSTC platform

After closing trading business, management has a single mind focus on growing e-commerce business
which should reflect in the numbers from FY22…

Opportunities are abound…platform is ready…countdown starts…

Disclosure – Not a Buy / Sell recommendation. Do your own research. I’m invested in the company.

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