Article

MSTC Ltd IPO Note - Not Rated

14 Mar 2019 Nikita Bhoota

Issue Opens: March 13, 2019
Issue Closes: March 15, 2019
Face Value: Rs10
Price Band:  Rs121-128
Issue Size: ~Rs225 cr
Public Issue: ~1.77cr shares
Bid Lot: 90 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

89.8

64.6

Public

10.2

35.3

Source: RHP

Company Background

MSTC Ltd, a Category-I Miniratna, is a leading e-commerce service provider in the country and is also a major player in bulk raw material trading. It has entered into a recycling business through a 50:50 joint venture with Mahindra Intertrade Limited (MIL) for setting up a shredding plant and collection centers across the country. Its business is broadly classified into three segments – E-commerce (~7% of revenues, FY18), Trading (~81%), and Recycling through Mahindra MSTC Recycling Private Limited (MMRPL). A significant portion of its e-commerce revenue is derived from government and government-controlled entities.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~1.77cr shares by the promoters with employee reservation of 70,400 shares. There is a discount of Rs5.5 per share for eligible employees and retail investors

Financials

Consolidated Rs Cr

FY16

FY17

FY18

^H1FY19

Revenue from operations

3,225

1,739

2,265

1,477

EBITDA Margin %

-5.2

7.3

-18.2

4.5

PAT

-247

139

-6

-16

EPS

-35.0

19.8

-0.9

2.26

P/E (x)

-3.7

6.5

-139.0

--

P/BV (x)

2.9

2.2

2.5

--

RONW (%)

-78.4

34.3

-1.8

--

 Source: RHP, 5Paisa Research; *EPS & Ratios at higher end of the price band; ^H1FY19 numbers are not annualized.

Key Points

MSTC provides seamless services, from designing the model architecture, to programming, and the final roll out of e-auction platforms. Its strength lies in its ability to convert any business activity conducted through the brick and mortar method and/or in any other method to an online activity. It has conducted e-auctions of a variety of materials ranging from scrap, minerals, to land/real-estate, human hair, and forest/agro products. Considering the government’s emphasis on promoting digital modes of business and e-governance, the volumes of transactions are likely to gather pace going forward. This will be on the back of rising internet penetration and increasing basket of commodities being auctioned and procured via the e-commerce route. MSTC, with its first-mover advantage, has built several capabilities and is likely to benefit with newer state governments and companies appointing it as the service provider.

The company intends to further augment and develop its recycling business by investing in recycling capacity building. In addition to expanding its auto shredding venture, MSTC will, in the future, foray into recycling of e-waste. India is among the largest producer and importer of e-waste. MSTC may either partner with an established collector, dismantler, or recycler for setting up the e-waste facility in order to dispose and recycle the e-waste in an environmentally sustainable manner. It will sell the precious metals extracted from e-waste on our online platform for better realization.

Key Risk

Its e-commerce and trading businesses both have high dependence on small set of clients/customers. In the e-commerce business, revenues generated from the contracts awarded by the government and government-controlled entities constitute ~91% of the total revenue (H1FY19). Similarly, its top three customers account for ~93% of total revenue from the trading line of business for H1FY19.

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MSTC Ltd IPO Note - Not Rated

14 Mar 2019 Nikita Bhoota

Issue Opens: March 13, 2019
Issue Closes: March 15, 2019
Face Value: Rs10
Price Band:  Rs121-128
Issue Size: ~Rs225 cr
Public Issue: ~1.77cr shares
Bid Lot: 90 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

89.8

64.6

Public

10.2

35.3

Source: RHP

Company Background

MSTC Ltd, a Category-I Miniratna, is a leading e-commerce service provider in the country and is also a major player in bulk raw material trading. It has entered into a recycling business through a 50:50 joint venture with Mahindra Intertrade Limited (MIL) for setting up a shredding plant and collection centers across the country. Its business is broadly classified into three segments – E-commerce (~7% of revenues, FY18), Trading (~81%), and Recycling through Mahindra MSTC Recycling Private Limited (MMRPL). A significant portion of its e-commerce revenue is derived from government and government-controlled entities.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~1.77cr shares by the promoters with employee reservation of 70,400 shares. There is a discount of Rs5.5 per share for eligible employees and retail investors

Financials

Consolidated Rs Cr

FY16

FY17

FY18

^H1FY19

Revenue from operations

3,225

1,739

2,265

1,477

EBITDA Margin %

-5.2

7.3

-18.2

4.5

PAT

-247

139

-6

-16

EPS

-35.0

19.8

-0.9

2.26

P/E (x)

-3.7

6.5

-139.0

--

P/BV (x)

2.9

2.2

2.5

--

RONW (%)

-78.4

34.3

-1.8

--

 Source: RHP, 5Paisa Research; *EPS & Ratios at higher end of the price band; ^H1FY19 numbers are not annualized.

Key Points

MSTC provides seamless services, from designing the model architecture, to programming, and the final roll out of e-auction platforms. Its strength lies in its ability to convert any business activity conducted through the brick and mortar method and/or in any other method to an online activity. It has conducted e-auctions of a variety of materials ranging from scrap, minerals, to land/real-estate, human hair, and forest/agro products. Considering the government’s emphasis on promoting digital modes of business and e-governance, the volumes of transactions are likely to gather pace going forward. This will be on the back of rising internet penetration and increasing basket of commodities being auctioned and procured via the e-commerce route. MSTC, with its first-mover advantage, has built several capabilities and is likely to benefit with newer state governments and companies appointing it as the service provider.

The company intends to further augment and develop its recycling business by investing in recycling capacity building. In addition to expanding its auto shredding venture, MSTC will, in the future, foray into recycling of e-waste. India is among the largest producer and importer of e-waste. MSTC may either partner with an established collector, dismantler, or recycler for setting up the e-waste facility in order to dispose and recycle the e-waste in an environmentally sustainable manner. It will sell the precious metals extracted from e-waste on our online platform for better realization.

Key Risk

Its e-commerce and trading businesses both have high dependence on small set of clients/customers. In the e-commerce business, revenues generated from the contracts awarded by the government and government-controlled entities constitute ~91% of the total revenue (H1FY19). Similarly, its top three customers account for ~93% of total revenue from the trading line of business for H1FY19.

Research Disclaimer