MSTC Ltd IPO Note - Not Rated

MSTC Ltd IPO Note - Not Rated
by Nikita Bhoota 14/03/2019

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

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Ten Tips for Successful Long-Term Investment

Ten Tips for Successful Long-Term Investment
14/03/2019

With many avenues to multiply wealth, an individual can go for long-term or short-term investments based on their financial goals and liquidity position.

Investing in the market is one of the preferred avenues for wealth accumulation as it yields better returns when compared to the traditional forms of investments such as bank deposits, FD’s, PPF and others.

Nevertheless, when opting for long-term investment, hasty and uninformed decisions can lead to massive losses. An individual requires patience, fiscal discipline, and constant research on the markets when going for long-term investments.

Here are some tips for being a successful long-term investor:

1) Know it all:

Before proceeding to purchase stocks or securities, thorough research is vital. Don’t invest in a company just because of its name. Browse through information on the trends of the market, read up on the company and its performance in the past years, and check how the stock is performing before purchasing. This information will assist you in understanding how the stock or company is fairing in the market.

2) Invest in the business:

‘Never invest in stocks, invest in a business’ is the success formula used by expert investors. Knowing the business methodology and about the industry will help you in assessing the future of the company. It will be easier to pull out in time if the business prospects go on a downhill.

3) Never accept tips:

Regardless of who says, it is not advisable to chase a hot tip. It is always better to analyze and research before pursuing the tip. Even though some tips might prove to be profitable, it is better to have all the facts checked before investing your hard-earned money. It is wise to follow a well-researched decision than go with the crowd when it comes to investing in stocks.

4) Don’t panic:

Never panic when there is short-term volatility in the market. It is essential to focus on the bigger picture rather than sweating on the small stuff. Markets rise and fall now and then, and any movement that pertains to the short-term graph is not relevant for long-term investments. The success of long-term investors lies on staying focused and not taking any hasty decision.

5) Never stress on the P/E ratio:

Many investors give more importance to the Price to Earnings ratio or the P/E ratio over other parameters when selecting stocks. But being dependent on only one equation is not the right way to choose successful investments. A low P/E ratio does not necessarily mean that the stock is undervalued nor a high ratio indicates that the stock is overvalued.

6) Avoid penny stocks:

There is a common misconception that low priced stocks like penny stocks result only in lower losses in times of adversity. But it is not the case and it is better to invest in the quality stocks over penny stocks. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, and limited disclosure of information.

7) Have a strategy:

There are many techniques to select stocks and sticking to one of them is very important. Having a strategy that is suitable to your financial goals and risk appetite helps in building a successful long-term investment.

8) Regular dividends:

Wealth accumulation is a primary motive when opting for long-term investments, but dividends are a great source of passive income. When the company is in profits, it will distribute a certain percentage of the profit as dividends to its shareholders. Holding an investment that gives returns on not only selling but also as a regular income, is one of the ways to become a successful long-term investor.

9) Focus on the future:

The most tricky factor to successful investing is making informed investing decisions based on future events that are yet to happen. It is essential to base your decision focused on the future potential of the business and not just the past performance.

10) Keep an open mind:

When aiming for long-term investment, you need to have an open mind for selecting stocks. There are many good investments hidden among the bigger players, and there small companies that have the potential to become noteworthy companies. Therefore, if the investor feels the company can grow, then they should invest in them.

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A cheerful budget for the aam aadmi, and possibly markets

A cheerful budget for the aam aadmi, and possibly markets
by Prakarsh Gagdani 02/04/2019

By Prakarsh Gagdani

A cheerful budget for the aam aadmi, and possibly markets

In many ways the budget 2019 has been different and it promises to bring big relief for the Aam Aadmi. With direct cash to farmers, pension for unorganised workers and tax break for middle class, we see a new way of populism. Knowing that this is a pre-poll budget, it is definitely a master stroke by the current government.

Of all the major announcements, the hike in tax rebate has been the most-awaited announcement. One of the major distress points for the common salaried man has always been the income tax. The move to increase the income tax rebate limit for individual with taxable income upto Rs 5 lakh is expected to benefit 3 crore tax payers. Moreover, individuals availing the Rs 1.5 lakh deduction u/s 80C, will not be required to pay any income tax up to gross income of Rs 6.5 lakh. Such a person would be saving tax of Rs 12,500 compared to the tax payable in current FY 2018-19.

Even though the basic exemption limit and tax-slabs remain the same for taxpayers with annual income beyond Rs 5 lakh, the government has increased the provisions of tax saving for them too. It has proposed to increase the standard deduction limit to Rs 50,000 from Rs 40,000 earlier and also raised the TDS limit on bank deposit interests to Rs 40,000 from Rs 10,000 currently. This will benefit small depositors and non-working spouses and ultimately get more savings in the household. Further, the New Pension Scheme (NPS) has been liberalized by increasing the government contribution from 10% to 14%, while keeping the employee contribution same at 10%. 

In addition, a number of measures have been announced with respect to tax around real estate. Notional rent on the second self-occupied house has been done away with; benefits of rollover of capital tax gains will be increased from investment in one residential house to two residential houses for tax payer having capital gains up to Rs 2 crore; and TDS threshold of deduction of rent u/s 194-I has been increased from Rs 1.8 lakh to Rs 2.4 lakh.

All in all, this is the budget which India needs for the growth in household savings. The budget has indeed put more money in the hands of the salaried class and this increase in savings can be channelized into long-term investments, either through the traditional route or through capital markets. To my belief, the tax relief has been a major announcement and impact of this will be seen over time in increased participation in the capital markets. That way, the domestic flows could possibly counter-balance global liquidity fluctuations. 

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The Difference Between Regular and Direct Mutual Fund

The Difference Between Regular and Direct Mutual Fund
01/09/2019

Browse through the NAVs of mutual funds either in the pink papers or the AMFI website and you will find that the same growth or dividend scheme of a mutual fund is subdivided into Regular plans and Direct Plans. Have you ever wondered what are these Direct Plans and Regular Plans? Let us check out a live NAV table first.

Date Source: AMFI

In the above table, you will find that the DSP Top 100 Equity Fund is subdivided into Direct Plan and Regular Plan. You will also find that the Direct Plan has a higher NAV compared to the Regular Plan. Before comparing Direct Plans and Regular Plans, let us briefly dwell on the brief history of Direct Plans.

A Brief History of Direct Plans

Prior to 2009, fund houses charged investors entry loads on mutual funds to cover selling and distribution costs. In August 2009, SEBI banned the collection of entry loads from mutual fund clients. However, the official model of Direct Plan came only from January 2013 when SEBI asked all fund schemes to classify into Direct Plans and Regular Plans.

Currently, funds are allowed to debit their annual expenses up to a ceiling of 2.25% of the AUM in case of equity funds to the fund NAV. This is called the Total Expense Ratio (TER). The fund does not bill the distribution and trail commission costs to Direct Plan investors. Hence, Direct Plans are subject to lower TERs and the NAV are higher. Here are three key points.

Direct Funds Have Lower Expense Ratio

The TER on Direct Plans is lower since the distribution and trail fees are not billed to them. However, there are other costs too in a mutual fund. Mutual funds have to incur operational costs, fund management fees, auditor fees, registrar charges, execution costs, statutory costs and brand expenses, among others. Even if you are holding a Direct Plan, these expenses will still be charged to you. It is only the distribution and trail commissions that are not billed to your NAV. In a typical equity fund the regular plans will have a TER of around 2.25% while the TER for a Direct Plan will be 60-70 bps lower. This cost saving each year enhances your return over the longer period of time.

Direct Plan Does Not Involve Any Intermediary

Direct Funds are simple in nature and the process of investing, especially through an online platform is easy as you do not deal with any intermediary. You can invest directly and make your own investment choice. Just ensure that the NAV in your statement actually reflects the Direct Plan NAV as available on the AMFI website.

Choose Direct Plans If You Can Make Financial Planning Decisions Independently

The common question is - who should opt for a Direct Plan. There are no hard and fast rules. If you are savvy enough to manage your financial planning and investments on your own, then you can consider Direct Plans. When you invest via Direct Plans you do not get the benefit of the advisory services of a broker or financial advisor. Hence, you need to make your choice of Direct Plan after due consideration. Ensure that you have the time and resources to make your financial planning decisions independently.

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How Can You Invest In Direct Mutual Funds?

How Can You Invest In Direct Mutual Funds?
01/09/2019

Direct plans of mutual funds enable the investor to save on costs. Direct Plan investors are not charged the distributor and trail commissions. For an average equity fund, this reduces the Total Expense Ratio by 60-70 basis points. This makes a big difference over longer periods.

The KYC process remains the same, irrespective of whether you opt for the Direct Plan or the Regular Plan. Also you have to register with the AMC or the aggregator once. The investor can either do a lump sum investment or follow SIP route through the Direct Plan. Once your SIP is registered as a Direct Plan, then it continues that way. You can convert a Regular Plan into a Direct Plan by writing to your fund. How do you invest in Direct Mutual Funds?

Direct Plan Investing Through AMCs

Walk into the nearest office or Investor Service Centre of the AMC of your choice. If you are a first time investor, then you will have to complete your KYC and you will be allotted a ‘Folio Number’. Once folio number is allotted, subsequent investments can be done online. Ensure that you specifically check the Direct Plan box in your application. The only challenge in this approach is that you will have to obtain a distinct folio number for each AMC.

Direct Plan Investing Through Fund Registrars

Registrars are the record keepers and folio managers of all mutual fund accounts. There are two key players viz. Karvy and CAMS. You can register with either registrar online to invest in Direct Plans. Of course, when you approach a registrar, you can only invest in funds for which they are the registrars. In fact, when you submit an application to your AMC, it is processed by the registrar only. So, this is an extension of the first method.

Leveraging MFUs and Fund Aggregators

Mutual Fund Utilities (MFU) or aggregators are an agnostic platform to invest in mutual funds. You will have to take a one-time registration and obtain a Common Account Number (CAN). Once the CAN is obtained, you can map all your existing folios to that particular CAN and they would be treated as Direct Funds. The advantage is that you don’t have to interface with multiple AMCs and the MFU aggregates and gives you requisite analytics for better decision making. The challenge is that you can only deal in the funds where the AMCs have tied up with the MFU. This platform is convenient and centralized.

Direct Plan Investing Through Investment Advisors, Online Direct Investment Portals

The challenge in the above 3 methods is that you still have to be self-driven. As an investor you need to take all the decisions including screening, selecting and ensuring that funds are in sync with your long term goals. One alternative is to go through on online platform of Registered Investment Advisor or through a Robo Advisor. These platforms provide investment recommendations to investors on the basis of certain details keyed in by the investor. 

Direct Plans Of Mutual Funds – How To Make The Choice?

Investing through Direct Plans requires that you are comfortable with a self-driven approach to investing in mutual funds. While mutual funds offer diversification and professional management, they are also exposed to the vagaries of the markets and macros. You must be confident to handle these gyrations. Ideally, Direct Plans are for investors who have the time, wherewithal and resources to spend in making investment decisions. Otherwise, you are better off opting for a Regular Plan and letting your broker advice you appropriately.
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5 Factors to Look at While Selecting a Stockbroker

5 Factors to Look at While Selecting a Stockbroker
01/10/2019

Today, there is an abundance of stockbrokers offering their premium services to individuals wanting to accumulate wealth through the financial markets. As such, it is vital to choose a good stockbroker who understands the investor’s financial goals and guides him/her towards substantial returns.

Investors of today have two choices when it comes to stockbrokers: the traditional stockbroker and the discount brokerages. Traditional brokers charge a certain percentage as a fee, which differs with the type and size of the transaction. These brokers also send out trading tips and research bytes to the clients.

Discount brokerages, on the other hand, offer the standard services but at a fixed (flat) cost, i.e. regardless of the type and size of the transaction. They, however, do not offer any trading expertise, i.e. they do not give out trading or stock tips nor do they provide any insights into a trade. As such, they are suitable for those who prefer to self-educate themselves and take independent decisions.

Considering these, an investor has to carefully think about his/her requirements as well as exercise caution when choosing a stockbroker.

Here are five factors that would help a new investor in selecting a stockbroker who understands the financial goals of the investor.

  1. Credibility

    It is vital to perform a thorough background check on the stockbroker before entrusting them with your life savings. Finding out how many years the stockbroker has been in business, how it has performed in the past, what do the clients say about the firm, and any other relevant questions. This will help the individual to know more about the broker.

  2. Minimum Balance

    Investors need to maintain a minimum balance in their stockbroking account, and hence, it is vital to inquire about the same. This amount varies from broker to broker, hence, investors should choose a broker who not only provides the best services, but also has a low minimum amount threshold so that it does not tax their monthly budget. Other than the minimum amount, there should also be ease of access when it comes to depositing and withdrawing funds. Typically, brokerage houses have tie-ups with local banks which lets investors access their funds at any time. Withdrawals normally take three days to reach the client’s account.

  3. Technological Expertise

    Brokers who constantly update their platforms with the latest technology are able to give a unique advantage to the investor. There are also able to match the evolving needs of the investors and educate them on new features and solutions. Choosing a broker who consistently provides a stable and steady platform to their clients is a must.

  4. Availability

    A broker should be available during stock market hours to execute orders without any lag or delay or to address any issues that may arise on their electronic platforms. An investor should also check the speed and the stability of the website/mobile applications, especially during peak hours, to ensure that the pages load quickly and easily as even a split second can lead to the investor losing out on a profitable trade.

  5. Transparency and Capability

Transparency and capability are also important parameters when looking for the perfect stockbroker. There are many ways in which brokers charge their clients. Hence, the client has to ensure that all charges involved are mentioned in a lucid and transparent manner while opening an account. This will help you avoid any hidden costs that brokers might impose later. Apart from this, a broker should also have strong business policies that maintain the quality of the business.

When it comes to the capability of the brokers, investors should make sure that the stockbroker and his team have a strong background and passion for trading in order to have a hassle-free experience. When the team is able, it largely influences the business practices and delivers a profitable outcome to its investors.

Choosing the right stockbroker is vital to trading as the investor is entrusting their life savings into the former’s care. If a stockbroker or his brokerage satisfies the above-mentioned criteria as well as provides real-time customer support, add-on financial services and, as a bonus, is interested in enhancing the client’s knowledge of the markets, then engaging with them is a wise decision.