Scrap metal sits in a pile at a storage warehouse in Komarom, Hungary. (Photographer: Akos Stiller/Bloomberg)

MSTC IPO: All You Need To Know

MSTC Ltd. is launching its three-day initial public offering on Wednesday as its promoter—the Government of India—looks to offload a part of its holding in the state-run e-commerce company.

It aims to raise Rs 225 crore through the maiden offer—the first by the government this year—by selling 1.76 crore equity shares at Rs 121-128 apiece.

After the IPO, the promoter holding in the company will fall to 65 percent from 90 percent.

Business

MSTC started as a trading company for importing ferrous scrap and emerged as an e-commerce service provider and trader for bulk raw material.

Though the company generates more than 80 percent of its revenue from trading, the contribution of the e-commerce segment to its bottom line has been rising.

MSTC provides e-auction/e-sale and e-procurement services and develops customised software or solutions. So far, it has conducted 1.9 lakh auctions for 1.1 lakh users as of December 2018.

The company is also engaged in importing and local sourcing of bulk industrial raw material for traders. It has three business models—cash and carry model, 110 percent bank guarantee and associate supplier model—in the trading business. Earlier, the company used to operate under the cash and carry model because of which it suffered losses. It now shifted completely to the bank guarantee model.

MSTC has also formed a joint venture with Mahindra and Mahindra Ltd.’s wholly owned subsidiary to foray into the recycling sector. It set up a collection-cum-dismantling centre in Uttar Pradesh for processing scrap from old vehicles and other white goods. The joint venture is also in the process of setting up a shredding plant.

Financial Highlights

A slowdown in trading business and bad debt adjustments impacted MSTC’s financials.

Revenue from the trading business contracted 10 percent over FY16-18, according to its red herring prospectus. The e-commerce segment, however, reported a growth of 22 percent during the period.

The company’s net worth stood at close to Rs 328 crore as of September 2018, translating to a book value of Rs 46.6 a share.

MSTC also suffered losses due to higher tax expense. It has been paying taxes despite lower profit or losses in the last four years.

The bad debt adjustments were due to non-payment by debtors as they turned insolvent.

MSTC is a net cash company. It has a total debt of Rs 302 crore, while its total debt-to-equity multiple is lower than one, according to data compiled by BloombergQuint.

Valuations

MSTC’s annualised earnings per share for 2018-19 is at Rs 11.5. At the upper end of the price band, the price-to-earnings ratio stands at 11.1 times, according to BloombergQuint’s calculations.