IPO Note | Trading
Mar 12, 2019
MSTC Ltd.
NEUTRAL
sue Open: Mar 13, 2019
Is
Issue Close: Mar 15, 2019
MSTC was incorporated in 1964 as a trading company to deal in the export of
scrap and since than it has grown into a large diversified, multi-product services
Issue Details
and trading company. It was a canalizing agency for import of ferrous scrap until
1992, however after de-canalization, MSTC has established itself as one of the
Face Value: `10
leading e-commerce service providers in the country. MSTC is one of the major
Present Eq. Paid up Capital: `70.4cr
players in trading of bulk raw material. It has entered the recycling business
through a 50:50 joint venture with MIL for setting up a shredding plant and
Fresh issue: Nil
collection centres across the country. The company has three main business
Post Eq. Paid up Capital: 70.4cr
verticals viz., (i) E-commerce, (ii) Trading, and (iii) Recycling through MMRPL.
Positives: (a) MSTC is one of the leading PSU entities and provides transparent, fair
Issue size (amount): `214cr -**`226cr
and secure e-commerce services to customers, (b) Enjoys first mover advantage
owing to domain expertise in providing e-commerce services, which boosts MSTC’s
Price Band: `121-128
business, (c) Expert & experienced management coupled with qualified workforce.
Lot Size: 90 shares and in multiple
thereafter
Investment concerns: The company’s financials, both on the top-line as well as
bottom-line, witnessed instable performance over FY16-18. MSTC registered
Post-issue implied mkt. cap: *`852cr -
**`901cr
fluctuation in top-line growth, while reported losses on the bottom-line front.
Promoters holding Pre-Issue: 89.8%
Further, in 1HFY2019, the company has again posted loss of ~`15cr.
Outlook & Valuation: Considering the company’s business segments like E-
Promoters holding Post-Issue: 10.2%
commerce, Trading & Recycling through MMRP, which mainly cater to the
*Calculated on lower price band
commodity sectors (not very attractive). Moreover, given the instability on the top-
** Calculated on upper price band
line front coupled with losses on bottom-line front, we recommend NEUTRAL rating
Book Building
on the issue.
Q IBs
50% of issue
Key Financials
Non-Institutional
15% of issue
Y/E March (` cr)
FY2016
FY2017
FY2018
1HFY19
Net Sales
Retail
35% of issue
3,225
1,739
2,265
1,477
% chg
-
(46.1)
30.3
-
Net Profit
(247)
139
(6)
(15)
Post Issue Shareholding Patter
% chg
-
(156.3)
(104.7)
-
Promoters
64.7%
OPM (%)
(5.2)
7.3
(18.2)
4.5
EPS (`)
O thers
35.3%
(35.1)
19.8
(0.9)
(2.1)
P/E (x)
(3.6)
6.5
(139.0)
P/BV (x)
0.3
0.2
0.2
RoE (%)
(7.9)
3.4
(0.2)
RoCE (%)
(1.9)
1.0
(3.8)
EV/Sales (x)
(0.8)
1.7
1.3
EV/EBITDA (x)
15.8
22.7
(7.1)
Amarjeet S Maurya
Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end
+022 39357600, Extn: 6831
of the price band
Please refer to important disclosures at the end of this report
1
MSTC | IPO Note
Company background
MSTC was incorporated in 1964 as a trading company to deal in the export of
scrap and since than it has grown into a large diversified, multi-product services
and trading company. It was a canalizing agency for import of ferrous scrap until
1992, however after de-canalization, MSTC has established itself as one of the
leading e-commerce service providers in the country. MSTC is one of the major
players in trading of bulk raw material. It has entered the recycling business
through a 50:50 joint venture with MIL for setting up a shredding plant and
collection centres across the country. The company has three main business
verticals viz., (i) E-commerce, (ii) Trading, and (iii) Recycling through MMRPL.
Issue details
MSTC is raising ~`214-226cr through offer for sale of equity shares in the price
band of `121-128. The company will dilute 25.1% (at upper price band) of its pre-
offer paid-up equity share capital.
Exhibit 1: Pre and Post IPO shareholding pattern
No of shares (Pre-issue)
% No of shares (Post-issue)
%
Promoters
63251200
89.8%
45580800
64.7%
Others
7148800
10.2%
24819200
35.3%
Total
70400000
100.0%
70400000
100.0%
Source: Source: RHP, Note: Calculated on upper price band
Note: A discount of `5.5 per equity share is offered to Retail Investors.
Objectives of the Offer
Carry out the disinvestment of equity shares by selling shareholder in the
company.
Achieve the benefits of listing the equity shares on the stock exchange.
Mar 12, 2019
2
MSTC | IPO Note
Income Statement
Y/E March (` cr)
FY2016
FY2017
FY2018
1HFY19E
Net Sales
3225
1739
2265
1477
% chg
(46.1)
30.3
(34.8)
Total Expenditure
3,393
1,613
2,679
1,410
Raw Material
2723
1227
1590
1107
Personnel
140
149
211
79
Others Expenses
530
237
877
224
EBITDA
(168)
126
(413)
67
% chg
(175.3)
(427.5)
(116.1)
(% of Net Sales)
(5.2)
7.3
(18.2)
4.5
Depreciation& Amortisation
12
12
12
6
EBIT
(179)
114
(426)
60
% chg
(163.6)
(473.2)
(114.2)
(% of Net Sales)
(5.6)
6.6
(18.8)
4.1
Interest & other Charges
97
68
67
33
Other Income
83
137
528
15
(% of PBT)
(42.6)
74.7
1,518.3
35.3
Recurring PBT
(194)
183
35
41
% chg
(194.5)
(81.0)
19.3
Tax
53
44
40
56
(% of PBT)
(27.2)
23.8
114.9
135.9
PAT (reported)
(246.7)
139.7
(5.2)
(14.9)
Extraordinary Items
0
1
1
(0)
ADJ. PAT
(247.1)
139.2
(6.5)
(14.9)
% chg
(156.3)
(104.7)
129.9
(% of Net Sales)
(7.7)
8.0
(0.3)
(1.0)
Basic EPS (`)
(35.1)
19.8
(0.9)
(2.1)
Source: Company, Angel Research
Mar 12, 2019
3
MSTC | IPO Note
Exhibit 2: Balance Sheet
Y/E March (` cr)
FY2016
FY2017
FY2018
1HFY19
SOURCES OF FUNDS
Equity Share Capital
88
176
352
352
Reserves& Surplus
3,059
3,884
3,310
2,927
Shareholders Funds
3,147
4,060
3,662
3,279
Total Loans
6,533
6,884
7,662
3,019
Deferred Tax Liability
20
-
-
-
Total Liabilities
9,700
10,944
11,323
6,299
APPLICATION OF FUNDS
Net Block
617
658
690
715
Capital Work-in-Progress
41
22
104
169
Investments
-
26
88
78
Current Assets
36,926
41,273
43,162
38,573
Inventories
192
744
42
58
Sundry Debtors
25,816
34,599
36,172
31,881
Cash
10,076
4,888
5,548
5,537
Other Assets
842
1,042
1,401
1,095
Current liabilities
31,922
35,054
36,055
36,268
Net Current Assets
5,004
6,219
7,107
2,305
Deferred Tax Asset
3,215
3,322
3,387
3,031
Mis. Exp. not written off
-
-
-
-
Total Assets
9,700
10,944
11,323
6,299
Source: Company, Angel Research
Mar 12, 2019
4
MSTC | IPO Note
Exhibit 3: Cash Flow Statement
Y/E March (` cr)
FY2016
FY2017
FY2018
1HFY19
Profit before tax
-194
183
33
40
Depreciation
12
12
12
6
Change in Working Capital
105
-652
-127
351
Interest / Dividend (Net)
0
1
0
0
Direct taxes paid
-73
-53
-47
-23
Others
374
(10)
223
148
Cash Flow from Operations
223
-519
95
523
(Inc.)/ Dec. in Fixed Assets
-14.0
-19.4
-26.3
-19.3
(Inc.)/ Dec. in Investments
319
397
37
(5)
Cash Flow from Investing
305
377
11
-25
Issue of Equity
0
0
0
0
Inc./(Dec.) in loans
-231
122
3
-300
Dividend Paid (Incl. Tax)
0
0
0
0
Interest / Dividend (Net)
(121)
(110)
(97)
(60)
Cash Flow from Financing
-351
12
-94
-359
Inc./(Dec.) in Cash
177
(130)
11
139
Opening Cash balances
-86
91
-39
-28
Closing Cash balances
91
(39)
(28)
111
Source: Company, Angel Research
Mar 12, 2019
5
MSTC | IPO Note
Exhibit 4: Key Ratios
Y/E March
FY2016
FY2017
FY2018
Valuation Ratio (x)
P/E (on FDEPS)
(3.6)
6.5
(139.0)
P/CEPS
(3.8)
5.9
124.8
P/BV
0.3
0.2
0.2
EV/Sales
(0.8)
1.7
1.3
EV/EBITDA
15.8
22.7
(7.1)
EV / Total Assets
(0.3)
0.3
0.3
Per Share Data (`)
EPS (Basic)
(35.1)
19.8
(0.9)
EPS (fully diluted)
(35.1)
19.8
(0.9)
Cash EPS
(33.5)
21.6
1.0
Book Value
447.0
576.7
520.1
Returns (%)
ROCE
(1.9)
1.0
(3.8)
Angel ROIC (Pre-tax)
45.2
1.9
(7.5)
ROE
(7.9)
3.4
(0.2)
Turnover ratios (x)
Asset Turnover (Gross Block)
0.3
0.2
0.2
Inventory / Sales (days)
2
16
1
Receivables (days)
292
726
583
Payables (days)
246
537
420
Working capital cycle (ex-cash) (days)
48
204
164
Source: Company, Angel Research
Mar 12, 2019
6
MSTC | IPO Note
Research Team Tel: 022 - 39357800
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