Diwali to Diwali -4

MSTC

CMP 568, Market cap ~4000cr

ROCE ~37%, ROE ~33%, ROE 3Yr 30 %, D/E ~0.16 PE ~17.4 (based on screener)

Company is paying Dividends but not consistent, Changing Business Profile

Also Read Pick1, Pick2, Pick3

🟢Company conducts electronic auctions (“e-auctions”) primarily on behalf of the government of India and related parties like government-owned companies. MSTC is a Mini Ratna Category-I PSU of GoI, based in Kolkata.

🟢MSTC has 50:50 joint venture with the Mahindra group called Mahindra MSTC Recycling Private Limited (MMRPL). This company is an authorised RVSF (“Registered Vehicle Scrapping Facility”) for vehicles reaching end of their life. These old vehicles are purchased for de-polluting, dismantling and converting the metallic parts in an environmental friendly manner. In December 2022, the Government of India issued a directive regarding its Scrappage Policy, a government-funded initiative which seeks to phase out old passenger and commercial vehicles, thereby reducing urban air pollution, increasing passenger and road safety, and stimulating vehicle sales. This means that all government owned vehicles will be auctioned off on MSTC’s e-commerce platform when they reach end of life. This opportunity is close to 15Lakh vehicles

🟢MSTC is 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 Industries, Indus Tower, Tata Power, L&T, Jindal Group, Vedanta 

🟢Company has negative cash conversion cycle and that helps company to grow without any need of capital

🟢Diversity in auctions management is a kind of moat. Company have done auction of properties, Gold, Metal scrap, Steel, coal mines, Aircarft, UDAN scheme etc etc etc

🟢Promoter has skin in game with roughly 64% allocation. FII started entering. Some DII money is also getting poured in this one

🟢Sale of natural resources such as iron ore mines, coal, minerals, sand blocks, and resources extracted by government-owned companies like iron ore and natural gas. This principle also extends to the ongoing sale of scrap, surplus stores, old plant and machinery, e-waste, and obsolete items belonging to different branches of both the state and central government across India.

🟢Recently Govt has announced that multiple block of minerals mines will be auctioned. Bidding of these auctions will be around 50K crore. MSTC will be getting % of these auctions (mostly less than 1%). Most of these auctions if done through MSTC, then most of the revenue will also flow to bottom line

Risks

🔴Company business is dependent on many government entities auction like coal, metal etc. So business can be lumpy to certain extent

🔴Launch of any new portal or shifting of auction business to individual companies of Govt or reduction of margins can potentially derail thesis

🔴Significant increase risk of investing in PSU as Govt can interfere on many things

🔴Any breakdown of portal or any bug in portal can lead to revenue loss and further loss of business

🔴Company has litigations earlier and need to be closely tracked on this front as well

Technical chart

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