MSTC Ltd is a bargain buy with 5x potential
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We had recommended MSTC Ltd at 433 and recommended to exit at 1111 as our screener stocks.
We recommended to add MSTC again on dips between 850-950 for a target of 1400.
Stock is currently trading at 543 hitting 52 week low at 433.
The current quarterly result has been good and we expect there is limited downside risk in the stock. The stock can rally towards new lifetime highs above 1100 in medium term duration (3-6 months).
The stock has good cash holdings and good balance sheet for a long term target of 2500 (2-3 years).
Track the stock in our screener list: https://gale.in/screener/
About MSTC Ltd
(The below information is sourced from screener.in)
MSTC (Metal Scrap Trade Corporation) Ltd undertakes trading activities, e-commerce and also disposal of ferrous and non-ferrous scrap, surplus stores, minerals, agri and forest products, etc. The company is owned and controlled by the Government of India.
Trading/ Marketing Business (~37% of revenues in FY22)
The company acts as a facilitator for procurement of raw material for secondary steel producers and petrochemical industry on behalf of buyers and charges mark-up on a percentage basis.
The business is involved in import as well as domestic sourcing of bulk industrial raw material for actual users as well as traders. It sources raw materials like heavy melting scrap, low ash metallurgical coke, HR coil, Naptha, crude oil, coking coal, etc.
Scrap Recovery Business (~37%)
The business is primarily undertaken through company’s subsidiary and Joint Venture :-
1. Ferro Scrap Nigam Ltd – The company is a wholly owned subsidiary that undertakes the job of recovery and processing of scrap from slag and refuse generated during iron and steel making at Steel Plants. It also offers various other services in the scrap recovery field. The subsidiary accounted for ~415 crores of revenues in FY22.
2. Mahindra MSTC Recycling Pvt Ltd – It is a JV with Mahindra Intertrade Ltd wherein the company holds 50% stake. It owns India’s first auto-recycling plant in Greater Noida, Uttar Pradesh for the scientific recycling of End of Life Vehicles (ELVs) and white goods. It has further operationalized Collection & Dismantling centers at Chennai and Pune in FY22.
During FY22, the company earned revenues of ~Rs 17.4 Cr vs RS 9 Cr in FY21. The JV can greatly benefit from the vehicle scrapping policy which can ensure continuous supply of ELVs for its plants.
E-commerce Business (~26%)
The company is a major e-commerce service provider in the country. It introduced e-comm in various commodities such as coal, iron ore, minerals, pulses, grins, oil seeds, timber, etc. It has also undertaken the e-auction of land, buildings, apartments, banks’ NPAs and others.
Its services include selling agency business, e-sales, e-procurement, e-sales, e-solutions, etc.
It is casting more focus on untapped e-comm business from the private sector and has signed ticket agreements with Reliance, Indus Towers, Tata Power, Vedanta, and others.
The company is significantly important for GOI as it undertakes various important e-auctions for the government. In FY21, it undertook e-auctions for allotment of license for liquor shops, selection of agency for sand operations in A.P. Coal Block auctions for commercial mining and others.
Branch Network
The company’s branches are located across India in cities like New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Lucknow, Jaipur, Raipur, Guwahati, Chandigarh, and others.
Value of Goods Transacted
During FY21, the company transacted ~ 1.34 lakh crores worth of goods through its marketing and e-commerce verticals which is 4.51 % increase over FY21.
Litigations related to Export of Jewelry
During FY09, the company exported gold jewelry of ~640 crores to 46 customers based in UAE, Singapore and Kuwait and the foreign export bills of ~185 crores were sold to the Standard Chartered Bank.
The bank was supposed to receive payments in 2009 but it hasn’t received payments till date. MSTC filed legal suits against the 46 buyers and the judgment was received in favor of the company but no payment has been received so far by MSTC.
A payment of ~220 crores has been ordered to be paid by MSTC to SCB in FY19, the matter is still in courts.
Trade Receivable
As of 31st March 2022, Gross Trade Receivables is Rs 1,049 Cr, with Rs 641 Cr being considered as Credit Impaired for which a provision for bad and doubtful debts for similar amounts is held in the books.
