Equirus Securities

MSTC (Long)

CMP: ₹98.7

Target: ₹168

MSTC (formerly Metal and Scrap Trading Corporation) is a government-owned Mini Ratna Category-I PSU and one of the leading B2B e-commerce company in India. Incorporated in 1964 as a trading company to deal in the export of scrap, it has grown into a large diversified, multi-product services and trading company. MSTC was a canalising agency for import of ferrous scrap until 1992. After de-canalisation, it has established itself as one of the leading e-commerce service providers in the country and also in trading of bulk raw materials. It has also entered into the recycling business through a 50:50 joint venture with Mahindra Intertrade for setting up a shredding plant and collection centres across the country

We believe 1) MSTC’s revenue model is changing for good and towards low working capital e-commerce from capital intensive trading business; 2) Balance sheet could be leaner as provisions are likely behind; and 3) company could continue to generate healthy cash.

Initiate coverage with ‘long’ rating and target price of ₹168, set at 8x June 2020 trailing twelve months EPS of ₹21.

Risks: Higher provisioning and re-focus on trading business could be key risks to estimates and multiples.