{"id":1037,"date":"2019-11-07T06:05:00","date_gmt":"2019-11-07T06:05:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1037"},"modified":"2019-11-07T06:05:00","modified_gmt":"2019-11-07T06:05:00","slug":"mstc-ltd-in-a-parallel-world-it-is-trading-at-50-pe","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1037","title":{"rendered":"MSTC Ltd: In a Parallel world it is trading at 50 PE"},"content":{"rendered":"
\n<\/p>\n
\nDear All MSTC Ltd is my recent entry
\nand I think market may have made a grave mistake in valuing this one as some
\ntrading entity with high debtors issue and concluded at worrying levels of working
\ncapital but they could not realize that this is the thing of the past and valuation in stock market is derived from the future. MSTC in
\nits new avatar is scaling down its working capital intensive trading business and is focusing on new age businesses- B2B ecommerce and scrapping of
\nold vehicles and both these businesses are stunning.<\/span><\/span><\/div>\n
\n
<\/span><\/div>\n
\nPeople run after the likes of Flipkart
\nmadly which are incurring huge losses and business model is not that strong because
\nin my view they are yet to add value in the supply chain of a product. They
\nhave established themselves so far as discounting entities rather than adding
\nsome value to the entire process by bringing the cost of distribution down and then
\npassing on the same in the form of reduced prices to common man which sadly is
\nnot the case.<\/span> Flipkart has sold merchandise valued Rs. 42000 cr on its platform
\nand with astronomical losses.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nCompared to this, MSTC on its B2B
\nplatform executes transactions of some 1.25 lac cr with revenues of 220
\ncr and around 150-180 cr as profits (not calculated, just rough idea) and I find
\nit hard to believe that people are dying to buy fancy huge loss making B2C
\nstart ups but ignoring B2B businesses available cheap. B2B ecommerce has much bigger transaction value, much larger transaction volumes and very sticky revenue stream and clients. The problem not solved by B2C ecommerce is solved by B2B ecommerce
\nand they provide tremendous value to the businesses wanting to save time
\nand costs, maintain the quality and security in procuring goods.<\/span> <\/span>B2B Ecommerce is very matured and adds immense
\nvalue by providing reliable and secure trading, saves time and ensures fair
\nprice discovery.<\/span>
<\/span>
\nJust imagine the time and effort required by
\nMahindra and Mahindra to source scrap steel for its auto division- selecting
\nvendors, preparing bids, evaluating bids and then logistics and payment etc. All
\nthis requires and consumes resources and time but on B2B platform of MSTC the
\nsame can be executed extremely fast and discovered price will be much lower due
\nto large numbers of vendors competing each other. Due to these reasons, B2B
\necommerce has high networking effects just like Naukri.com which is always
\nprofitable for last 2 decades and nobody could grab the market share from it.
\nThis happens because of the first mover advantage where large numbers of
\nsellers and buyers provides huge networking effects.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nI am also surprised at the lower valuations demanded by Government while going for the IPO. Let me share
\nsomething here. Mjunction is another B2B ecommerce player which competes with
\nMSTC. Tata steel and Sail are 50:50 JV partner in it. It executes orders to the
\ntune of 1.5 lac cr and its revenue is around 257 cr and NP is around 45 cr
\nlast year (MSTC appears to have much higher profits but that I think may be due
\nto the fact that entire resources are allocated also among other verticals with high
\nturnover\u2026but I am yet to compute the NP but in any case the same is going to be very high in percentages).
\nTata steel is looking to sell its 50% stake and it is looking at valuation of
\nsome 3000 cr at 70-75 PE. So we can also value MSTC ecommerce business around
\n2000 cr to 2500 cr quite easily while current valuation is just 800 cr trading at PE ratio of around 6-7!!. Further, Flipkart has been valued around 1 lac cr in the last deal by Walmart!!! <\/span>This gross undervaluation is what they call a Glitch in the Matrix.<\/b><\/span><\/div>\n
\n
<\/span><\/div>\n
\nAnother gem in the crown is the
\ncoming old car shredding business which MSTC is doing with Mahindra in equal
\nJV. They have started the first plant in Noida and second plant is coming in
\nChennai soon. No doubt this is going to see huge growth and going to be the
\nmajor value creator. <\/span><\/div>\n
\n
<\/span><\/div>\n
\nFurther, analysts were shouting
\nthat MSTC is dependent upon government support to get the revenues from govt
\nand other PSU organizations although they are dying to buy another Govt
\nsupported stock IRCTC. Although there is still nothing wrong in government providing
\nthe support to businesses because I have always felt that in some sectors it is better
\nif government takes the initiative and put efforts in creating infrastructure
\nand faith in the sector. Chinese state owned organizations have catapulted china
\ninto a Giant only on the basis of their efforts to create an environment of
\nconfidence and capability. <\/span>Govt as a client helps these niche businesses to sharpen
\ntheir skills and mend any loopholes. MSTC has created a highly capable and
\ntrustworthy infrastructure for B2B ecommerce by ensuring fair discovery of price and payment
\nsettlement eliminating all the third party risks. Due to trust factor, people
\nstill do not place orders at another big indian B2B startup Indiamart which is
\ncoming with an IPO and this may further establish the valuation benchmarks and rerating of MSTC.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nBut MSTC is already focusing on partnering with private sector and recently has entered into deals with Reliance, L&T,
\nMittal energy for sale of their scrap at its platform and there is no doubt
\nthat scrap is just the start and in my view very soon the relationship will be expanded
\nto cover e-procurement also. And due to this alone MSTC deserves big re-rating
\nbecause it has demonstrated that it can attract Indian private sector giants to trade at its
\nplatform which is a big achievement for a PSU which is generally considered lethargic.<\/span> Here, these private sector are not partnering with MSTC due to some government factor but the fact is for capturing the business from private sector MSTC is competing directly with other private sector B2B ecommerce firms.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nMSTC is expanding the coverage of
\nits B2b offerings and off late has covered agricultural produce, coal, govt land,
\nminerals etc on its platform. Just lasy day it has entered into a tie up with
\nAllahabad bank to auction the latter\u2019s NPA on its ecommerce platform. This is
\nindeed a very innovative product and this is going to motivate other banks also
\nto come to its platform to ensure the fair and efficient settlement of NPAs. <\/span>
\n
<\/span>
\nFarmers in our country are not suffering due to production issues but here our main pain point is the very inefficient supply chain where farmers get very low proportion of the final price. But this is not something which can’t be solved. Just take the case of Dairy sector where due to supply chain revolution by co-operatives like GCMMF (Amul Milk) farmers get some 70-80% of the final milk price. This is a big revolution and needs to be replicated in agriculture produce also. <\/span>This high share of farmer is the reason that MNC dairy giants like Danone are struggling to capture Indian market because in India dairy chains do not own large dairy farms keeping hundreds of animals. Here farmer is the producer and the relationship with the farmer in the form of milk sourcing tie up acts as a big entry barrier. It is very costly to run a dairy farm in India due to high land prices etc.<\/span>
\n
<\/span>
\nSimilar innovation is required in agri produce supply chain also and this is one area about which i have already shared a lot in my earlier posts related to MCX\/commodity trading. So in order to achieve the same MSTC has started auction and e-procurement of agri produce on its ecommerce platform (launched E-Rakam) <\/span>where farmers and retailers\/processors can trade and this has ensured good price discovery. At present, MSTC is working on solving the second aspect of this price discovery which is logistics support because someone has to do the role of aggregator and ensure the supply of agri produce to the buyers. MSTC is in touch with some innovative logistics startups and some airlines also. This is an area which is going to be big and why i think so because we have no choice otherwise our farmers will continue to reel under poverty and inefficiency and Government has to put (or waste) scarce and valuable resources to save the farmers. So this is an area where we urgently need to do something. Contract farming is another option to solve this mess and recently Tamil nadu government enacted a law in this regard and contract farming can save the farmers from the weird price moments and the inefficient supply chain.<\/span>
\n
<\/span>
\nIn Agri produce auction and procurement at MSTC platform, i think various government agencies like NAFED and FCI can take the lead as this will motivate other private players to join and this will also increase the trust in the trading platform.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nI have started buying this one from
\n115 and very soon going to put all my planned investment in this one. CMP is
\naround 123 which is an excellent opportunity to enter and it is buy more at
\nevery fall type of stock. I have shared this small study as I feel that it is looking
\nset for re-rating very soon and I will share my detailed study at some other time.<\/span>
\n
<\/span>
\n(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post.<\/span><\/span>Reach me at oscillationss@yahoo.in<\/span>).<\/span><\/div>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

Dear All MSTC Ltd is my recent entry and I think market may have made a grave mistake in valuing this one as some trading entity with high debtors issue and concluded at worrying levels of working capital but they could not realize that this is the thing of the past and valuation in stock market is derived from the future. MSTC in its new avatar is scaling down its working capital intensive trading business and is focusing on new age businesses- B2B ecommerce and scrapping of old vehicles and both these businesses are stunning. People run after the likes…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1037","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1037","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1037"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1037\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1037"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1037"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1037"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}