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MSTC Ltd
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Good afternoon, everyone. On behalf of Equitas Securities, I welcome you all to 2Q FY '22 earnings conference call of MSTC Limited. From the management, we have with us Mr. Surinder Kumar Gupta, Chairman and Managing Director; Ms. Bhanu Kumar, Director, Commercial; Mr. Subrata Sarkar, Director of Finance; and Mr. Ajai Kumar Rai, Company Secretary. We'll begin the call with the opening remarks from the management, and then we can open the lines of Q&A. I now hand over the call to Mr. Surinder Kumar. Over to you, sir.
Yes. Good morning, everybody. You see MSTC has released its first half yearly second quarter and first half yearly results, as we have been stressing again and again, company is progressively shifting to the e-commerce model that is shown in our results. We have growth -- shown a growth of around -- revenue of around -- more than 60% as far as the earnings from e-commerce sector is concerned. And marketing also, although there is a temporary increase because of pandemic, there were a few orders which was not completed in the last financial year, but the supplies are basically getting affected in the current financial year, that is the reason for temporary increase in the marketing revenues. So otherwise, our complete focus is now on e-commerce where we have shown around 60% growth. And if we talk about the profits also, we are having the profit before tax, again, more than 60%. Now if we talk about the further segmentation in the -- our e-commerce, we have got good growth in the sales figures and the revenue figures from our iron ore sector, scrap sector and E-sale sector. Basically, all these 3 verticals have got very robust growth, even the coal sector, the growth is quite good, and it could have been much better. But in the last few months, because of the power crisis, the coal was diverted to the power sector. That is why the options were slightly less. So we are hoping that as the situation eases on the power front, coal options will also get better traction. Only sector in e-commerce where we are not performing that good is the e-procurement sector, where the setback is mainly because of the government focus on the government e-marketplace. Where all the government departments are progressively shifting to the central government departments are progressively mandated to ship to GeM. Although we are trying to rope in the private parties also and state government departments, PSUs also are availing of our e-procurement services and they are quite happy from that. So overall, e-commerce is showing a good trend year-to-year also and quarter-to-quarter and half yearly to half yearly also. So that is all I want to say in my opening remarks, and we are doing quite good projects with various public sectors and the governments, like one where recently we did for ONGC, where we made a portal for all ONGC group companies for important export of their petroleum product. So presently, this is the phase 1 of the project that we have completed. After seeing for a couple of months, we'll be doing the phase 2 part, ONGC and other group companies. Thank you.
[Operator Instructions] The first question is from the line of Harshit Jain from RAH Investments.
Congratulations for a good set of numbers. My one query would be regarding our e-commerce segment. So this quarter, we have grown 10% quarter-on-quarter from INR 59 crores to INR 65 crores. So just wonder whether this growth will be sustainable going forward in second half of financial year '21, '22 or will -- or can we expect a jump of 10% to 15% in e-commerce revenues over the next 6 months?
Definitely, this growth is not basically something which is an exception. We are working so that this growth momentum is kept in e-commerce sector. Definitely, you will see growth coming quarter-to-quarter also.
So can you provide some guidance for the second half? Like for the first half, we did almost 125 CR. So can you provide the guidance for second half of this current year?
You see, we cannot give a definite figure. But definitely, we are hoping and working for a better than first half.
Okay. And one more question would be regarding our scrappage thing, because we've been talking through, since past 12 months that we've been trying to open some more centers and we are expecting a big revenue. But as of now, we are nowhere in it and we are only operational on 3 plants. So can you provide some guidance at how many plants will be open by next 12 months? And what is the revenue potential you guys are targeting for next 2 years?
You see, the government scrappage policy for end-of-life vehicles have come only recently. So there, after the policy announcements, we are basically in advanced stage for setting up a couple of more plants. And there are basically -- there are 2 parts of the policy, so that was being -- and we said in the beginning. One is the base incentives to own an old vehicle. The second was the incentive portion. So as far as the first portion of this incentive, that guidelines have been issued along with the guidelines for setting up the end-of-life vehicle centers. So those regulations have already been told. Further work is we understand central government is going to work with various state governments for getting the customers some incentive part selling their old vehicles. So as soon as that -- I mean, although we are working for setting up more centers, looking for the lands and doing the market studies for the -- where the retail availability is and the consumption sectors set industries are there. But still, we want to be very cautious so that whatever investment we make, we want it to be prudent investment, right? So the investments give us some returns. Although we are moving cautiously, but definitely, we are moving ahead with a definite plan. And you will be seeing more and more centers coming in every quarter.
So as of now, how many centers do we have? As of now?
We have 3 centers and we are in advanced stage for -- in discussions for a couple of more centers.
Okay. Okay. And one more question would be regarding -- in this particular quarter, we have seen a substantial jump in our employee costs. So can you throw some light that why do we have such increase in our employee cost for this quarter?
You see, there is some kind of -- last year, there was some freezing of Dearness allowance of the PSC's employees that we are aware of that. So that unfreezing has been done, and some kind of COVID expenses related to our employee welfare were also there, that couple of things and normal growth increment. 3 things were added to the growth of this expenditure. Basically, this unfreezing of Dearness Allowance and et cetera, that has added like that.
So this was just a onetime item? From next quarter onwards, we will be back to a normal levels?
Next quarter, we see there will be a growth because the normal GA increases normal increment. But this type of onetime jump is not that much in result as of now.
So next quarter, can we expect a 20%, 25% decrease from the current quarter?
That actually -- our salary is a little bit of different, depends upon the government policies and all. So that we -- but of course, we expect, standing right in the month of November, that this will be a normal quarter so far employee expenses are concerned. It will be normal growth in the expenditure. Whatever it is due to the DA increase or increment, normal increment.
Right, right. And just one last question. This would be regarding Power Trading business, which we just started around 3, 4 months back. So can your team can provide a little more guidance at how we are proceeding in it? And what are the kind of revenues you are targeting? And how can we create a market share because it is already a monopolistic business. Monopoly by IEX So how are we doing in that front?
Right now, we are doing power trading on long-term and medium-term and short-term basis for central government. They have mandated us to provide a platform. So that is what our present business as far as the power trading is concerned. And we are basically weighing all the options and discussing with various stakeholders what are basically possibilities in that direction. So right now, nothing definite can be set around that. So we'll let you know as we make some progress.
So this will not happen in financial year '22? We can expect some revenues from financial year '23?
No, not in the current financial year, but we are doing -- basically weighing the ions, right? We'll let you know as soon as something material happens on that.
[Operator Instruction] The next question is from the line of [ Raj Sharma ] who's an individual investor.
Good afternoon, everybody. I have just one question regarding the regions we are making. So if I look at the segment-wise reporting, right, there is one section which is the unallocated. And they are around INR 29 crores of loss. Can you explain what exactly is that?
Yes. In the segmental reporting, you see, like our salaries and certain overheads, that we cannot clearly distinguish and allocate between our 2 primary segments like trading and this e-commerce. That's why we kept an unallocated portion. So where the revenues can be segregated property, the expenses are more or less holding good with these top 2 segments. The fact is that we are following for quite some time, so that's why it is a loss part, okay? That's the reason.
Okay. So I'd be -- can you give an example where it is coming exactly from, what kind of -- so it's continuing, right? I mean...
Yes. Yes. Let me explain to you in broader terms. So we are tapering down our -- this trading and marketing business. So hopefully, from the next financial year and onwards, there will be hardly [ in the current ] year onwards, the segment will disappear from our financials, almost. Because it didn't have any useful income. So in that case, we can now then -- there is an unallocable part may might go to this e-commerce second because hopefully that's the only segment that time remains there if the present trend continues. So then it can be allocated Basically, it's the salary and our administrative overhead. That is on unallocated.
Okay. Great. One more question. This provisioning part, how much provisioning, more provisioning is left from the marketing side?
As you are aware, if you are attending our con-alls regularly, right, from the day 1, we were telling that we -- this marketing -- I mean, trading segment was a palatable segment for which mainly the provisions were required. So almost -- we are almost on the [indiscernible] and hopefully INR 25 crores to INR 30 crores odds are better,attributables are less. But we do not pay back the whole provisioning in regard, because on this segment also, we are getting some payments, although a very peaceful amount, but in a gradual way. Small cities, we are getting. So if at all, if you take -- if at all that some payments does not come, so it will be max to max around INR 24 crores to INR 25 crores max to max. That, we are expecting, standing on today in this cash and carry segment. INR 25 crores to -- around INR 27 crores that we are expecting, standing today in the e-segment..
Okay. So then the provisioning will be probably -- but in next quarter, most of the things will be provisioned and probably next year onwards, we will not have much of provisioning left, right?
Yes, we expect if the trend -- this type of trend and that's the policy that the business model that right now we have adopted and continuing. So we hope that it will be a very, very miniscule amount in our financial statements.
[Operator Instructions] The next question is from the line of Harshit Jain from RAH Investments.
I just want to know about our balance sheet component. In our balance sheet, we can see cash ratio somewhere around -- cash figure is somewhere close to INR 715 crores. So just want to know that how we are utilizing the cash. Are we investing in somewhere? Because as of now, our business model doesn't regard that much cash. So are we generating some kind of returns on cash and how is it [ invest ] the cash?
Yes. If you can see that this our balance sheet, you have seen that as a cushion, we have got certain liabilities also on the liability side also. You have to look into that. If you match all these things and if you go to our ratio, current ratio, it is around 1 plus. So this investable portion is not that much. And you have rightly pointed out as of now that in the model that we have now adopted in our business, that much of high usage investment is not required. So some portion is already being already this year, we have paid this final dividend last year, 44%. Just now we have declared the Interim dividend also. That is being utilized. The cash is being utilized for that purpose also. And after that, there will not be much more investable surplus, much more investable surplus in the long term. in our balance sheet, we have got certain liabilities also. You have to wait both ways. We have to look at the balance sheet in the both ways. We have got current financial liabilities also.
No, because the way our business is generating cash every quarter or every 6 months, after a couple of quarters, maybe after 4 quarters more, we will be generating somewhere around INR 250 crores of more cash. So I just want to know that how we are going to utilize this cash. Are we investing in somewhere? Do we generate some returns on it, like 6%, 7% return annually or...
We are -- you are -- of course, you are absolutely right with these projections and this profitability. Certainly, we'll be having cash and all. So of course, then once the cash is in our balance sheet, of course, it is our internal and internally will decide and see and beside the investable surplus exists, we will look at the opportunities for the investment. Of course, some kind -- some portions will also go back to the dividend because we know 30% of the debt for our policy or 5% of the network, that will have minimum dividend that has to go. So that portion has -- will go up and other things, we will be keeping there. So we will, of course, formulate the first strategy, as we have rightly pointed out that there will be cash balances coming in the coming quarters with this profit trend.
Right. And 1 more thing regarding Standard Chartered Bank case, which we just lost and I was taking the notification given by your company on exchange. So do we expect some kind of cash flow from our company or just the properties attached will suffice the same?
Two things are there. It has already been clarified and that we have gone for a fee, and we have filed a [ repetition ] with the honorable High Court as for Bombay also. If at all, some kind of order from the court, as we will not pay as per the order. If at all some kind of order as per the act [ BRP ] act, the relevant acts comes out, obviously, we'll have to pay and deposit certain amounts with the core that has already been declared in our financial statement. So we will deposit that money if the court orders. So right now, we are awaiting the order of the [indiscernible] High Court of Mumbai, what is -- what comes next. So once it opines, we will, of course, follow the order of the honorable court.
So I was saying that, if in case the worst scenario, if we lose appeal, if we lose the case, so the properties attached are residential and commercial flats in Calcutta and Mumbai. Will that suffice the amount INR 143 crore raised by Standard Chartered Bank or do we need to pay some cash to them?
Yes, it is a very, very contingent thing, fast -- whether we will lose or not lose, it is yet to be decided by the court, number one. Number two, what amount it will face. That is also very contingent. So let us keep on updating you people. As and when the things happens, we will immediately let you know through the exchange and through the concalls. We'll keep on updating you. If you both are contingent, the outcome of the case as well as the outcome of the auction, if at all happens.
Right, right. And just the last question coming on the segmental revenue and segmental profit. If we check our consolidated number. Under others unallocated, we've been showing continuous losses of INR 20 crore plus every quarter. So can you throw some light and explain that, why we are showing such big losses on those unallocated category?
Yes, yes. Rightly pointed out. Basically, we follow our financial statements from the day 1. You can see that some expenses, that cannot be elevated properly to our marketing and to our e-commerce. Like our salaries and overhead, because our business is [ commingled there. ] The same office does the activity. So that way -- it is being put at unallocated. That's why it does not have -- while the revenues can be allocated in a proper manner through the billing. So there is a profit in these segments. But if unallocated portion comes right away from this -- unallocate the salary and overhead, that cannot be unallocated properly to these particular segments. That's for sure.
Okay. Thank you. Thank you so much, and wish you all the very best.
[Operator Instructions] The next question is from the line of [ Satish Jain, ] who's an individual investor.
Good's afternoon. I have 2 questions. One is further to the earlier participant who had asked about the debt provisioning, which we have been doing for the legacy transaction. You have mentioned it's around INR 35 crores less to be -- provisioned to be made for that. So that leaves around INR 600 crores, which is appearing under receivables. I just wanted to know, out of this INR 600 crores, how much of this payment is still pertaining to legacy marketing business?
Yes. We were keeping on tailing like that, the provisioning basically pertains to this trade receivables pertaining to the erstwhile legacy of marketing department. And in the earlier answer, what we are projecting that provisioning from the next quarter coming, around INR 25 crores to around INR 27 crores, INR 28 crore crores, that it pertains to this trading segment only. For that other particular trade receivables, we basically lay e-commerce and the associate model [indiscernible] 10% with that model. We are almost secure, and we do not perceive right now any major provisioning in that particular segment. The only thing left out is around INR 27 crores, INR 25 crores to INR 28 crores in this trading segment only. This starts why cash & carry segment.
Sir, my question is not about how much provision has to be made. My question is, as on 30th September, INR 635 crores is their outstanding receivables. In that, how much of the amount pertain to legacy business?
Yes. That's why I explained that around -- in the legacy business, around INR 27 crores to INR 28 crores pending out of that. It's almost done away with the date of provisioning, almost done away from the host. Almost.
You mean to say if I take out this INR 28 crores, so that is INR 607 crores are all pertain to the -- both the e-marketing as well as the BG and whatever they have been, all the new business, new transactions only?
Yes. In the consolidated balance sheet, basically, this pertains to our safe business in the trading segment, like associate and -- backed by BG. Our e-commerce and scrap and Allied recovery jobs of our 100% subsidiary company, Ferro Scrap Nigam Limited. This comprises of this population. The population comprises many of these things.
Understood, sir. And my second question is, it's regarding the distinguishment where you are calling for the EGM [indiscernible]. Is there any target date has been given to complete the entire transaction?
As of now, the -- I mean, this project is -- basically this investment is being taken up by DIPAM, right? So they are basically the [ industry ] drove by government of India, and they are doing it in a very expeditious manner, right? So as of now, no definite date can be given. But we believe that they are moving at a very good space so that the transaction is close as early as possible.
Okay. And my another question is, sir, is regarding your investor presentation. Under key highlights heading, you have mentioned what are the new e-auction project that you have undertaken are won from different government entities. Can you just give us approximately how much each of these projects gets us the revenue?
You see, there are 2, 3 projects that we have indicated. One is the portal for ONGC and group company [indiscernible]. So there, to see whatever projects we are doing is upfront payment is not [indiscernible]. These are not that way of very high figures, but small,small projects contribute to our revenues, right? Similarly this auction portal for CP also, and I mean properties, but also the revenues where we have deep portal. But the revenues will depend upon the properties that they are able to put up. You see, these are very old properties with a lot of litigations and a lot of things about the land titles and the complete paper work. So as of now, some amount of properties are relatively, which the department is sure that this is not any kind of litigation on the paper work is clear. So we are hoping the properties will be put up for auction in the current financial year. Right?So -- but figures as such can be given that how much will come in this financial year or next financial year also regarding the 9 major mineral blocks. So there, we are getting fix some for...
[indiscernible]. Basically, for all these mineral blocks, coal options and all, it is all even basis. So the number of inline, if it goes up, then we get our revenue irrespective of how much material has been sold. Now regarding this e-bidding platform for ONGC, this is, again, a platform that has been given to MSTC to hold their event. So this will be annual charges. We will be getting on a quarterly basis. In respect to how many events they carry out, what kind of imports or exports they transact. Basically, these are platform services. So the revenue is not much, but it brings in more business. That is the idea.
Okay. Thank you very much, and all the best.
[Operator Instructions] The next question is from the line of [ DD Mehta, ] who is an individual investor.
[Foreign Language]
[Foreign Language]
[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.
One question from my side. Last time, we have conducted on e-auction for Hindustan Oil Exploration, because I guess the government has also mandated that the gas should be auctioned. So are there more in the pipeline auction? Because I think HOEC is also coming up with new oil fields in a couple of months. So any development there? And is there any plan of doing auctions for natural gas for other companies?
Yes. Actually, we are in panel with the Director General of Hydrocarbons for carrying out these auctions. And all the gas blocks that have been allocated in the recent past, all those people, obviously, when the gas is actually produced, has to be auctioned. So we already have done 1 event for HOEC, more such events will be there as and when HOEC comes up with more gas production. And other companies also, those who are successful allotting some of those that block. We are in touch with them. We hope that they will also be utilized in our services.
Okay. And this will be also like event-based fees or it will be like -- depends on the volume of the gas?
It depends on what is on our scope of services. Every company has a different way of selling the gas. So it is just going to be a platform services, then it can be event based. But if there are some more activities to be done, then definitely, there will be more revenue coming in, like we can even transaction adviser, that can be even some kind of consultancy, that can even be a percentage basis on the gas production. It depends on how they want to sell the gas.
Okay. And in terms of scrappage -- in terms of scrap selling, metal scrap, so we were predominantly doing it for PSUs or also for the state government. And last year, we did added [ Part AtelReliance, LNT. ] So how is the traction on the private side? Because not much is heard on the private sector side.
Private sector, in fact...
Much larger than the PSU.
Yes. That's true. For private sector, we are not limiting ourselves only to the scrap. We are also extending our services for their minerals and iron ore, gold, et cetera. So some of the other clients with whom we are talking, I think Jindal has already been roped in last year. We have already informed you about that. So we are in talks with almost all the big groups. Tata is another such group who have been opening in the recent past start-up hour. So the private sector is also big for us, but then there are other challenges in the private sector. So we are trying to address it through our different business models with them. Those are still in the negotiation stage. And definitely some concrete plan will be there for getting more revenue from the private sector.
[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
When I look at the e-commerce side of the business, the bulk of the revenue, obviously, is linked to the scrap part. And I think for the last 2 years, we have announced all these private corporates coming on our platform. But when I look at the volume of the business adjusting for the scrap price, I don't see a significant traction because I think the scrap prices themselves have gone up by about 30%, 40%, and your corresponding revenue seems to be at, equal or less than that traction in the scrap price. So if you could help us understand what's happening in the platform in terms of the traction on volume? And then my second question is already Q-o-Q.Scrap prices have corrected about 20%, 25%. So that's the global share prices. So we do start seeing incrementally an adjustment to your revenue as we move towards the forthcoming quarters because the scrap price [indiscernible] I'm especially referring to steel srap.
See, first question is regarding -- you're saying that the scrap prices have increased and that is why the numbers are better, otherwise the volume is almost the same. I agree with you to some extent, but then you must appreciate that the last 2 years have not been normal years. So -- and we focus for any organization in their day-to-day operations in selling scrap. So definitely, we are expecting the second half of this year, we will be seeing more volumes coming in. And as far as the other -- the private sector, the business you are talking about, as I said, there are a lot of challenges. And definitely, the volumes will go up as we move forward in the current financial year.
I'll add to what our Director Commercial has said. You see, traditionally, after -- when we enter into the e-commerce sector, we were focusing main on scrap only, right? So now, even we don't want to be basically focusing on -- and lay more focus on one sector. So we are basically time for multi commodities. That is why he is saying we are getting good growth in business volumes although the revenue terms. It's not proportionately that large, but volumes we are getting very good in e-sale. So in e-sale, we are doing a variety of orders where we hope to get more revenues in the coming years. So of course, the old coal, iron ore and scrap will persist, but more tractions will come from e-sale business.
E-sale? Okay. E-sale is basically the scale of the scrap, right? And then there is the auction, which is linked to all the coal, gas, et cetera, right?
And anything other than the coal, iron ore and scrap. Normally, I mean generally, it will constitute e-sale. It may be the gas, it may be the spectrum of [indiscernible] it may be the property sale. So those are varied kind of commodities that we are covering under e-sale where we are focusing on better thing so that we basically derisk our business from one particular sector.
That would be a fee base or a percentage mix? So you have e-option percentage based, right? So your this coal, whatever asset classes you talked about, that will be more fee based.
You see, as madam has said that it depends upon the arrangement we have with the principal. Some of the transactions are on the basis of the revenues they get from the sales, some of our -- from the quarter development, some of it are from AMC basis, some are even basis. So it's quite varied mix.
So then adjusting for the, let's say, so incrementally adjusting for the reduction in prices, that we are seeing on the scrap side. Even after that, you think that your second half will be a stronger business?
Yes. That is what we are hoping.
And my last question is, sir, we had the MOUs last time and Reliance and a lot of the large corporates. And you have talked about 4-digit crore figure in terms of the revenues. So where are we on that business traction, sir? Let's say that I'm assuming that scrap generation with these companies will actually be on a regular basis. Now no one is going to stop those scrap in the yard, right? So we had an MOU, we had a traction to the build [indiscernible] they must be generating scrap because they are continuously doing business. So where are we on that part in terms of traction?
So you see, when I say that we are focusing on e-sale, that does mean that we are not basically ignoring other sectors. So we are working on that also. Our intention is because some of the commodity prices are always very highly. So we want to sort of derisk cover business from -- I mean, like initially, we came out of marketing. Here also, we want to have a good mix of e-commerce, also a good mix of various commodities. So that if one commodity goes down, so company has a plan so that we don't go down with that commodity. So one commodity -- I mean, something will always look up. So that is how we are derisking the business. And we are trying various model and continuously exporting what we can add more businesses in all these sectors.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Yes, our director commercial will say something.
Yes. That was really nice of you. You people have been following us very closely as we can see from your question. And we have already given the highlights of this half year going forward from here. We hope that there will be more projects. And the market is okay, now it has stabilized, though there was a little jump in between, but now it has stabilized. So we are hoping for a better half. The second half of this year is likely to be better than this. And thanks for all the support. Thank you.