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MSTC Ltd
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Ladies and gentlemen, good day, and welcome to MSTC Limited Q3 FY '22 Earnings Conference Call hosted by Equirus Securities Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Depesh Kashyap from Equirus Securities. Thank you, and over to you, sir.
Yes. Thank you, Lizan. Good afternoon, everyone. On behalf of Equirus Securities, I welcome you all to 3Q 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, Finance; and Mr. Ajay Kumar Rai, Company Secretary. We will begin the call with opening remarks from the management, and then we can open the lines for Q&A. I now hand over the call to Mr. Surinder Kumar. Over to you, sir.
Yes, good morning, all our investor friends. I'm sure you all must be delighted after seeing the third quarter results. And whatever faith you have posed in the company, so you will see that the results are basically coming -- I mean, that should reaffirm your faith in the company's future. Our total revenues have increased on a very, very positive note, a rise of around 67%. I mean I'm talking about the stand-alone basis. And I will talk about the consolidation basis, where the revenues have increased by around 45%. So that is taking the FSNL, as well as our JV company, MMRPL together. Marketing for MSTC has temporarily increased from INR 97 crores to around INR 185 crores. But this is a temporary increase because of few obligations from the earlier entered contracts. So now these marketing volumes will be comparatively lesser and lesser in times to come. But if we see the e-commerce, we have always been telling in all our investors, con calls also and every form that MSTC is primarily now into e-commerce. So there, our revenues have grown from INR 137 crores approximately to more than INR 205 crores. That's a growth of around more than 50%. So that's a quite healthy jump. Our profit before tax has increased from INR 67 crores to around INR 142 crores. That's a jump of almost more than double, 112% jump. Profit after tax has taken jump of 156%. And if you see the provisions, our provisions also are decreasing. And whatever provisions are there, so those provisions will be basically except very minor sum, most of the provisions will be over in the current financial year. So the next year, you should be able to -- we are expecting a better financials as compared to this in terms of the -- not only the business in terms of the profitability also.So another highlight is, I mean, our subsidiary company, FSNL also doing quite well. They are basically the supporting a of our integrated steel plant because of the better volumes in the steel plant, FSNL and of course, certain operational efficiencies at their end, they are also doing good. So overall, the combined profit for the company, the combined revenues for the company are very, very robust. We are undertaking, apart from the spectrum auction, which we conducted the last year. This year, perhaps the spectrum auction will not be there. But the next financial year spectrum auction again will get us good traction. Apart from that, some other agreements that we had done, they are getting traction now. If you see the property auction of NPAs for public sector banks, last year, the volumes were not that good. This year the volumes as well as the earnings are robust from that. So that is gaining traction now. And you must be seeing various ads in the newspaper where a lot of NPAs under SARFAESI Act are being sold by banks. We are also exploring new business opportunities in various areas. And trying to reduce our dependence on scrap sales. Although scrap is one big area with the emphasis on green steel these days, because the melting of scrap will always presume much less energy, much less natural resources. So that also is gaining traction. So of course, MSTC will hope to get benefits from that. Apart from that, I mean property sale is one area where we are getting very good business. So with these few highlights, I'll hand over to our Director Commercial so that he can uprise you further.[Technical Difficulty]
So good afternoon to all of you. As our CMD has already highlighted, this has been a very good 9 months for us in terms of our performance in e-commerce. So during the 9 months ending December 31, we have crossed the volume of around INR 1,053.28 billion in terms of value of goods transacted through the e-commerce and marketing verticals, which is about 110% increase over the same time last year. The revenues have increased by about 45%. It is now at INR 69.94 million in the first 9 months. And this was around INR 48 crores -- INR 4,824 million in the 9 months of 2021. Our PBT is around INR 1,676.39 million compared to INR 759.34 million in 2021.Now all this could be possible mainly because of certain key projects that we did and also certain inputs and the e-commerce activities in certain sectors. I'll just highlight briefly on those. We have done the 13 tranche of coal mine auction. And this has around 88 coal mines have been projected. This is in an ongoing stage. Auctions are still going on. So the actual benefit of this as to how much [ extra will bring ] and what would be the revenue for the company will come in the coming months. We have also conducted a sale of pond ash, which is actually a form of fly ash only for various plants of [ NTDC ] across the country. And now this has gained good volume, and this is a sustainable business for the time being. So we have sold about INR 176 crores worth of pond ash and we have earned about INR 1 crore or so as service income. We have entered into an agreement with the LIC Corporation for disposal of their various materials that lie across various assets of LIC in the country. We have also done a very small pilot project for sale of unlisted shares for Andrew Yule & Company, which is a government company out here. And this was successfully sold in the first attempt itself. Now many of the coal blocks that were allotted in recent times in the last few years have already started production, and many of those companies in the state government, as well as private sector have -- are utilizing our services for sale of such coal and iron ore also. So Odisha Coal and Power is one such company with whom we have entered into an agreement, and we have -- we will be conducting 1 event per month for sale of their mined coal. We are also in talks with other companies for sale of coal as well as iron ore. Kerala Forest Department has sold some sandalwood during this last quarter, and that has also gained some substantial revenue for the state. Major mineral blocks, 2 of them have been put to auction and successfully sold in the state of Karnataka, some more are in the pipeline now. Apart from that, as Surinder has said, the NPAs of the banks are also being sold through our portal and now the model has more or less stabilized and the volumes are coming in now. One major factor because of which the revenue is quite appreciable, is because of the increase in steel prices, that has actually ended up in increase in the scrap prices also. Also, the iron ore, both in terms of volume, as well as the prices, have substantially gained over last year and because of that, our revenue streams are really good because that's on a percentage basis. The service income is on percentage basis. And the number of coal auctions that we are conducting, which again is a stable business for us. That has also increased in the last 9 months. So because of these factors contributing majorly to e-commerce, the revenues are quite good. And as already said, the marketing activities are slightly -- are slowly being closed down, especially the 2 models. And after probably this year, after the fourth quarter, there will not be much of activity in that segment. So we are fully committed to focusing on the e-commerce activities with newer products and business models. Thank you.
Good afternoon, everybody. So let us now discuss about the financials. So first of all, stand-alone financials for the 9 months comparison, what we are doing as compared to 2021 to '21, '22 our total revenue has increased from INR 2,445.31 million to INR 4,092.39 million. That is a jump of around 67% supported by EBITDA pre-provisioning from INR 1,094.32 to 1,697.92 that is a jump of around 55%. Provisions has gone down from INR 348.41 million to INR 217.86 million so contributing to PBT. PBT has gone from INR 671.06 million to INR 1,425.11 million, which is a jump of around 112%. And PAT from INR 345.62 million to INR 887.49 million, a jump of around 156.78% and thereby EPS from INR 4.91 to INR 12.61. And cash profit jumping from INR 714.86 million to INR 1,134.92 million.If we looked at the segmental part, then we can see that revenue from e-commerce has grown from INR 1,369.16 million to INR 2,056.65 million, a jump of around 50%. The breakup e-auction in sale INR 1,174.28 million has grown to INR 1,807.2 million. E-procurement has grown a little bit slight lesser, INR 74.10 million to INR 43.50 million and other from INR 120.78 million to INR 205.95 million. Although revenue from marketing has dab little bit, but it's a onetime phenomenon, and we are already as discussed, we have already tapered it down. And with that, profit after tax has come up from INR 345.62 million to INR 887.49 million. Now let us look at the consolidated result, that is results of a group as a whole. Here are where the total revenue has grown up from INR 4,824.98 million to INR 6,994.83 million, that is a jump of around 45% and EBITDA has grown up from INR 1,331.82 million to INR 2,109.24 million which is a jump of around 53.37%. Provision it is down by 28% from INR 360.17 million to INR 256.98 million. Share of JV where also have shown a positive side and from rate converted into black, that is a loss of 12.46% to 0.67% profit. And with that, PBT comes to INR 74.34 million to INR 176.39 million, a jump of 120% and PAT, jumped 178% from INR 371.33 million to INR 1,031.57 million. And combined EPS again has jumped 178% from INR 5.27 to INR 14.65, and the cash profit has jumped from INR 874.76 million to INR 1,439.71 million. And that's total all from our side. And now I hand it over to you.
Should we open up for questions?
Yes.
[Operator Instructions] The first question is from the line of [ Vikas Kasturi from Focus Capital ].
First of all, congratulations on a fantastic quarter. Sir, I just wanted to understand the vehicle scrapping business. So for example, what is the cost of setting up a center? How many vehicles can be scrapped in a year? And have the government's vehicles started getting scrapped? And is this line of business working capital intensive? And what is the roles and responsibilities of MSTC and your JV partner? So whatever information you can share would be most helpful, sir.
Yes, you see the investment as we envisaged, and this is quite heavy. As the government of India is laying great stress on vehicle scraps, so what we believe is when the large number of vehicles come, then we will need a shredder that costs around something around INR 70 crores, INR 80 crores. So those -- that kind of costing will be there in these centers, but right now we are not incurring in that kind of costs because the number of vehicles that we are getting is comparatively much less. You see the policy has recently been issued by the Government of India, the state governments have yet to notify their policies. So once the policies are notified and people get some sort of incentive and disincentives. I mean, as far as the disincentives are concerned, those are linked with the -- this fitness centers, which are likely to be coming by, let us say, end of '23 for 1 class of vehicles and end of '24 for -- I mean FY '24 for second -- another class of vehicles. So what we believe is that the traction is yet to come. And the state governments are -- whatever discussions we have, they are slightly reluctant in providing some sort of incentive. Our center is pursuing with them. So it is going to take some time for the -- basically the weaker -- I mean vehicles to come. The private vehicles also are not that large. And government vehicles also yet have not shown much of the basic interaction in that. As far as we are getting -- I mean, whatever the capacities we have set up, it is basically we are not able to utilize those kind of capacities as of now. So that is why presently we are not investing that heavily in this, I mean, in 1 center, but we are trying to open a number of centers with less capital so that the business doesn't suffer much of the losses. That is why in 3, 4 years, we have got slightly -- I mean we are almost on breakeven now. This is just because of our slightly lesser cost in plant set up, which we have gained from our experience.Regarding your third question about the roles and responsibilities of both JV partners, we have entered into a I mean JV agreement with them where the roles are very clearly specified. But one thing is very clear here: that day-to-day operations and total invest that is second partner, Mahindra Interstate, as they have got total basically freedom as far as the operations are concerned, there is no interference from any side regarding their operations. And most of the business decisions are being taken in the Board meetings with complete consensus on both sides. So what we believe is -- what we have seen is that, I'll say, a smart weather and when the full picture comes, that would be a good business for us and also a good sense for the country also to get the scrap as much as possible. Put of the old vehicles of the roles are helping improve the environment also. Yes, thank you.
Sir, a follow-up question. So you -- so can we understand that the operations, day-to-day operations would be taken care by Mahindra for all the centers? Is that the understanding, sir?
Yes, all the centers.
Okay. And if I may ask another question, sir, in the e-commerce side of the business, are you seeing any impact of the talent attrition, sir?
Yes. I mean we are seeing something, but not that large as in private IT companies are there. We are seeing some attritions, but not that significant. I mean it's not so significant to impact our business or operations.
The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.
So congratulations on good numbers. My first question in the e-commerce segment. So you mentioned that the scrap prices were good and also other than the scrap in iron ore also we have a percentage of sales as a service income. So can you elaborate what percentage of revenue comes as a percentage of revenue? And what percentage of e-commerce revenue is a fixed price revenue?
Actually, the revenue model for each product or each service is defined by the roles and responsibilities that MSTC has to undertake. So if it is a very complex kind of a portal, then there are some fixed charges as well as percentage charges. But if it is a very routine kind of a thing as in the case of iron ore, that's why I mentioned iron ore it's a percentage because it's a very normal kind of very stable model, which has been there for almost 10 years now. So it is very difficult to say that which product has which kind of revenue model it is a combination of both.
Yes, but let's say, in current quarter, our revenue from e-commerce is around INR 80 crores, so is it fair to assume that more around 50%, 60% of revenue would be percentage of revenue and the balance would be fixed price. A broad percentage number will be price.
No, no, see if you see the subsegment of e-commerce, scrap and iron ore will be on a percentage basis, but the rest of it is a combination. So it is very difficult to estimate the percentage like that.
Okay. And how much would be scrap and iron ore of the total earning?
Scrap is about 40% to 50% of our total earning. And iron ore, as I said, the last quarter -- last 9 months was very, very good, and that's why it has seen quite an impressive performance. But that may not be the factor every year. This year, that has been the major factor, okay?
Okay, okay. My second question is this last quarter in Q2, we have mentioned that the risk receivables which you used to mention around INR 100 crores has come down to INR 25 crores, INR 30 crores. So how much it would be now?
Can you repeat your question?
So in Q2 call, you have mentioned that the risk receivables from the marketing segment was around INR 25 crores, INR 30 crores only. So has it come down further?
Yes, it has come down substantially. Now what we are left with is just about INR 13 crores to INR 15 crores, which will be provided for in the last quarter.
Okay, so from next year onwards, whatever receivables would be there would be either e-commerce or in marketing, it would be 100% [ BG back ], right?
Yes, that's true.
And this quarter, in stand-alone operation, we have around INR 11 crores of other income. So is there any one-off or it's a normal treasury income?
Basically, let me answer you. Basically, the other incomes are generally not as standardized type of thing. I keep some fluctuating. But we hope that this type of revenues will keep on going. But of course, it may fluctuate. It is not part of our operating income.
Okay, but this quarter, in INR 11 crores, it's more mainly interest on our treasury or is there any one-off?
Pardon?
This quarter, the other income was INR 11 crores. So it's mainly the interest income on our cash book cash balance? Or is there any one-off income in this?
Basically, it's a mix of all. Basically, we have certain dividend income also, certain treasury income, it's a mix of mixed bag, that much I can say.
Okay. And last question from my side. Any update on sale of FSNL?
So the government of India has already taken a conscious decision and that particular AGM, we have taken a consent of the shareholder also. You all are aware. We have given this thing to the stock exchange also so the process is now triggered in, and it is on the track. So as and when the new processes and all these things are happening, we will let you know through our bulletin in the share BSP section. So we will let you know all things.
The next question is from the line of [ Manbadhar Ved from Laurel Investment Advisors ].
Congratulations on a good set of numbers. Sir, just wanted to understand on the e-commerce side, since we are into multiple domains on the e-commerce side, sir, could you give us a breakup into which segment contributes how much in terms of revenue to us? And sort of maybe even if you could give a breakup of the segments, which you see sustainable and which are kind of maybe a onetime kind of an income. So that will help us understand this business a little better.
See in e-commerce, basically, we have scrap sale has been our forte traditionally. We are also into resale of coal, iron ore and a lot of other products like the blocks assets, forest produce, where a lot of minerals, et cetera. And we also have a very customized e-procurement total, which has not gained much traction because of the presence of GeM. As far as scrap business is concerned, I have been saying repeatedly, the income is about 40% to 50% total revenue of e-commerce. Out of that, about 40% to 50% is from scrap sales. Then about 20%, 25% is from e-sale, but this, again, is a combination of fixed price sale as well as a percentage basis. As I said, this depends on what kind of service we are giving. And e-procurement, we do not envisage a big growth in that area. So as far as scrap is concerned, this again, is linked to the steel sector. If the steel prices go up, the scrap prices also go up. And since it is a percentage basis, then because of that, the revenue will also be good. Now iron ore and coal are such things that the market forces decide as to how they will perform. And regarding our customized portals or other mines and all. Again, it depends on the market economics. So the basic breakup is 40% to 50% from scrap, about 20% to 25% from e-sale and the rest from other revenue streams, that is the breakup. And we are now focusing more on the e-sale business because properties has gained some traction now, fly ash properties and a lot of raw materials we are selling. And earlier, some of the raw materials of private sector was being sold directly by them, but now they are also seeing some value in our services. And increasingly, they are utilizing our services. So maybe in coming years, the e-sale segment will go up.
This point that you mentioned, of the private sector seeing value in the services that MSTC provides, can you sort of elaborate this a little more so that we can understand what is value MSTC brings...
Yes, yes, yes, Jindal Steel is one such company who has utilized our services for sale of iron ore, we are in talks with certain Tata Group companies also. And a lot of people who have taken iron ore and coal blocks and other mineral blocks have approached us, but the -- we are still in talks and so I cannot reveal more names now. Jindal is one such company who has full faith in us.
So ma'am, not looking at names at all. What I want to understand is that what is the USP that MSTC offers to a private player?
It is largely buyer based and a very transparent system. It's very user-friendly and very transparent system, which people see to be good for their business, for their sale and for sustained sale of materials, raw materials. Buyers also see that it's quite easy for them to buy materials through our portal.
You see I will supplement what madam has said, you see whenever principle comes to us for selling these products, he is sure that we will get the best prices, right? When a buyer comes to us, even he is assured that -- I mean, the products that our platform is offering so if he will have the large quantities all over India, wherever we -- iron ore, scrap properties, whatever is available, we will find. So we have basically a crucial mix of buyer and seller. Apart from that, as madam has said is the user-friendly interface for the buyer as well as sellers and other things that find assurance with the specially government sector is the complete transparent process and quite robust systems. So we are keeping the security of the system in quite high -- we are on a high security for the system so that our systems are safe and nothing I mean adverse kind of comments have -- I mean even the courts and every -- at all the firms, our portals have stood every kind of scrutiny from the CAV from -- from all agencies even the court wherever some cases, some bidders have gone against in the court for some region or other. So the courts have also reported sales in the MSTC system. So it gives a comfort to buyer as well as seller and the best price for both of them. That is one USP of the MSTC. That is why the people are coming to us.
Right. And sir, one last question from my end. Sir, can you give us an update on the agriculture side? Jaivik is a platform that we have? How is that doing? And what do you see the future for that particular?
Jaivikkheti, the challenges are still there, especially in terms of logistics and connecting to the farmers as such. We are still working on that, and the Ministry of Agriculture has also put in a lot of efforts on this area. We're trying to onboard more logistics service providers and once they are in place, maybe it will gain some traction, and we will be able to transact some volume. But as of now, it is not much.
[Operator Instructions] The next question is from the line of Harshit Jain from Rah Investment & Advisory.
Congratulations to the voting for such an intestine of numbers. Coming back to the previous question from previous participant, I just want to note add, as you mentioned that your e-commerce business consists of 40% to 50% share from scrap market. So if the steel prices and in the scrap prices go down, so do we expect a de-growth in revenues for e-commerce?
No, it doesn't actually mean that there will be a de-growth because the volumes, the amount of scrap that is being generated, that is still there and started going up. So even if there is a small fluctuation, the volumes will make up for it.
So are we doing anything else about from scrap to increase the market share from other segments?
Yes. Actually, in scrap itself, we are trying to open as many private sector big companies as possible. And newer models of business have also been seen as to if we can bring in more aggregators for the scrap business as such. Maybe we will be able to -- if not grow the business by leaps and bounds at least sustain the levels that we are in.
Okay, so since we have grown 25% from quarter-on-quarter on the e-commerce front, so can we expect a CR plus quarterly e-commerce revenue going forward for the next financial year?
Actually that will be difficult to say because this last quarter, as is mentioned, has been -- the main contributor has been iron ore sales, which was very, very good, both in terms of volume as well as in terms of prices. So now that has slightly dropped and stabilized. So I'm not too sure whether so much in ore will be mined and will be put up for auction. So it depends on the iron ore mining companies and the prices, what will be the prices in the next year. So it's very difficult to say at this at this stage.
But we have other things such as NPA auction and the auction...
Yes, we are there, the NPA auctions are there. The coal auctions are there. and other minerals also and more and more private players are coming for sale of their minerals. So those things are there, but it will be difficult to say whether it is going to be INR 83 crores or INR 100 crores or INR 50 crores. What I can say is the business is sustainable, the models are sustainable, but the volume the market forces will decide.
And 1 more question would be regarding the dividend payouts. So this quarter, we paid a dividend of INR 6.5, which translates to almost 43 to 45 this year, which is almost like 100% of our profits for current quarter. So can you throw some light that why there is such a huge jump in dividend payout ratio? And will this be a new norm going forward?
There was a long after we got listed. The first year, there was no dividend at all, if you can remember. And our management and the Board felt not -- I mean they felt that the investors should be rewarded and as they showed faith and confidence in our company. So as an end, we are to that particular thing. And it has been thought by the management. So let us have some kind of reward for our investors we will have shown such a keen interest in our company. That's the philosophy working behind that. So that -- and we are hopeful because the results are very good. So that is also the driving force for such a high dividend.
So what will be the dividend payout ratio for maybe financial year '23?
You see, I mean, that cannot be predicted as of now. But I will say one thing and in supplement to what our DF has said. The model of business is so that the investments required is not that large, right?
Yes.
Especially the customers that we are making is in our JV company, right? So we always -- I mean having enough surpluses so that to reward the shareholders. So that is what we expect as on date. I think I have replied to your queries.
Yes, and one last question would be can you provide some insight on cash on books at the end of December 31?
Yes, because December, as far as the steady guides, we have only drawn up our PL and all these things. So we have to wait until the March result. But that much I can -- we can say that from our company side, we are better placed. And you can see from that the cash profit that we have shown me that there is enough sustainable cash for the company as of now.
Okay, and one last question would be, can we expect some kind of big revenue for next financial year from scrappers then?
So as you see that in the control results that already the company has come up from the rate to black, that's shown profit but that will, of course, be any payout from their side will depend upon how much investment is...
No, no was asking that how much centers can we expect by end of next financial year? And how much revenue do we expect like probably INR 500 crores, INR 1,000 crores?
So I think we are trying to expand Pan-India. And we are just waiting for the response of the government policy. As earlier in this con call, our CMD has already highlighted, the state governments are yet to come up with their corresponding guidelines in this regard. So as and when this is coming up, we will be giving. But we are ready. We are poised for Pan-India growth, and we can have -- I mean we can immediately go for this expansion. So we are ready for that. That much we can tell from our side.
[Operator Instructions] As there are no further questions, I now hand the conference over to the management for the closing comments. [Operator Instructions][Technical Difficulty]
Yes, so basically, I was saying that the investors have kept faith in us. We are working very hard, and all our employees are working very hard to provide the services to all stakeholders in our portal of e-commerce services. And we hope to further better our results in the coming times. And the faith that investors have kept in our company, we want to give them a good return. Thank you.
Thank you. Ladies and gentlemen, on behalf of Equirus Securities Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.