MSTC Ltd
NSE:MSTCLTD
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MSTC Ltd
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Ladies and gentlemen, good day, and welcome to the MSTC Limited Q4 and FY '20 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rushabh Shah from Equirus Securities. Thank you, and over to you, sir.
Yes. Thank you, Faizan, and good afternoon to everyone on the call. On behalf of Equirus Securities, I would like to welcome you all to the 4Q FY '20 earnings conference call of MSTC Limited. From the company, we have with us the key senior management team, including Mr. Surinder Kumar Gupta, Chairman and MD; Ms. Bhanu Kumar, Director, Commercial; Mr. Subrata Sarkar, our CFO and Director of Finance; and Mr. Ajay Kumar Rai, Company Secretary and Compliance Officer. I would like to hand over the call to the management team for their opening remarks, and then we can open the call for the Q&A. Thank you, and over to you, sir.
Okay. Yes, good morning, everybody. I'm S.K. Gupta, Chief Managing Director and CEO of the company. With me are our Director Finance, Mr. Subrata Sarkar; our Director Commercial, Madam. Bhanu Kumar; and Company Secretary, Ajay Rai. As you know, we had our Board meeting day before yesterday where the annual audited results were passed. We all know that due to COVID which has affected the -- somewhat almost to a large extent, but last quarter there was some marginal effect on the MSTC also like the whole economy in our country. Although the lockdown was in the March end, but the problems have started around a month before that. Apart from that, MSTC is having major revenues from scrap. So there was some downtrend in the scrap rate. Those were few negatives, but then there are very good things also which has happened in e-commerce business of MSTC. One very flagship project for Government of India, Department of Telecom, that is auction for spectrum for 4G, 5G waves. MSTC has been first time selected as preferred bidder for the Government of Telecom. So who'll be providing the portal services to door, and it is expected that around September, October, as the government gives us go-ahead this option should be -- can be scheduled. The portal is getting ready. A week back around, this commercial coal mining portal was inaugurated by honorable Coal Minister, Shri Pralhad Joshiji. Commercial coal mining is a very big ticket project for Government of India. And even Prime Minister has -- our honorable PM has taken a big stride for this not only the commercial coal mining it is for the other minerals also which also progressively will come to us. Right now, around 41 coal mines have been given which have been already put on our side and the process is on. Another development is that we have already informed our investors that MSTC as an integrated portal with IBAPI for sale of their stressed assets of all PSU banks. So that portal is now fully functional. We hope that this situation stabilize in medium term so that we are able to sell the properties of PSU banks that have been put on our portal, which will give good value to the banks also as well as earn some revenues for MSTC. Jaivik portal -- Jaivik Kheti portal is also live now, but there was one handicap in that. We didn't have an arrangement of logistics. So now we have tied up with India Post, we have signed an agreement with them for Logistics Service. Technical integration is already complete, and PoC is underway. Once we test, dispatch and receipt of few consignments, we will be progressively opening the portal initially for 40 post offices in Madhya Pradesh, then progressively all over the country. Regarding our financial performance and other highlights, I'll request our Director of Finance, Mr. Subrata Sarkar, to apprise you the details.
Yes. Actually, the -- good morning to everybody. So basically, this year, our growth and the operation was concentrated on the e-commerce business, and we have, as promised and as already on the past and as a matter of policy, we are now gradually opting out of this trading segment. So during this financial year, so far volumes are concerned, we have crossed INR 1273.91 billion (sic) [ INR 1273.91 million ] in terms of value of goods transacted through our marketing and e-commerce vertical, which is almost 15% growth over year-to-year, last year. Revenue-wise, in a consolidated position as a group wise, the revenue comes to INR 12,313.99 million vis-à-vis INR 32,919.97 million in FY '19. Decline is difficulty to degrowth in the marketing business. And as compared to loss in the financial year '19 of INR 237 crores, we have made a profit of PBT of INR 166 crores for the group for this particular financial year. So of course, we are on the positive side this year. Now I am switching over to stand-alone financial highlights. So here also that last year, EBITDA was INR 331 crores. This year, EBITDA is INR 230 crores. Of course, this is a little bit lower, but it is of mainly driven by the e-commerce business. PBT comes to INR 129.49 crores as compared to loss of INR 269.21 crores last year, and PAT comes to INR 75.20 crores as compared to loss of INR 322.47 crores from last year. And earning cost here is INR 10.68 crores. The company, the Board of Directors has also declared a dividend of 33% on the equity that is INR 3.30 equity share. And going back to another balance sheet part. So we are having this noncurrent asset of INR 262 crores and current assets of INR 173 crores as compared to -- this, of course, on the console part as compared to consolidated equity of INR 473.93 crores as compared to last year of INR 387.90 crores is a growth in the net worth. And of course, the current liability stands at INR 93.40 million as compared to INR 806.22 million last year -- sorry, the current liability stands at INR 1,633.88 million as compared to INR 3,591.16 million last year. So that's all typically summarized position from our side. I hand it over to you for our Q&A.
[Operator Instructions] The first question is from the line of Keshav Garg from Counter Cyclical Investments.
Sir, I wanted to understand that although our bad debts have fallen drastically year-on-year, but still they are a significant part of our EBITDA. Sir, so what are we doing to prevent such write-offs in future? Sir, we should be having some system wherein these issues are taken care of.
Thank you. And this year, if you can see that this year-to-year wise portion it is INR 76 crores of provisions and write-offs. But out of this, INR 37.39 crores have got no financial bearing on the financial year of the company because it is a write-off against the provision. So balance, of course, INR 38 crores is the -- I mean that is a provision in the group. And so far MSTC is concerned, it is around 33 -- it is around INR 30 crores, so the -- INR 33 crores. It is basically the -- as we have told earlier also, it is basically related to our trading business. And as you told, just now suggested, we have -- from the quarter 3, we have now a provisioning policy in force. On the basis of that, we are taking care of this provisioning and wherever we find there is some sort of difficulty in realization. Of course, this is related to only trading business, nothing to do with -- in the trading segment, also in the cash and carry segment where some issues were faced with the customer. Customers which have faced are with us only. So it is now left around INR 120 crores odd only. So that is only the vulnerable section where the provisioning, if any, is required in the coming days also as per the provisioning policy. And this quarter, it has become a little bit higher because there was a little bit of visibility in the payment in the month of March because of some industry slowdown and also because of this COVID phenomena. So we are now with this providing policy where staggered way will be done. And only we have left around INR 120 crores of that typical type of debt, of which max to max that provision has to be made for that particular debt -- I mean the trade receivables.
Okay, sir. So basically, sir, can investors be assured that in future, sir, we won't be looking at some negative surprise, sir, like last year, over INR 500 crores of bad debt. That kind of thing is behind us now permanently?
So this is basically the -- as I again, told you -- I can -- again, I repeat. So we have got a very -- that risky segment called cash and carry segment. So we are only INR 120 crores of almost -- I mean around INR 122 crores, INR 118 crores are left around approximately. So that is the only vulnerable section that we have. Otherwise, e-commerce payments out only, if any, only needful provisioning is -- because of the operational part. So it is that section only that we can -- and sitting on as on date 31st March, we can tell you, sir. And to add is that, that business has been stopped from 1/4/2019. Not a single business has been done on that account.
I'll just add to whatever he has already said. This Cash and Carry business, where such large provisioning was done in the past. That is behind us. So we are pursuing only e-commerce and a very little portion of the trading business is under the BG back's team and the associate supplier. That also we have tapered off this year. And probably from August onwards, there will be no business in that segment also. So this trading segment going forward will be nil and the risk is also nil now.
So ma'am, basically, the -- our segment results ma'am, the marketing segment, which we did around INR 646 crores of turnover last financial year. Sir -- ma'am, you are saying that we are going to stop it from August onwards?
Absolutely. Yes, from August onwards, it will be 0.
Okay, ma'am, that is very encouraging, ma'am, because if you see, madam, our e-commerce segment, madam, it is, madam, on INR 202 crores of sales, we are doing INR 199 crores of profit, madam. So had the company being only in this single business and nothing else, ma'am, our market value of the company would be 5 to 10x because the company would be start -- valued as the e-commerce company.
I assure you from August onwards that is the only area of business that the company is pursuing, the trading segment is going to be 0.
Okay, ma'am. That is great to hear. And also, ma'am, there is a segment Scrap recovery and allied jobs in which we did approximately INR 410 crores of turnover and INR 46 crores of profit. So madam, what is this segment exactly and this is expected to…
That's actually the activity of our subsidiary company who are basically giving this kind of a job service to the steel plants, the integrated steel plants, mainly the government sector, the Steel Authority of India. So this is the -- they are doing pretty well. There is a 10% year-on-year growth in this. And so far, it has happened quite well, and the results are also very encouraging for this subsidiary company.
So ma'am, basically above…
Yes. That is an activity that is solely done by the subsidiary company, not by the MSTC as well.
Sure, ma'am, and when this Scrap recovery is, madam, over there, there is no issue of bad debt?
No. There's no issue of bad debt in that company as well.
No, not at all. It is actually a service where the steel content is recovered from the slag and other waste products, byproducts, then steel process -- steel-making process is on. So that's a recovery, and it is given back to the steel plant and they earn the service charge on it. So there is absolutely no risk in that segment also.
Okay, ma'am, and ma'am, there is one more other…
This is the operator. Sorry to interrupt you, Mr. Keshav. May we request that you return to the question queue for the followup. [Operator Instructions] The next question is from the line of [ Om Agarwal ] from [ Balaji Investments ].
Madam, there was a news earlier that Ferro Scrap Nigam Limited will be sold?
Yes, that's right. This DIPAM has selected this company for this investment. So now DIPAM will be floating the [ EUI ] there on their website, the advantage of this company. So that is the decision of Government of India for this investment [Foreign Language]
Sir, what is the contribution of profits of that company through this main company?
Actually, the activity is year-to-year around INR 30 crores -- INR 20 crores, INR 30 crores, contributes to the growth. So basically, that is there, but it is an independent subsidiary and it earns always. It's a profit-making subsidiary. So INR 30 crores -- around INR 30 crores around is on profit to the group.
And it gives us around a dividend of INR 9 crores, INR 10 crores around the year.
When you divest it, then there will be a reduction in your consolidated profit, isn't it, to that extent?
Consolidated profit. Yes, yes. I mean, to that extent, it will be down. But because the dividend is not a significant amount and that also after that there is a tax, so it will not affect our profit to that extent.
But how much the enterprise value can be realized from that sale, approximately?
It's very difficult to say. It is very difficult to say at this juncture.
Okay. Okay. Then there is a spectrum auction for which you will be doing Government of Telecom Department. So whether you will be -- there is some commission over the sale value or what is like in terms more around?
It is not sort of commissioning. It's basically event wise charges. The type or number of auctions we are do, will be charging, doing something, I mean it's not basically percentage of revenue that those will be earning doors. And in fact -- and then the second thing is it's a 3-year contract. So I mean as we don't see that the market is right for sale of the spectrum, right? They will give us that spectrum for auction, we'll be doing the auction and we'll be getting our subsidiaries accordingly.
The next question is from the line of Nisarg Vakharia from Lucky Investment Managers.
Firstly, I wanted to congratulate the entire management team for coming a long way since your IPO…
Could you speak louder, sir? Can you be a little bit louder, sir?
Can you hear me now, sir?
Yes.
Yes.
Okay. Firstly, I wanted to congratulate the entire management team in coming a long way from the IPO and fulfilling your commitment towards reducing your trading business and focusing only on the e-commerce business. I think we have done a great job at that.
Thank you. Thank you.
Thank you so much.
Yes. I had 2, 3 questions, madam and gentlemen. The first question is that there is this contingent liability that Standard Chartered Bank has put on was of some INR 200-odd crores. Is there any view on this? I mean has the case progressed? Do we have to pay them that money? Can you give us some clarity on this?
Yes. You are talking about Standard Chartered Bank, is it?
Yes.
Yes. In this regard, it is again what we have told in the last concall also and we are keeping, while keep on failing. It is still subjudice. It is under various courts. It is under subjudice. And the battle is still on. The legal battle is going on. But so far, our PL is concerned it will not get any hit because it is already there in our PL as an -- it is there in the PL, we have provided in the PL with the subject to that to not actually just say. So it is like that only. So…
But you will have to pay cash flow no, sir? It will be a cash flow impact, right?
No. Basically, but we do not see this in the near future because that battle is still going on and that they have already -- it is under subjudice. And until and unless that some judgment favoring Standard Chartered comes, if the cash flow will not come back. And we are hopeful that we will fight it out this case.
And we will be taking all legal course actions whatever is possible and suggested by our solicitors, so I mean that is commanding our attention.
Okay. Second question was to Bhanu Madam. Ma'am, can you tell us what is the approximate disruption that we see in the -- see, whatever COVID disruption will happen, will happen for the first 2 quarters of the next financial year. So can you tell us what is the impact that we may see in the first 2 quarters indicatively on the e-commerce side?
See, actually, as you can see from the results, about 45% of our revenue comes from scrap sales. That has been impacted to a very great extent. But apart from that, the minerals, iron ore, coal, these options we were continuing. Of course, the number of events were less than what it was normally. We cannot quantify at this stage as to what will be the impact because scrap is never the basic business for any organization. So if at all there is -- it is affected in the first quarter, maybe we will be able to sell in the second or third quarter. Now second thing that we need to see, if you compare the results of '18-'19 and '19'-20 even before the COVID came in, the steel market was really down the downside. The scrap sale was down by almost INR 1,000 crores last year in '19-'20 results. So we are not able to assess at this point of time as to how the steel segment will react post COVID. We are keeping a wait and watch attitude as far as scrap business is concerned. E-sale, e-commerce, e-procurement, these activities will continue. We don't see much of an impact in that area.
Okay. Last question I had, I'll break it into 2 parts. The first question is that we constantly keep hearing and seeing news articles of some large venture capital fund who has invested in some digital platform to do the business that we are doing. Firstly, I wanted to ask you that is there any company on the horizon that we see can rise as a potential competition because of the infinite money that they keep getting from the large venture capital funds? Secondly, how technologically competent are we in terms of -- do we have an app for our users? And last question was that this dividend which we have declared INR 3 is a great news to investors. But now since we won't have any trading business and no loss, practically 100% of cash flow -- e-commerce business profit is cash flow. So can we see that dividend increasing further in the next year?
Yes. So first of all, I think during the IPO also and thereafter in every interaction we have been saying that MSTC's e-commerce business is quite different from what is there in the market. So this is a niche area where we are catering to more of minerals, coal, coal blocks and we're more of a service provider to the Government of India for all their flagship projects, right? So -- and the kind of competence and credibility that we have in the market is unparalleled and at least as on date, I don't see much competition in this area. But yes, regarding the small-time players as far as scrap or any such small, small item sale is concerned, there can be competition. In the near future, we are not foreseeing any major competition in that area. Regarding our technology upgradation, yes, we are competent to handle the kind of complex projects that are coming our way. And we have been doing it for the past more than 10 years. And it has been a long journey. And so far, we have been very consistent with our track record. And that is why we are getting all these flagship projects to -- in our kitty. So I don't see much of a threat or competition in the area of our operations. But yes, we are keeping our eyes and ears open and we're open to competition. Those risks are always there in this sector.
And apart from that, I'll just add one thing. There are many fronts, our discussions are going on. So as soon as we reach some kind of finality in those agreements, we'll be always informing as per the processes, whatever new major agreements we are signing. So many of them are under discussions there.
Okay. And regarding the dividend, sir?
Dividend is like that, it's a very difficult to tell at this juncture. But you can compare that last year, there was a loss. We could not -- after the IPO year, we could not pay any dividend to our investors who have invested in our share capital. But this year, it was there. So if at all, if there is a profit, of course, as a policy as the Government of India undertaking, there is a policy to pay dividend. So of course, we will keep on paying dividend with the policy of Government of India, whatever policy they formulate. And of course, the basic criteria will be the profit. And we hope that trends are there. And with the growth in the e-commerce, of course, there is a profit, and the Government of India has a policy like that, we will keep on paying the dividend.
Sir, I have a small suggestion to this point. I would recommend that -- see, we have paid some INR 20 crores of dividend this year and obviously, our cash flow is much higher. Now a lot of the government companies have a fixed dividend payout policy. So I would urge the management in the next Board meeting to take up this issue and formulate a dividend policy if you can…
You know the government has -- already has a policy.
Okay. So -- no, I'm saying, sir, as a percentage of…
Let me clarify, the government -- the company repatriates the government's dividend policy. That is 5% of the net worth or 30% of the PAT, whichever is higher. So we have the reiterated the government policy. The government policy is there, and we are just following that government policy in total to our company.
The next question is from the line of [ Jeevan Patwa ] from Candyfloss Advisors.
Sir, last month, government has actually done a lot of reforms on the agri sector, which is actually positive for our e-RaKAM segment. Sir, just wanted to have your view on the e-RaKAM? How is going to accelerate our e-RaKAM segment because there was e-NAM earlier, but that was more from APMC's point of view. But with e-RaKAM and whatever government has declared last month, I think there will be more use of e-RaKAM because the person can now sell from anywhere to anywhere. So just wanted to have your view how it's going to accelerate our e-RaKAM.
I think we have informed in the past also and in the opening remarks of our CMD that right now, in the agri sector, we are enlarging our scope of services in the Jaivik Kheti portal, which is basically for the organic produce in the country. Now the major handicap that we were facing in the e-RaKAM portal, the agri sector is the logistics. So we are already in the process of empaneling more logistic service providers so that we are able to cater to all the requirements, not just the B2B kind of business but B2C also. So towards that end, we have already signed an agreement with India Post for Jaivik Kheti. And going forward, we will be looking at their services for our other material also, not just the Jaivik product. And we will be empaneling more logistics service providers and other aggregators and facilitators. So this is one area that is very much required when we are dealing with agro goods. And plus we are focusing in that area. And very soon, I think we will be having a very comprehensive kind of service process.
Great, sir. And one more thing is on -- so last -- in 6 to 9 months, we had a lot of agreements with, say, Orissa government or Chhattisgarh government, but then after we didn't hear anything from MSTC about any other government. So are we still working with any state governments for something similar to what we did with Orissa government or Chhattisgarh government?
Actually, Orissa government and Chhattisgarh government we went in for an umbrella kind of agreement. But in other states, the main -- the scrap business is mainly out of the electricity board, the power utilities as well as transport sector. And most of the state’s services is already having such agreements. We are not going in for an umbrella agreement in other states because most of the scrap in any case is coming to us. It's not required at all. And wherever we are having individual agreement, the service charge percentage is much higher than our umbrella agreement. So to do a cost-benefit analysis, this is better. So we are not going to change that status at least wherever we already have our business.
And so what Madam is saying, apart from that, we have done payments with many state governments minor mineral sale outcome, that outcome is seen as good year.
The next question is from the line of Pritesh Chheda from Lucky Investment.
Sir, just one observation and understanding I wanted. So we have reduced our marketing business from INR 2,800 crores to INR 650 crores this year. But when I look at the receivables number, it has come down from INR 1,870 crores to INR 1,462 crores. So one, when you say that by August the marketing business will become 0, just wanted to understand that when does the trade receivable business -- the trade receivable in the balance sheet comes down because that will help you pay off your debt? And to one of your provisions comment, you mentioned that we see last INR 122 crores of another write-off that we have to take based on whatever method of business that we were doing. So is it safe to assume that whatever debt that we see in the balance sheet and whatever receivables that we have, so we have receivables of INR 1,462 crores, we have debt of about INR 900-plus crores, to the extent of that INR 122 crores, the debt is repayable. If you could give this math and by what time? And first of all, why has it not come down when your revenues have come down so significantly?
Sir, let me answer you one-by-one. Yes. So out of this, whatever receivables that we are looking at like books it is only the Cash and Carry mode is around what I have again told, it is around INR 120-odd crores. So this is the only segment where we feel that it is a sticky one, number one. Number two, apart from that, we are in the Trading segment also, we have got 2 other segments which are more secured. That is one backed by 110% BG. So as on 31st March, around INR 540 crores of receivables is standing, out of that 110% BG. And some are around INR 500 crores is from another model that is we call associate model, in which we supply some items to some public sector and all which are also 100% secured. That's by supply commitment. So ultimately, if you weigh down, out of this INR 1,400 crores, around less than 10% is around in a sticky sector and with reduction in the business does not mean the immediately liquidation of the company data. So if this is around at least 6 months and more. So -- and in the associates segment also, that will also come -- that is continuing. And with the supplies going down and we receive -- we hope by next September, we hope that at least the size of that trade receivables will come down.
So -- and these BGs are what tenure BGs. So these are what 1 year credit that on which the business is done?
It varies. Somewhere it is 6 months, somewhere it is 1 year. Sometimes a little bit that because of this COVID, some extension has to be given because of 2 or 3 months extension is there. So these are that some issues vary, vary depending upon the customer profile. But nevertheless, it is backed by BG 110%. If it is INR 100 crores debt, it is to back by INR 110.
So I'll just clarify by September 2021 is where we don't see the receivable. A large part of the receivable goes away?
Yes.
Obviously, a large part of the entire debt goes away?
Yes.
And on the receivables breakup, you said INR 120 crores is cash and carry, which is maybe doubtful, 110% of the receivable -- certain amount of receivable is on 110% BG. What is that number, sir, INR 500 crores?
Around INR 550 crores.
And the residual number -- and the residual receivable is on 100% receivable.
That in the associate segment also is around INR 500-plus crores and balance in the e-commerce segment.
Okay. So that is 100% BG, right, the associate?
Associate is backed by supplier guarantee. Until and unless we get some amount from the -- this by principal, we'll not pay to our suppliers. That is a commitment with our suppliers, it's the agreement. So that is also sacrosanct safe and sound.
Okay. Understood. And one last question I have on the e-comm side. Madam gave some assessment on the post-COVID nature -- impact on the business. So this e-auction is the place where there would be some impact because she said that e-sale, e-procurement is continuing as normal. So just wanted to know scrap sales in the e-auction is how much as a percentage of total sales, ma'am?
I think I said 45% of our revenue is coming from scrap sale. So I don't know what will be the impact, how much that segment will be impacted.
But this is postponed or it is canceled type of…
I'll supplement to what ma'am is saying. You see effect there, it's a 45% of e-commerce and you see scrap is such a material, it will have the industrial activities go on, it will get on generated but it will not be solved. So ultimately, if it is not coming in this quarter and the activity of the plant is going on, will be getting in next quarter. As the situation stabilizes, the people are able to freely move to inspect the material, to buy the material and transport the material. So that, in any case, is a sort of fixed deposit kind of thing that will eventually come to us. If not today, then it will come to us tomorrow. Another angle to this is the rate of scrap. I mean because we get the percentage of the sales value in that. So if the market rate of the scrap or of the steel sector is less, then, of course, we will be getting less revenue. If the steel rates are higher, we'll get better revenue. We expect, I mean with the government restrictions on China and all that, steel rates should strengthen in medium term. But nothing can be said definitely as of now.
Okay. And why is it that the e-auction, e-sale revenue is down 12%, but the total value of goods is up 14.5%. So where is this disconnect or the drop coming from?
Yes. Let me explain. You are talking about the volumes going up but the income going down, isn't it? This is the question, no?
Yes.
So it's a very difficult thing. The volume comprises of a lot of segments. Supposingly e-procurement segment is there and the e-commerce is -- this scrap selling segment is there and e-sale segment is there. As our Director Commercial Madam told that the e-comm, this -- our scrap -- the scrap contributes a lot of -- it's a very rigorous, scrap auction is very rigorous for us and that comprise of the product mix. So here, in this year, the scrap e-auction is a little bit less. That's why the volume has gone up, but our service charge income or fee income from this e-commerce segment has gone down. Nothing less because the product is such. Had it been the reverse side, this e-commerce -- this scrap sale would have been higher so one could have on earned better margin.
The next question is from the line of [ Hiten Boricha ] from Sequent Investment.
Just want a small clarification. You mentioned that marketing business will be nil by August. Am I correct?
Yes.
Okay. Okay. Yes. And my second question is on the 5G spectrum side, ma'am. What kind of revenue and margin kind we are expecting for this business? And the CapEx for FY '21?
Can you repeat the question?
Yes. So my second question is what kind of margin and revenue we are expecting from this 5G spectrum?
Spectrum?
Yes, 5G auction.
So spectrum, I think as our CMD has said, we are going to earn a service charge on the event. Every time we host an event we are going to earn something which is not very significant. It has got no link to the actual value of the spectrum that is sold. So the revenue is not very significant. This will give us more mileage for our future business. But revenue is not very significant.
Any thought on margin side, ma'am?
I don't get your question. Margin?
I'm telling you. So it is basically -- in the e-commerce segment, I keep on telling in the investor meet right from the day 1, that we have got a fixed cost, fixed overhead, fixed salaries. So it's not like that it's a contribution from particular project. So we have got a manpower, we have got a system. We have everything. It is a fund cost for us. So whatever we earned it is over and above it becomes our margin. So it's like that. We have to think from that particular aspect. If you can see our -- I mean, the P&L part so you can see that it has a fixed overhead cost, salary and other overhead. That's a fixed one. So up to certain scalable levels, we don't have to spend on over and above that except some kind of this traveling and calling it with this and other. So that is very useful.
Understood. Understood. That was helpful, sir. And what is our CapEx, we will be incurring in FY '21? Any CapEx spend?
CapEx, I think we do not have any CapEx, major CapEx, I mean, this year coming 2021. Major CapEx we do not have because we have already upgraded our server. So it is not in the part -- in a larger way as of now sitting in a COVID scenario.
The next question is from the line of Anurag Patil from Roha Asset Managers.
So my first question is, this INR 182 crores employee cost. So how do you see it panning out over next 3 to 5 years?
So it's a group purchase around -- in the -- so far MSTC is concerned, it is the stand-alone basis it is INR 71 crores. So just now I was answering a call to your another fellow colleague, it is like it keeps on hovering. Our overhead keeps on hovering around INR 100 crores, the salary and the other expenses. So it will keep on like that -- keep on like that only with certain increase of 3% to 4%, of course, because of this salary hike and others.
Okay. And my second question is a pretty basic one. So all these contracts which are awarded to you from the Government of India, what is the criteria to awarding this contract? In par these nomination basis or how these are done? And how is the revenue sharing agreement is decided?
It is actually a mix. In case of spectrum auction, we had to participate along with other private players, and we got it through a bidding process. But there are certain projects that we get on nomination basis also from the Government of India. For that, actually, the past experience and what work we have already done, the body of work that we have done that actually helps us in getting those business. It's not that, that Government of India simply purchases and gives us. We have to prove our credentials before backing any order.
So for this nomination order, is there any cap on your profits or revenue percentage?
No, it depends on the scope of work. This is actually mutually agreed upon. It depends on the scope of work, what are all the resources that we need to deploy, what is the time frame? All those factors are taken into account and then we give our thought and it is negotiated and finalized.
The next question is from the line of [ B. Srinivas Reddy ], Shareholder.
Yes. I need a clarification regarding the subsidiary with Mahindra for the scrappage -- new scrappage policy government is about to announce. So what will that contribute to the balance sheet of MSTC? I mean you started the work of that scrap subsidiary along with Mahindra & Mahindra you have planned one earlier.
That's right. You see still the policy comes out, so we cannot -- I mean and we see the consent of the policy, we cannot make a definite consent -- I mean comment on that. Notwithstanding that, we have 2 plants as of now operational today. One is in Greater Noida and second is Chennai. The Chennai plant is getting -- it's a very small plant, but there we are having very good response, and we have sufficient supply of the vehicles there unlike in Greater Noida plant where we are not getting the sufficient quantity end of light vehicles. So if the government policy is favorable, then we will be -- we are ready to fully set up more plants across the country. So it's basically -- I mean the business has just -- I'll say that, it has just begun and there is a lot of future, I'll say, growth, which is possible in this sector. The potential is for -- but it will mainly depend upon, it will -- I mean very -- I mean the government policy will significantly affect it.
Sir, what is the margins you are expecting from that business?
Actually, as our CMD sir, has pointed out, this FY '20-'21, we will be able to basically quantify which type of margin is coming at an and what is going out. Still, this is running on that particular -- not at particular optimum level. So until and unless that comes up, we are looking and observing the Chennai operation also and Noida operations also. So I hope when we meet in September or October we will be able to throw more light on this particular question and answer it so.
Okay. Okay. Regarding these provisions and earlier bad debts. So you are sure that it won't be more than that INR 120 crores around that…
Because the surety is a very, very weak word. But as of now, what is our financial assumption, what we see because other debts are backed by certain securities and commitments. And these debts are as going by the past history of these debts these are vulnerable for getting bad. So with that particular calculation and that particular study, we can say that this INR 120 crores are in a most vulnerable segment and we might have to make the provision against this because this realization is very slow. But so far other debtors are concerned BG back it is, of course, the highly secured instrument that is available -- that can be available in the market. And of course, backed by the commitment of the creditor, of course, this is also because we are not out of cash on that particular part -- portion. So -- and the e-commerce, of course, going by the trend that bad debt percent is very, very, very low, not even in the single-digit also. So it is like that. With this calculation, we can again tell that is still in the vulnerable sector. And with that provisioning policy in force, we will be able to settle this in a very scientific manner.
The next question is from the line of [ Saurabh Ginodia ] from [ Smith's Limited ].
Sir, I had a question on the fixed cost associated with the e-commerce business. Is it possible for you to segregate the fixed cost for the e-commerce on an annual basis?
Can you repeat, sir?
I just wanted to get some understanding regarding the fixed cost associated with the e-commerce business.
As I was answering to the call of your fellow investor before that, before I was speaking to you, so basically, I keep on saying it is around INR 100 crores, salary and overhead taken together with certain scalable operation up to that point of time which is the fixed cost that we have right now at this moment. So this is the only thing that we have. And with this particular investment cost, we can go up to certain scalable operations and we don't have to incur any further cost on this.
Okay. And sir, my second question is, is it possible for you to broadly share the breakup of the e-commerce business between PSU and private clients?
Yes. Actually, we are not making this type of breakup as such in our books of the accounts. So it is like the billing, this is -- so -- but what we can say as of now, roughly, it is, of course, the majority is the PSUs and government clients.
Is it safe to assume it is up to 90%?
Maybe, around.
Yes, that should be around.
The next question is from the line of Keshav Garg from Counter Cyclical Investments.
Sir, I wanted to understand that in our segment results consolidated. Sir, the third item is others, and sir, so there was no revenue only in the fourth quarter, there was INR 31 crores revenue and, sir, there is a INR 96 crores of loss. So sir what is this other segment? What business is it exactly?
Can you repeat, sir?
Sir, if you see our consolidated segment results, sir, the third item is other, sir, in which there is only INR 31 crores revenue in the fourth quarter and, sir, there is a INR 96 crores total loss for the year. Sir, so what exactly is this segment?
Loss -- I mean you are talking about segment wise or year wise, which segment is it?
Sir, segment-wise results, if you see, sir, the second last page of…
Yes, yes, I'm telling you. I'm telling you. I'm telling you, these others are unassessable expenses because in our overheads and all these things, these cannot be allocated in a particular segment. That's why it has been segregated for sale. That's why it's not a loss at all. Because in the other segment we do not have revenue, but in the other segments we have such expenses which we cannot allocate to any particular segment. That's why. It's not in the presentation, nothing else.
Okay. Okay. Okay. Sir, I understood. And sir, also, sir, so last year since -- last to last year, actually, since we made a huge provision and sir, last year, sir, we made a INR 48 crore write-back also. Sir, so is there any possibility of a further write-back from the over INR 500 crores, INR 600 crores…
Yes, we cannot -- we do not rule it out because this year also we got around the write-back of around INR 10-plus crores, okay, so -- that is included in the other income. So basically, the meaningful recoveries keep on happening. So we cannot -- as such we do not rule out that recovery will not be there. These provisions are done on a very, very conservative estimate taking into account that the recovery is more. But this does not mean that the recovery will not be there.
Sir, and looking at this COVID and everything lockdown, et cetera, sir, you think that in first quarter, we will make a profit or we can go into revenue?
Sir, it is very, very remote, sir. We are there, but results are yet to be compiled and yet to be analyzed. So until and unless that is there. And don’t' worry. We'll be again meeting you after 1.5 months, sir, to answer your question. We are there to answer your question, sir.
No, sir, I think you are doing a wonderful job, sir. I don't think investors need to be worried until you are doing such a nice job…
So nice for your compliments, sir.
And sir, one last thing, sir, in fourth quarter, sir, our quarter-on-quarter, sir, our revenues fell from INR 285 crores to around INR 194 crores. Sir, but our employee cost shot up from around less than INR 42 crores to around INR 55 crores. Sir, so I mean, sir, going forward, sir, per quarter, this employee cost will remain at around INR 55 crores?
Yes, I'm telling you that there are 2 parts. One, MSTC part, this total revenue -- total employee cost is around INR 180 crores, okay? So in MSTC part it is around INR 71 crores. And of course, in the last quarter, there was a charge. So some kind of, I mean, provisions has to be made in the last quarter only because we come to known only about our whole life in the last quarter. So overall, it will -- we hope that the next year there will be a little bit of increase, that is a normal increase of 2% to 3% or 4% and that is there. On the overall year-to-year basis, it will be like that only.
Okay, sir. And sir, as things stand today, you think, sir, that in FY '21, the present financial year, we will be able to outperform or at least meet the -- match the profit that we made last year of around INR 100 crores?
Pardon, if you can repeat it?
Sir, I'm saying as we stand today, sir, do you think that in the present financial year FY '21 we will be able to at least match the profit after tax of around INR 100 crores that we…
It is too premature, sir, too premature to say because we are -- we have not yet crossed the first quarter, sir. So I mean sir, sitting, there situation is so volatile. We cannot tell from sitting over there. So we'll keep on meeting you and talking to you about our progress and all these things, sir.
Sir. So this e-commerce segment that we have, sir, is it like, sir, once we do a spectrum auction so we get a onetime fee. Once we do some other auctions for the government, we get a onetime fee or sir, is there any reoccurring component also in this business?
Yes. It depends on the kind of work that we do. As I think a couple of years back, we briefed you about the UDAAN portal, right? So we do charge on something on the development charges and every event also or AMP charges that is there. So during the duration of the contract we keep earning something or the other. So in case -- then also as and when we carry out an event there will be income. But as of now is for 3 years. So as when we do any event during the 3 years, we will be earning.
So ma'am, out of around INR 200 crores of…
Mr. Garg…
Yes, yes. I'll come back.
We'll take the last question from the line of Mr. Rushabh Shah from Equirus Securities. Mr. Rushabh Shah, please unmute your line from your side.
Yes. So now it's audible?
Yes, it's audible.
Sir, congratulation on a strong set of execution in e-commerce and committing to ramp down that trading business. So just wanted to get an idea on the scrap business of the e-commerce. Now that we are expecting some softness in the steel prices, but would it recover and the prices, again, I think, so increased. So how strong is the potential in that segment because we have won many contracts from the private payers in the last 3 to 4 quarters. So any color on that front?
Yes. See as far as scrap business is concerned, first of all, scrap will have to be sold. Nobody wants to carry that inventory at the end of the year. So we are expecting that whatever business we have not done in the first quarter or because of this COVID pandemic, it will eventually come out in the next quarter, Q2 or Q3. Secondly, the steel prices, that has an impact on the scrap prices. So that we are not able to estimate as to -- it will be the pre-COVID prices or it will be higher than that or it will be lower. That is one estimation that we are not able to do, but we are sure that the business will be there because scrap will have to be sold, whether it is in public sector or in private sector, they will sell it.
Perfect. Perfect. And apart from, I think so whatever the new avenues in the e-commerce we have been working, whether it was the Jaivik part or even for some oil players, we were working on, any new line of business or any new product that we are planning to come up in the next couple of quarters?
See, we are now improving upon whatever is already existing and making it as user-friendly as possible without human intervention. So based on that, our e-procurement model, this year, we have upgraded it to a new version, and it has a lot of added features, so to make it more user friendly. So these are new products, and I'm sure we will be having more clients in this kitty -- in our kitty when we improve our services.
Perfect. Perfect. And I think, so last question from my part would be on that this year, I think -- so I think it was on the cash flow perspective, the cash flow from operations has been around very strong at INR 220 crores, INR 225-odd crores. So going by that normal working capital requirements in the e-commerce business and even ramping down of that whole trading marketing business, can we expect these levels of cash flow generations at least in the coming years?
Yes. But what will be cash flow, it will be very difficult to speculate right now. But one thing I can assure there will be a good quality of cash flow and good quality of balance sheet that we are going to deliver in the coming days with a secured and sound e-commerce business.
Perfect. Perfect. Because, I think, so cash flow seems to appear very strong compared to what valuations we are trying.
You know, it's a very, I mean, this will keep on depending upon the situation and scenario at any cut-off date but the quality that -- we wanted to stress it out the quality of assets that will be sitting on our balance sheet will be pretty good.
Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thanks all our investor friends for your valuable time. And seeing the results from costly vendor as well as some concerns that we were having, I hope our team has satisfied your queries to a large extent. As our Director of Finance and Director of Commercial have advised -- informed, we are on a strong growth path. We have very robust systems in place. The incremental costs are not large as compared to the incremental revenues that we expect from additional e-commerce activities. With the marketing, cash and carry businesses behind us in a couple of years, the only significant was stream -- revenue stream will be e-commerce, which is a good margin business. Although we are working in a very competitive environment, still we expect to get good revenues for the company in turn good growth path, the company's equity and investors' interest also and their confidence in the company. Thanks a lot. Thank you.
Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.