MSTC Limited (MSTCLTD.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the MSTC Limited Q1 FY '26 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Deep Modi from Equirus Securities. Thank you, and over to you.

Thank you. Good morning, everyone. On behalf of Equirus Securities, I welcome you all to Q1 FY '26 Earnings Conference Call of MSTC Limited. From the management, we have with us today Mr. Manobendra Ghoshal, Chairman and Managing Director; Ms. Bhanu Kumar, Director, Commercial; Mr. Subrata Sarkar, Director of Finance; and Mr. Ajay Kumar Rai, Company Secretary. We will begin the call with the opening remarks from the management, and then we will open the line for question and answers. Now I hand over the call to Mr. Manobendra Ghoshal. Over to you, sir.

Thank you. Good morning, everybody. Thank you for joining us today. Let me begin by welcoming all our esteemed investors for today's call. After a largely flat FY '25, which also had quite a bit of ups and downs in both the external environment in general as well as some challenges specifically for MSTC, we had a good start to FY '26. We have also, in this period, had an opportunity to reassess our core business strengths and look hard at new areas where we can leverage our strengths for driving growth. As I had already briefed you in our last call, some part of our traditional business, such as the coal auctions from Coal India, which had not been there in FY '25 in a large part is now back with us. And this should supplement and drive our revenue streams further in FY '26. MMRPL, our 50-50 joint venture with Ms. Mahindra Auto has also performed as expected in Q1. Even though there is a loss at present in this venture, the outlook is positive over the long and medium term due to the expectation of higher volumes to be driven by OEMs after cutting of the EPR policy. We are looking forward for that. MSTC's revenue increased about 12% year-on-year in this quarter, in Q1, primarily due to strong performance in the e-commerce segment, while expenses have remained largely on the same level with only incremental increases. So PAT and PBT were higher year-on-year basis by about 10%. This growth was largely driven by our e-commerce segment with major contributions from e-auctions, which is our bread and butter, mineral block auctions, property, FM spectrum auctions, which we conducted in this quarter, and also coal and iron ore auctions, which are steady revenue streams. Regarding major business highlights of Q1, our Director Commercial, shall be briefing you in detail. For a brief snapshot of the way forward, I would like to inform you that we have identified development of software applications as an area that can be used to leverage our strengths. We have not only been doing this on our own, but have also developed a good, strong collaborative model of partnering with such entities so that we can pool resources and expertise. Our work for KPKB and various portal developments are basically proof-of-concept developments in this -- of this model. Apart from this, we have a major trust in FY '26 to obtain business from private players. I'll now request Director Commercial to elaborate on these aspects, followed by Mr. Subrata Sarkar, our Director Finance, to provide an update on the Q1 financials.

Thank you, sir. Good afternoon, everybody. The key highlights of the first quarter for this current financial year is we have transacted a business of about INR 140.88 billion in terms of [rupees] for the goods that were transacted through our portal. The PBT is promising with INR 59.63 crores vis-a-vis INR 54.48 crores last Q1. And accordingly, PAT also is INR 44.32 crores in comparison to INR 40.46% of the same time last year. Financial performance consolidated stands at INR 57.65 crores and INR 42.34 crores is the PAT. Now as far as the business is concerned, we have shown an increase if we compare with the Q1 of last year, about 12% increase, that is about INR 8.5 crores or so, mainly due to our regular businesses like auction of scrap, coal, iron ore, et cetera. But here, what I would like to emphasize is in spite of the fact that the scrap rates have fallen during this quarter, and in fact, it's continuing to fall. We have been able to show a good steady growth because of the increasing volumes in those transactions. As our CMD had already said, the major highlight of this quarter has been the FM channel allotment. This again was a very customized portal similar to what we had done in spectrum auctions. Our main another product that we have launched this time is Upkaran portal. This is actually envisaged to bring all the OEMs and the major dealers of equipment, especially that is used by the industry. So we expect that this will give an impetus to the industry in going digital for the transactions in leasing of equipment or procurement of equipment. We had showcased this in the India Steel Summit that was held in Mumbai in April, and the response that we got was quite promising, and that actually had given us the confidence to build it further. The portal has just been launched, and we are just in the process of onboarding OEMs and other stakeholders, which is likely to stabilize in a couple of months' time. So that is a product as such that has been launched, and we are looking forward to similar such products for the industry. Another major highlight that has happened recently is the renewal of the defence agreement. We have been doing the defence scrap disposals since 1982. So that has been a very long association and the confidence that is reposed by the Ministry of Defence has once again been upheld and the transactions we envisage will be a little more -- more than what we had done in the past. As far as the future of what we are planning, what brainstorming we have [indiscernible] in-house is we have identified certain areas and one of the main areas is establishing exchange platforms. We see some potential in coals, minerals, EPR exchange, [indiscernible] credit and all, where there are not much players and even the policy framework is not ready as yet. So that is an area that gives us a good opportunity and definitely, we would like to be a part of that and drive the growth there. Apart from that, we have done some small projects for our own Administrative Ministry, which has given us the confidence to do such projects for other ministries and government departments where they need to digitize a lot of their transactions and have API integrations with various stakeholders platforms. So that is another project that we have done in a very small scale, and there is scope for improvement in that area. Then we have -- we also want to enlarge in our transaction portfolio to cover reverse auctions, private e-procurement, bulk asset monetization, industry-specific bidding formats. Basically, these models that we have been doing for years is more focused towards the government sector, the central government, state government and the PSUs. But in order to drive growth in the private sector, which is going to be the focus in the near future, we have to probably build some new business models because the requirements of the sector are quite different from what is required by the government sector. So that is a focus area, trust area for us. And as far as other financials are concerned regarding Q1, I will hand over to Mr. Subrata Sarkar, our Director Finance. Thank you.

Yes. Very good morning, sir and afternoon, of course, to all. So with that, revenue growth has been 8.91% from INR 86 crores to INR 93.66 crores. And expenses have also gone up like that only, including that mild increase of 9.13% from INR 29.12 crores to INR 31.78 crores reflecting that growth in the EBITDA also from INR 56.88 crores to INR 61.88 crores, a growth of 8.79% and PBT growth is from INR 54.48 crores to INR 59.63 crores that is 9.45%. Accordingly, PAT has also grown from INR 40.46 crores to INR 44.32 crores, a growth of 9.54% and EPS consequently has grown up from INR 5.75 crores to INR 6.30 crores, 9.54% growth. Look at this [indiscernible] analysis. So basically, this growth is propelled by the growth in the revenue from e-commerce that has come up from INR 61.55 crores to INR 70.03 crores, a growth of 13.78% and other income almost remaining stagnant and marketing revenue almost remaining stagnant. Expenses a little bit increased. So PBT has gone up from INR 54.48 crores to INR 59.63 crores and PAT from INR 40.46 crores to INR 44.32 crores. This is on the stand-alone front. If you look at the consolidated financial after the only thing that is being added on is the share of our profit and loss from joint venture, so it is a miniscule loss INR 1.98 crores. So with that, that PBT stands at INR 57.65 crores as compared to INR 53.28 crores of the same period, a growth of 8.20%. And PAT at INR 42.34 crores from INR 39.26 crores, growth of 7.85%. So EPS is growing obviously at the same rate from INR 5.58 crores to INR 6.01 crores. So if you look at the summary of our P&L Statement, so that revenue from operation and other income pick up INR 77.43 crores and other income is INR 16.23 crores. Last year, it was INR 69.04 crores and INR 16.96 crores. And total revenue comes to INR 93.66 crores as compared to last year INR 86 crores. Employee benefits rising slightly from INR 21.72 crores to INR 23.25 crores, [indiscernible] this year is nil. Depreciation is almost at the same level from INR 2.31 crores to INR 2.25 crores and other expenses rose slightly from INR 7.40 crores to INR 8.53 crores. PBT is from INR 54.48 crores to INR 59.63 and PAT is INR 40.46 crores to INR 44.32 crores. In the consolidated front also, just share has been added on minus INR 1.98 crores but consolidated profit of INR 57.65 crores for PBT basis as compared to INR 53.28 crores and PAT from INR 39.26 crores to INR 42.34 crores. So far financials are concerned, that's all from our side. I think we can now go for Q&A. Management outlook is there from our side. That's all from our side.

[Operator Instructions] The first question is from the line of Saurabh Ginodia from SMIFS Limited.

Sir, in the opening comments, you had mentioned that we are doing some work to develop certain software applications. So can you just elaborate what is the scope of opportunity? And what exactly are we trying to do over here?

Actually, we have seen some opportunity when we were developing software for the various ministries and the industry. We saw that there are some ready-made products that can be used by the industry like some small ERP applications and integration posters and gap analysis, then dashboard. These are small, small applications. And these can be done in a very quick time and maybe in a collaborative way with our association with some SaaS vendors, which we have embarked upon about a couple of years ago. So this gives us a good opportunity, but to estimate as to what kind of software or what will be the potential of that entire segment is a little too early to comment upon.

Okay. And second thing, you had mentioned that we're trying to increase the share of this private business in the overall revenue. So what are the steps are we taking to increase the share of the private business?

Yes. So as I had mentioned, see, the way the government or the public sector functions is not the way the private sector functions. They want very quick response and they are probably not interested in bidding modules and all. They just want the best price. So it is going to be more of a listing kind of a platform that we will have where they'll just list their products and then they'll fix up the price and the material is taken off in a very quick time. So the model itself will be different, the revenue streams will be different. So that is something that we are taking inputs from the private sector building upon. And the focus is going to be more for smaller and medium private sector organizations because the large ones are -- especially the scrap generating ones, the large ones are -- many of them are already with us. So apart from expanding the scope for them, we are also focusing on the small time business units so that our human effort is also reduced to a great extent, and there is quick disposal. So that is the idea behind this entire venture.

And another thing is that over the last 4, 5 quarters, we have spoken about various new initiatives which the company is trying to develop. But actually -- and some of these initiatives may actually take some time to get reflected into our revenues. But if you see the e-commerce vertical in totality over the last 8 to 9 quarters, the revenue has been in the range of INR 85 crores to INR 90 crores. So when one can expect a significant growth in the e-commerce revenue from these new initiatives?

It will always be a very steady growth only. It's not going to happen overnight. There cannot be any exponential growth. So as you can see, some things are trickling in, and that is why the Q1 results are much better than what it was last year. So this way, we anticipate a very steady growth, whatever we have witnessed in the Q1, it is likely to grow in the same way in the near future. If there is not going to be a very exponential growth, there is no opportunity that will give us that kind of -- that will drive that kind of a growth.

And what would be our annual CapEx requirement? And if you can also share some light on the future capital allocation policy for the company?

Yes. So far CapEx is concerned, basically being an asset-light company, our main -- still our main focus is on upgradation of the software and procurement of better hardware for our data centers and peripherals. So still we are focusing on that. So that will be our main focus area so far CapEx is concerned. We will not -- we are trying to allocate maximum of our profit part right now to that part only. So after the assessment in the second or third quarter, we will take a call on that.

Okay. But will it be possible for you to roughly give any range for the CapEx because annually, given the kind of run rate we have done in Q1, we would expect the cash flow to be around INR 160 crores, INR 170-odd crores for the full year?

So far cash flow is concerned and the CapEx is concerned because we are -- as told in the outlook, we are at the midst of certain new projects. So certain projects that may require certain hardware and software requirement. So that are -- we are collecting that and some part of tendering process and et cetera are also going on. Once that price comes up and it is finalized, then only we can come to a conclusion to that particular figure. But that much one and -- we can assure our investors that there will be no dearth of CapEx so far this growth is concerned. There will be, as you can see from our cash flow. So we will obviously allocate maximum part of our cash flows to our growth in the form of CapEx. But typically in our hardware, software and other peripherals, networking equipment.

The next question is from the line of Vinay Nadkarni from Hathway Investments.

Just wanted to check out, you said FM channel auctions, what was the amount that we realized out of that?

Actually, for these auctions, the revenue part is not much. It's quite miniscule. We get per license allocation. So as and when the orders are placed, we get a very small sum, probably in thousands only. But what is important here is such complex and complicated kind of platforms when we establish, it gives us an opportunity to capitalize on that and prove our credentials for complex solutions to the industry's requirements. So we haven't actually earned much from the FM Radiowave auction.

But have been auctioned. So 63 licenses across 15 cities -- for 15 years across 43-odd cities. So there's been a large spread. But as Director Commercial mentioned that the financials are not commensurate with -- this basically is showcasing our capability of developing very complex simultaneously moving platforms.

Okay. And what about Coal India auctions? What would be the revenue earned out of that in this quarter as compared to the last quarter?

Actually, I think the first quarter only the operations have started full fledged. So we had earned about INR 4 crores from Coal India auctions.

This is the revenues.

Yes, this is the revenue.

Just 2 more questions. One is, what is the current cash and cash equivalent that you're holding?

So we have not published the balance sheet. So -- but so far cash profit is concerned, you can well imagine it is in the PBT EBITDA, so like INR 40 crores plus is the cash profit. So that much you can imagine. So far, cash and cash equivalents, we will come up in the month of September after minusing all the CapEx, et cetera. So cash flow will come up with the September quarter.

And what is the total amount of business that we have done in this Mahindra JV, which you said has started picking up now?

There has been a loss, not significant revenue from this JV company.

It is -- the business has started picking up in the sense that the outlook for EPR is now in place, the outlook of business picking up in the future. At this point of time, it is still not making a profit. And we expect that over the next 2 to 3 quarters after the EPR policy gets implemented through the OEMs that it should start coming back to a level. As I had mentioned, in fact, in the last investor call that the time for the entire process to stabilize would be in the next 2 to 3 years.

Just wanted a little more detail on the Upkaran portal. And how are you going to monetize that?

See, as of now, we have just showcased the portal itself, and we are just onboarding all the equipment manufacturers and dealers. So as and when the transaction actually happens, obviously, there will be a fee for the transaction. We have not yet finalized the revenue model or finalized the transaction that envisaged any transaction as of now, at least in the another 2 to 3 months. So we are still working on it. Maybe after the next quarter, we will be able to give you a better view on that.

And you see a good potential for that there?

Yes, yes. Because now what is happening is everything is happening through a phone call or through offline modes. And that is probably not giving enough opportunity or enough variety to the person who wants to procure such equipments or lease such equipments. And even the terms and conditions are quite vague. So once we have all these things in a digital format, the customer will definitely have better options and he will be able to get the best value for his money.

Can I ask one last question, if you don't mind?