MSTC Limited (MSTCLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to MSTC Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Deep Modi from Equirus Securities Private Limited. Thank you, and over to you, sir.

Good morning, everyone. On behalf of Equirus Securities, I welcome you all to Q1 FY '27 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, then we will open the line for Q&A. I now hand over the call to Mr. Manobendra Ghoshal. Over to you, sir.

Thank you. Good morning, Deep and all our esteemed stakeholders. A very warm welcome to all of you to MSTC's Q1 FY '27 investor call. I take great pleasure in being able to report to you that your company has been able to maintain the momentum gained in FY '26 and has returned a sterling Q1 performance on multiple metrics. Revenue from operations has been INR 94.25 crores, which is a nearly 22% year-on-year increase over the corresponding period last year. Riding on the highest ever Q1 e-commerce revenue of INR 89.49 crores. This is the highest in the Q1 since your company was listed in 2019 March. EBITDA percentage of total income was 69.05%. Also nearly 3% higher than the corresponding period of FY '26. This drove the highest ever Q1 PBT and PAT since listing. So, that is something to look forward to. And over all this time, we have been systematically also identifying our strengths, the areas we should expand in the new possibilities to follow and explore aggressively and what to exit from? We had taken a decision in FY '26 to completely exit from the trading and corporate marketing segment and have seamlessly recovered our views on the 110% BG model, closing the chapter on this legacy segment in this quarter. With this, we have moved forward from being a canalizing agency trading house that MSTC primarily started out as to being a digital solutions provider. We have simultaneously look to identify suitable opportunities, which can be capitalized on by leveraging MSTC's domain expertise developed over the last 23-plus years through e-commerce fabrication development. So as a part of that development of the electronic trading platform for EPR certificates is now complete, along with all the integrations necessary for immediate operationalization. We are now awaiting the go-ahead for being able to start operating this portal for trading and settlement of EPR certificates from all notified sectors by the stakeholders. Similarly, our team has been working towards developing MSTC's travel portal at mstcsmarttravel.in. This is under operationalization for the B2B segment. with B2C rollout plan shortly. Our DC will fill us in more about this during her brief. Developing a trade receivables discounting system, a trend platform has also been taken up as 1 of the areas showing commercial viability. We have been steadily working towards putting in place a robust application, requisite financial services integration and necessary security protocols, while also approaching the Reserve Bank of India for necessary approvals. This project is also at an advanced stage and subject to regulatory approvals being obtained, we should be able to operationalize this sometime during this FY '27. Apart from strengthening your company credentials in the digitalization space, this particular initiative will also help in furthering the push being given by the government for enabling the MSME sector to flourish. So as a corporate entity, over the last 2 financial years, we have tried to identify our strengths, the areas where we found that business models were no longer in sync with our expertise. And those new possibilities where our presence and know-how available within the organization could be best deployed for developing opportunities, showing commercial -- good commercial outlook. We also took a decision to remain an asset-light company. So apart from scaling up existing e-commerce business by aggressively expanding our client footprint, we decided to venture into a limited number of new verticals, stabilize those, scale them up and before thinking of expanding further. That is the model that we have been following. I'm also very glad to report that operations of our joint venture with Mesa Mahindra, MMRPL, has picked up significant momentum over the last 3 to 4 quarters. For the first time in quite a few number of sequential reporting period, the venture has shown a positive PAT. This has largely been driven by significantly higher feedstock inflows, which, in turn, are predicated upon the government's push towards extended producer responsibility norms cutting in for automobile manufacturers. This caused a number of end-of-life vehicles, which were up till now going to the gray market and therefore, resulting in uncontrolled and unethical scrapping to be diverted to RBSFs. Higher incentives provided for new car buyers who trade in their old vehicles to discounts and rebates by the OEMs and the government has helped this flow positively, and we expect this trend to strengthen and continue driving towards a healthy financial outlook for this company. I'll now request my Director of Commercial to give us a brief overview of business highlights for this Q1, followed by Director of Finance to give us a drill-down on the financials. Over to you, ma'am.

Thank you. Good morning, everybody. The highlights of the business for the first quarter of this financial year. We have continued our services for the sale of minor and major mineral blocks all across the country. And being the -- trust being given for the critical minerals, we have had significant number of events for allocation of critical mineral blocks also. Then the EL blocks have also been -- exploration license blocks have also been successfully allocated in the 7 tranche of critical mineral auctions. We have entered into an agreement with Tamilnadu Forest Department. We had done this exercise about 4, 5 years back, where we sold some red sandals in the past. But again, this time also, we are -- we have entered into an agreement. This transaction will be taking place shortly. For sale of about 100 tonnes of red sandals that is available in the state, but this will be through an international competitive bidding. Then we have also -- we had informed the stakeholders last time that we have won the contract with Coal India for coal linkage auctions. So the first put option for the same is underway right now and it is expected to be extended to other sectors. This is the NRS linkage then it will be sector-wide. Sector-wise, also we'll be doing that shortly. Then we have entered into a very niche kind of option for Rashtriya Ispat Nigam Limited. They have a lot of process scrap, scrap that is generated during the steelmaking process. which has to be cleared in a very time-bound manner and the parameters for sale and the methodology of sale are slightly different from the normal scrap auctions. So we have had quite a good transaction with them, and the sale is going on right now. And we will be expanding the market for this kind of products shortly. Another first in the -- that we have done in this quarter is the auction for liquor licenses for the government of Karnataka. We had done this exercise for government of Rajasthan in the past. But right now, the other states are very slow in adopting this model. And Karnataka government has this time come up with this plan for conducting auctions for liquor licenses. We have also been very steadily doing the auction land parcel auctions for Telangana state, both for HMDA Hyderabad Metropolitan Development Authority and Telangana Industrial Infrastructure Corporation, which gives us steady business and steady remuneration. Commercial coal block auctions are also continuing and this is the 15th round. It has been going on for about almost 6, 7 years now. And for the first time, we have done another auction for selection of charge point operators for Kerala State Electricity Board. Now this is a model that probably can be replicated by other states who will be approaching the other states for this kind of a model for allocation and selection of charge point operators given the impetus that is being given for EVs and other such electric vehicles. So that is the highlight for '26-'27. Now the projects that are currently underway, which is likely to bring in future revenue in the near future. as already highlighted by our CMD, the travel portal is ready. As of now, we are booking tickets for our corporate travel and we have approached other PSUs for using this portal. Simultaneously, we are applying to IATA for an empanelment. We have got the empirement with some airline operators. So this process is likely to be completed shortly. And after that, once we have the IATA clearances, we will be able to enter the B2C segment. And there, we see some revenues coming up after that. So that is 1 area that we have very recently entered into. Then you might have learned about the government's intention to set up coal and mineral exchanges. So MSTC is also exploring various possibilities the ways and methodologies for establishing its own exchanges. So we are working towards that. The initial discussions with certain stakeholders is already there. So you will be updated about the progress in due course. As CMD had highlighted, the Treg platform is almost ready, and we are in discussion with RBI for the necessary clearances. So far, the feedback that we have received from RBI is quite encouraging, and we hope that we are able to establish the stress platform in the next few months. EPR, ETP electronic portal for EPR certificate exchange, that is also ready for CPC. We are just waiting for the government not to formalize it so that the transactions can take place. as already intimated in the past few con calls, this is as of now is going to be opened only for 5 sectors, but slowly, it will expand to about 15 sectors. So once this exchange is operational, more and more sectors will be added to this. So this is as far as the plan for the near future is concerned. I'll now hand it over to our Director of Finance, for the financials.

So very good morning to our stakeholders. So just now our CMD sir and Director Commercial mam has briefed about the business highlights. So going further to that, I will just want to elaborate on the financial figures. So if we can say the highlights. The first highlight is that the last segment of the marketing that we are doing the business under 110% piggyback model still has been discontinued. And that, the revenue has dropped to go, and we have stopped the segment reporting also from this quarter because we have only now only 1 segment that is e-commerce E-commerce revenue has shown a significant growth to 89.49% as compared to 70.3% last year. And other income like move other operating revenue also spent as compared to last year's INR 23.27 crores or 22.52% and expenses has come to INR 36.51 it's a very normal growth going by the increase in the scale of operation. And of course, Pan India operations has increased, and we have a corporate office now at New Delhi, which is looking after does prospects, better business prospects. And depreciation, almost remaining on the same part, INR 2.25 crores to INR 2.96 crores and PAT accordingly from INR 15.31 crores to INR 20.41 crores. So EBITDA stands at INR 81.49 crores as compared to INR 61.88 crores, a growth of around 32%. And PBT stands at INR 78.53 crores as compared to INR 59.63 crores, a growth of 31.70% because almost with that EBITDA part. And PAT is also a growth of 31.1% from INR 44.32 crores to INR 58.12 crores. With that, EPS stands at INR 8.26 as compared to INR 6.30. And on the consolidated front, this is the first time after many, many -- after 4 years that our joint venture has shown a profit. So accordingly, a very militating profit, but has shown a profitability. So we have a share of around INR 10 lakh coming out of that. With that profit before tax in the group as a group has come to INR 78.53 crores and profit after tax is INR 58.22 crores and EPS is 8.27 as compared to INR 6.01. That is the growth of around 37.51%. And if we can go more to the P&L part, so we can see that revenue from operation is 94.5% as compared to 77.4% and other income has grown from 16.23% to 23.75%. And Employee benefit expense has gone up to 27.50% go from 23.25%. Depreciation has gone up from INR 2.25 crores to INR 2.96 crores and other expenses has gone up from INR 8.53 crores to INR 9.01 crores. And tax expenses, of course, INR 15.31 to INR 20.41. And PAT is around INR 58.12 crores from INR 44.32 crores. So highlights, if you can look at the highlights, why we have tried to check up our income and file up our operations, but it has not much bearing on our overhead part. Because we have tried to check up on review by around 22%. And our total expenses has increased by 16%. So generally, a normal increase due to increase in the salaries and wages and inflationary pressure. So hardly had any impact on this scalability of the operation? This is the highlight of this quarter. With that, I hand over the mic for question and answer session.

[Operator Instructions] The first question is from the line of Shilpa from Lotus Wealth.

So my first question is that EPA and EPI trading, the market size will be $2 billion by why PCB get 4% transaction fees of a INR 800 crores, what will our revenue share be in? I'll ask my second question later.

So if you have seen the EUI, where it is very clearly mentioned to 4% will be the charges of PPCB, it is also very clearly mentioned what the exchange operator will get. I think the bifurcation is clear. I will have to go back to the UI and I don't recall as of now, just like is very clearly mentioned in the UI, so you'll get the figures from this.

And our cash and cash equivalent is around INR 13 crores. So that will be used for CapEx or for dividends?

Mam, can you repeat the question? .

Yes, sure. I'm saying that the cash and cash equivalent is around INR 13 crores .

Cash and cash equivalent, we have not published the balance sheet. It is the P&L only for the quarter 1. .

No, sir. I'm talking about last year FY '26. .

That's already we have reflect to, I think, -- so we are -- now we are concerned about the quarter 1 call. .

Can we please ask specifically regarding quarter 1?

Thank you. If there's anything, I'll take it off-line.

The next question is from the line of Saurabh Ginodia from SMIFS Limited.

Congratulation to the management team on reusing 20% year-on-year growth on the e-commerce vertical over the last 2 quarters. I have 2 or 3 questions. I'll ask them one by one. What are the key drivers behind this growth? And do you see this 20% Y-o-Y growth sustaining in the next 3 quarters? .

So regarding the 20% growth that you have seen in the -- compared to the last year for quarter 1, it is mainly due to the higher number of the mineral blocks and the minerals that we are selling. Because of that, the numbers have increased. And of course, our main income is coming from scrap sales. So we have had some good run with the sale of plants all over the country. So that is a major contributor as far as the revenue -- e-commerce revenue is concerned. . Regarding the second part of your question, whether it is sustainable, yes. As far as the mineral sale is concerned, it is sustainable. But scrap has always been a cyclical thing. The steel sector assets is very cyclical. So the rates keep going up and down and the volume of scrap, that also keeps changing from time to time. I mean, every time it is not necessarily that plans or some big ticket sale will come up. But on an average scale, we have seen that most of our income -- almost about 50% to 55% of our e-commerce revenue is coming from scrap fill over the past many years. So that is somewhat sustainable. So given the combination, yes, I don't see it going down, but I don't know whether it will keep going up at 20%, 25%. Secondly, as we had highlighted, we are also entering into 2, 3 new areas, which when it takes up, definitely, the revenues will come in.

If I may supplement here, we have been seeing for the past few investor calls that what we have been aiming at is to try to sustain a double-digit growth. So whether that translates into what was the growth over the corresponding period last year? Or I mean it would be more or less -- the average would be a double-digit growth, which we would be trying to maintain. And that would kind of equalize over a longer period because there would certainly be some periods where the growth would be less, some periods where the growth would be port. So our aim is to maintain a double-digit number. .

Okay. Sir, my second question is on the platform. Can you help us understand the proposed business model for this Specifically, how would MSTC generate revenue from the platform? Will it be transaction charges, subscription charges? Or will it be a combination? And what kind of scale up of transaction volume would be required for this business to be meaningful? .

So basically, let me answer one by one. So first of all, as MD has indicated that we are waiting for the regulatory thing. And the business model is as simple as it can be, like it is a discounting platform, then, of course, the transaction fee will be the main source of revenue out of this. And we are primarily focusing on this transaction fee. And other things, other charges will depend upon the clientele and depending upon the traffic that we received from the year. But as of now, our primary focus will be to get transaction fee out of this. number one. And number two, so far, scalability is concerned, it will depend upon the ecosystem and ecosystem seems still very positive because government has given a big trust for the MSME financing. So we are quite positive that there will be a good amount of traffic and traction. Of course, once the platform stabilized because first year, first, we are targeting first couple of years for stabilizing the platform, which has happened to other platform also.

Okay. But sir, do you expect any revenue coming from this in this financial year or this will be coming in the next financial year? .

It is very, very much contingent because when we get the RBI clearance, that is very important. Once we get the RBI clearance afterwards, everything -- every warble actionables will start. But until we get an RBI approval or the other necessary regulatory clearances we are unable to like how much revenue we can get this year. So if we -- it's very difficult to put this project at this moment. But the way forward that we have told you, that is a plan in the management side.

Understood. Sir, and any time line expected from when we can expect this approval from RBI?

It's very difficult because between RBI, the regulator, who can only decide. We cannot decide. We cannot decide .

We are hoping that this should happen in this financial year, we should be able to hopefully get the approval and then operationalize it. So our internal target is hopefully, FY '27 -- within FY '27. .

My third question is on the ETP for the ERP certification, we indicated that this platform has been developed on the behalf of the CCP. I think is now a waiting go ahead for the operation. And the same commentary was heard even in the last call. So can you just help us understand what is holding up for this approval? And when do we expect to get the go-ahead for the commercial operation? .

At that point of time, we were still in the process of finishing the integration and getting our security testing and so on in place, which are now being done. It is now ready to roll and obviously, I mean, to start operating in exchange, it will have to be after a specific notification as issued by the government for which we are waiting, which should hopefully happen...

Anytime it is expected to happen. These are [indiscernible] actually. So we can't predict as to when the government will actually issue the notification.

[Operator Instructions] The next question is from the line of Sourabhi from NBL.

So my first question is in some of -- currently, some of the large recyclers are transferring EPI certificate directly to the brand owners. So once the exchange is live, will this transfer volume also be run through the platform? And has CPCB committed a minimum amount of volume for the platform for the first couple of years?

The very idea of government is to regulate these one-to-one kind of transactions and some kind of market-driven transactions should take place. I mean even the value of these certificates should be market driven, right? So that is the idea of the government, and that is why the government will actually look into all the aspects of such transactions before giving a formal go-ahead for launching this portal. Now once it comes into picture, all the transactions will have to be routed through this exchange.

And have they committed a minimum amount of volume to -- for the portal for the first couple of years so that your revenue is ensured?

Not really, but they have given some kind of an indication in the EOI. So I think I would request that you can go to the EOI.

That is a market driven process.

Yes. See, whatever is happening in the gray market or one-to-one transaction, the government may not know the actual value of it, right? Once it comes into the exchange, we will actually know as to what value and there's no minimum guarantee as such. We will ensure that these transactions happen for the exchange.

Got it. And another question with regards to the JV with Mahindra. What kind of volume have we seen in terms of the number of vehicles that have been now rooted through this? If you could just give us some color on that.

So far, volumes have what we have said that volumes are picking up, but the data -- but the idea is like that how much you realize for that. It is more important rather than the traction. But of course, more and more traction is expected in the coming years because of the government policy and of course, this PR is also related to this. But once that extended producer responsibility, things already used in place and it is in the full swing, so obviously, they will -- the vehicle owners will go for more and more for the cycling. And of course, the state government incentives in place. So more and more state governments are now coming up with the inventory. So we are hopeful that, that traction will increase. And of course, the money terms can be profitable. Already profitable in this quarter. .

This the last question from my end. IEX is also looking to start a coal exchange are volumes going to be affected by this? Or if you could just talk a little bit.

Yes, actually, there are other entities also who are planning to launch their own coal exchanges. So there will be multiple exchanges in the reset notification itself, it's very clearly mentioned that there will be multiple exchanges. So basically, the transactions that actually happen on the exchanges, the volumes that actually get through those platforms, that will determine as to how much volume is coming to each of these exchanges. Definitely, we see an advantage in the sense that we have understood, and we have been in this sector for quite some time. So the credibility associated with this exchange, I think, is a little much more compared to other exchange -- other platforms. So as of now, we are just examining as to what can be the thing. There will be multiple platforms, and we have to compete with such platforms. That is very clear. But then the volumes are quite high. So we expect that there will be enough for multiple platforms.

That is the visibility which we'll be examining right now.

How much -- just to close the loop, how much revenue are we generating from coal alone on the e-commerce platform? Currently.

Currently, we don't have that kind of segmental revenues figures. Because it keeps changing. Coal India, I know from time to time, they have multiple auctioneers and some volume through to other auto through linkages government policies also keep changing. But then it is something that is always in our focus because it is a very important sector and more than the revenue that we -- on the credibility we bring into the entire system and the ecosystem is more important for the government of India.

Is it possible to just squeeze in 1 last question, please?

Yes.

So we've applied for the APA designation with respect to the LDC travel, are we also now looking to cater a different segment? And how is the monetization going to work in B2B and B2C in the travel segment? And if you could just give us some time line on that.

See, as of now, as I said, we have just launched the B2B segment. This is basically for the government. Actually, we saw an opportunity in the government travel sector. it depends that [indiscernible] was probably the larger just and they were probably growing almost 90% plus of the volume. So in -- for the government and PSUs, it is governed by certain guidelines and government directors from time to time, so the revenue stream for that segment will be quite different from what we can do for the private sector and the individual B2C segment. So we are examining all those things and for entering into B2C and other kind of clientele, we need to have an ITA empanelment. So that is the process that is going on. And the volumes, as we said, we will be beating with big players who are already established in the market. So it will take some time for good revenue to flow in, in this particular venture. But nevertheless, saw an opportunity in the government sector, and that is the reason we are going ahead with it. Secondly, we had quite good confidence in the sense that the costs associated in establishing such platforms as far as MSTC is concerned, was not much because we already had the infrastructure ready for this kind of a new business venture. So that is the reason we have ventured into this area. But it will take time. Stabilizing this sector and doing transactions is going to take some time. It's a slow and steady process.

It's a transaction fee-based thing in this business.

The next question is from the line of Kumar Saurabh from Scientific Investing.

Sir, congratulations on great set of numbers. And if I look at numbers of last 8 or 10 quarters before March. We were somewhere in INR 65 crores to INR 90 crore revenue range and 55% to 60% EBITDA margin. And it's heartening to see double-digit growth continuing from last 2 quarters and guiding also that the intent is to have this double digit. And our margins have also increased and beyond 60%, like 61%, 64%. So given now there is a push for double-digit growth, can we expect this 60% plus margins to continue with the operating leverage of our business? .

So just now during my explanation to the financial that I was explaining. So 1 is revenue and another is the expenses. So we are trying to have our overheads in control. But of course, again, time and again, what we were taking again on the past con calls if it goes beyond certain scale level, obviously, the margins will get eased because of the high ottoget higher volumes and everything. So some kind of pressure be on the margins also. So although that would be to have an average margin in the range of these. But of course, in a higher volume, it may get a little bit deep. .

And if I may add a word of caution is always pertinent because growth off a very high level is obviously not a sustainable thing over continuous period. So there will always be periods of higher growth and then periods of correspondingly lower growth. So that averages in the long run.

Got it, sir. Got it. And sir, second question is, we are trying to get a lot of new businesses like auctioning of liquor and all of this. My question is prior to these -- prior to coming in to us where these clients used to do such auction. That is question number one. And are we competing with multiple other peers for the same. And what is the level of stickiness once these parties come to us? Is it like a repeatable revenue going forward or they come 1 year, they don't come on year. The reason I'm asking is also because, as you told that there could be multiple coal auctioning platform and all. So we have to increase our client base and revenue base and ensure it is sticky. So if you can give an overall business color to it.