MSTC's IPO Opens: Should You Subscribe?

MSTC, the state-owned e-commerce company, has launched its IPO offer today that will close on March 15. The company looks to raise Rs. 226 crore as its promoter i.e. the government of India plans to offload its stake in the company.

Post the offer, the government's stake in the state-run e-commerce company will come down from current 89.85% to 64.85%, thus rendering MSTC compliant with the SEBI's minimum public shareholding norms for listed companies.

MSTC's IPO Opens: Should You Subscribe?

Now here is detailed whether or not you should bet on the MSTC stake sale offer:

1. Issue details: Through the initial public offer, MSTC proposes to sell 1.76 crore equity shares or 25% of total paid-up equity and has fixed the price band of the issue at. Rs 121-128 per equity share.

Employees as well as retail investor class will be able to avail a discount of Rs. 5.5 per share on the offer price. And since the issue is an Offer for Sale or OFS, the company will not receive the proceeds from the issue.

2. Company profile: MSTC, incorporated in the year 1964, started as a trading company to import ferrous scrap and later turned into a leading PSU entity that provides e-commerce services across industry segments. The company offers e-auction/e-sale, e-procurement services and also develops customized software or solutions.

As per experts the company has the ability to establish an online marketplace for any of the physical commercial activity and thus helps create value for all the stakeholders.

3. Financials: MSTC reported 34.7% CAGR increase in the service charge over FY16-18 due to more number of transactions across the e-commerce and marketing vertical, to Rs. 2,75.62 crore in FY18. Nonetheless, due to a sharp drop in the sales of thermal coal, MSTC's business from sale of goods dropped 23.8% CAGR and stood in FY18 at Rs.
15,65.24 crore. Hence, its operating revenue dropped over FY16-18 to Rs. 22,65.40 crore, with a CAGR decline of 16.2%.

The company's top line for the first half of FY19 is reported at Rs. 14,76.90

4. Valuations: There is no other listed company operating on the same lines as MSTC. As per Choice Broking, at the higher price band of Rs 128, MSTC's share is valued at a P/S multiple of 0.4x (to its FY18 sales). "On the valuation front, at higher price band, the company is demanding a P/S valuation of 0.4x (to its FY18 sales). Moreover, based on FY19E and FY20E sales, it is demanding a P/S valuation of 0.3x," it said.

5. Conclusion: Given the attractive valuation and other favourable factors such as MSTC's positioning among several government set-ups, stable dividend payout, advancement in financial performance and positive policies by the government for business growth broking firms recommend subscription to the issue.

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