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Buy This Miniratna Stock For A Target Price of Rs.457 Says HDFC Securities

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MSTC Limited is a government-owned Mini Ratna Category-I PSU that is under the Ministry of Steel's administrative authority. The firm is a prominent PSU organisation specialized in delivering e-commerce related services across a wide range of industries, including e-auction/e-sale, e-procurement, and custom software/solutions development. The brokerage firm HDFC Securities has given the company's shares a buy call rating with a target price of Rs.457, implying a potential upside of 19% from the current market price of Rs 382.

 

Q3FY22 Result

Q3FY22 Result

The brokerage has said that "The consolidated revenue from operations for Q3FY22 stood at Rs.188.9 Cr, down 17% QoQ and up 19.6% YoY. Revenue from e-commerce was Rs.81.3 Cr while Rs.9.4 Cr worth of revenue came from trading segment. Scrap Recovery & Allied Jobs generated Rs.107 worth revenue. The EBITDA margin has gone up to 34% compared to 20% in last quarter and 19% in same quarter last year. The company has made provisions of Rs.8.9 Cr in Q3FY22 vs Rs.30.7 Cr in Q3FY21. The net profit during the quarter came at Rs.41 Cr which was up by 46.4% QoQ and 273% YoY (lower base due to high share of trading business). The company has also given second interim dividend of Rs.6.5 per share in addition to Rs.2 paid out in Nov 2021. Total value of goods traded through MSTC ecosystem as of 9MFY22 was Rs.1,05,328 Cr."

The brokerage’s take on MSTC
 

The brokerage’s take on MSTC

HDFC Securities has said "In the past, the company had reported losses due to large provisions for unpaid trade receivables from the trading business. It has changed the policy and now it does business with customers who are ready to procure products backed by 110% Bank Guarantee. Further, looking at the opportunity in e-commerce business, the company has guided that it is reducing trading business. This will boost up the margins and the past receivables issues will be solved too. The company has in the recent past added many products/services in the e-commerce segment. The company has developed most sophisticated and robust IT infrastructure which enables it to take up ecommerce services in a secure and transparent manner."

As per the brokerage "MSTC has also entered into the recycling business through a 50:50 joint venture with Mahindra Intertrade Ltd (MIL) for setting up a shredding plant and collection centres across the country. We believe that with the introduction of new scrappage policy, this JV will be in the position to add significant valuation in the company's overall value. Ferro Scrap Nigam Limited (FSNL) renders custodian services for warehouse/stockyard management to its holding company (MSTC). The GoI intends to divest 100% of the share capital in this company which can result in one-time special dividend from MSTC."

Buy for a target price of Rs.457

Buy for a target price of Rs.457

HDFC Securities has claimed that "We have envisaged 11% CAGR in the consolidated revenue between FY21-24E. The share of e-commerce business will increase gradually in the total revenue. The margins should improve gradually as the management has guided that they are looking to reduce trading business. Further, we expect the net profit of the company could grow at 20% CAGR between FY21-24E. The company is almost debt free and has huge cash and cash equivalent (34% of market cap). It is also paying healthy dividend to its shareholders like many other PSUs. It is currently trading at 13.5x FY24E earnings. We feel that investors can BUY MSTC Ltd between Rs.370-380 band (13.6xFY24E EPS) and add further on dips to Rs.333 band (12xFY24E EPS) for the Base case target of Rs.416 (15xFY24E EPS) and Bull Case target of Rs.457 (16.5xFY24E EPS) over period of six months."

High reliance on Government entities for business, cybersecurity threat and high competition in the e-commerce industry are the key risks for the company, HDFC Securities has highlighted.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Read more about: stocks to buy
Story first published: Friday, April 22, 2022, 11:58 [IST]
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