MSTC IPO – Mini Ratna Company – Should you Invest or avoid?

MSTC Limited IPO ReviewMSTC Limited IPO Review


After a long time, another main board IPO is coming up for subscription. Kolkata based “Mini Ratna” company, MSTC IPO would open for subscription on 13th March, 2019. MSTC (Govt of India enterprise) is a large diversified, multi-product services and trading Company. Company revenues decreased from Rs 3,307 Crores to Rs 2,793 Crores in the last 4 years. What are the positive factors in MSTC Limited IPO? What are the hidden factors in MSTC IPO? Should you invest in MSTC IPO? Let me do 360 degree review of MSTC IPO.

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About MSTC Limited


The company is one of the leading PSU entities engaged in providing e-commerce related services across diversified industry segments offering e-auction/e-sale, e-procurement services and development of customized software/solutions. They have emerged as a pioneer in the e-auction segment catering to the Government sector, partnering with different Government agencies and ministries in conducting e-Auctions. They are one of the key players offering comprehensive range of services in the e – procurement segment.

MSTC IPO Issue details


IPO opening date: 13-Mar-2019

IPO closure date: 15-Mar-2019

Face Value: Rs 10 per share

Issue price band: Rs 121 to Rs 128 per share.

Issue size: 213 Crores

IPO Lot size: 90 shares and 90 shares, there-off

Minimum investment: Rs 11,520 on higher price band

Leading Managers: Equirus Capital

Listing: BSE / NSE

Download MSTC IPO DRHP Prospectus at this link.

Objects of the MSTC IPO issue


The Objects of the issue are:

(i) To carry out the disinvestment of 17,670,400 Equity Shares by the Selling Shareholder in Company constituting 25.10% of Company’s pre-Offer paid up Equity Share capital

(ii) To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

(iii) The company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

Company Promoters


The Promoter of the company is President of India, acting through the Ministry of Services.

Company Financials (Reinstated-Consolidated)


1) The company generated revenue of Rs 3,307.8 Crores for the year ended Mar-16 and Rs 2,793.1 Crores for the year ended Mar-18. Its revenues are Rs 1491.5 Crores for 6 months ended Sep-2018.

2) The company posted a LOSS of Rs 247.1 Crores for the year ended Mar-16 and loss of Rs 6.4 Crores for the year ended Mar-18. It posted a loss of 15.8 Crores for 6 months ended Sep-2018.

3) Since it is incurring losses, EPS is negative.

MSTC Ltd IPO - Financials - FY2016-2018

What are the key strengths of MSTC Limited?


Here are the key strengths of the company.

1) One of the leading PSU entities engaged in providing e-commerce services to customers in a most transparent, fair and secured manner;

2) Ability to create a virtual marketplace for any physical commercial activity thereby creating value for all the stakeholders;

3) First mover advantage on account of domain expertise in providing e-commerce services thereby helping to boost our business;

4) Robust, advanced and scalable technology platform; and

5) Experienced management team and qualified workforce.

What are the Strategies of MSTC Ltd?


Here are the key strategies of the company.

1) Diversifying our customer portfolio to increase private clientele in e-commerce vertical.

2) Continue to focus on and further develop e-commerce business by capturing the untapped markets

3) Foray into e-commerce backed trading for better price discovery and transparent transactions

4) Diversify into B2C segment

5) Develop the recycling business

What is the Grey Market Price (GMP) of MSTC IPO?


There is no MSTC IPO GMP trading happening in the market.

Reasons to invest in MSTC IPO


1) Leading PSU ecommerce Mini Ratna company (Govt of India enterprise).

2) Retail investors and Eligible Employees of the company would get Rs 5.5 discount per share.  

Risk Factors / Reasons not to invest in MSTC Ltd IPO


1) Its revenues are fluctuating. Investors should invest in consistent performing companies.

2) The company has incurred losses in the last 3.5 years out of 4.5 operating history. Investors would not get anything by investing in the loss making company. However company claims that due to high deferred taxes, it posted losses in the last 1.5 years.

3) They face significant pricing pressure from their competitors which could require us to reduce prices to remain competitive.

4) In their e-commerce line of business, they rely heavily on both government and government-controlled entities for the majority of their business.

5) In their trading line of business, they depend heavily on a few customers, and the loss of its business, or a significant reduction in production, demand, or sales from these customers would adversely affect their business.

6) There are outstanding litigations involving their Company and their Subsidiary which, if determined adversely, may adversely affect their business and financial condition.

7) They are currently facing a dispute with Standard Chartered Bank, wherein all freehold buildings of their Company are under attachment in terms of the order of DRT, Mumbai, which if it not concluded in their Company’s favtheir could adversely affect their business, results of operations and financial conditions.

8) They are exposed to a legal proceeding relating to a dispute in connection with cancellation of their export import license.

9) They have been arrayed as one of the accused in proceedings initiated by Enforcement Directorate, Mumbai (“ED”).

10) They are exposed to a dispute relating to participation in the securities of another company.

11) Their volume of trade has fluctuated over the past few years.

12) They are exposed to the credit risks of their customers in their trading business, especially under the cash and carry model.

13) Their Company may be expose to foreign exchange control regulations and currency fluctuations.

14) Their contingent liabilities as stated in their Restated Financial Statements could adversely affect their financial condition.

15) Their Company has incurred losses in the preceding financial years based on the Restated Financial Statements.

16) They have experienced negative cash flows in the past. Any negative cash flow in the future could adversely affect the results of operations and financial condition.

17) For complete internal and external risk factors, you can refer the DRP of the company.

MSTC IPO Schedule


13th March, 2019 – Offer Opens

15th March, 2019 – Offer Closes

20th March, 2019 – Finalization of Basis of Allotment

22nd March, 2019 – Unblocking of ASBA / Initiation of Refunds

25th March – Credit of shares to Demat Accounts

26th March – Listing on NSE & BSE

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Should you invest in a MSTC Ltd IPO?


The company is incurring losses, hence there is no EPS for comparison. It does not have peers to compare to check if the issue price is highly priced or under priced.

Company revenues are fluctuating. It is incurring losses, however company claims it is due to deferred taxes. Its issue price cannot be concluded whether it is under priced or overpriced. Investors should wait and watch its performing in coming quarters. As of now, I am neutral about this IPO.

Disclaimer: I do not have an interest in investing in this IPO and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

MSTC IPO Review

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