Government-owned MSTC has been evolving from a metal trading company to an eCommerce company.
The company has a good balance sheet, while the stock has corrected 35 percent from the top.
It has a cash balance of roughly around Rs 750 crore, which is around 40 percent of its current market capitalisation.
MSTC has been scaling down the trading revenues. That has many challenges and by FY22 bulk of the receivables of this business should get liquidated.
Next up is the eCommerce business. That's the one that the street is betting big on and scaling up of this business from revenues of around Rs 200 crore is going to be vital for the stock.
A large portion of the eCommerce business comes in from the steel sector and that could get a leg off because of improved steel prices as well as improved demand. And that will have a positive impact on scrap auctions.
Finally, the scrap recovery business been more or less the sturdy business over the last few years. But the big trigger comes in the sense that there's a divestment of FSNL – Ferro Scrap Nigam Limited.
The business reported EBIT of around Rs 17 crore in the first quarter of this year. In the entire last year, they did close to around Rs 32 crore. So closer to around half of what they did in the last year, they have already achieved in the first quarter itself.
The street believes it could get a valuation of nearly around Rs 300 crore odd.
However, there are various themes that are playing out and MSTC can get some perspective business coming in from the long-awaited scrappage policy. The company has already formed a JV with Mahindra Group, which functions under the brand name Cero and they have been talking about setting up more than 25 automotive recycling units by 2025.
Additionally, the company could get some lumpy business opportunities in the form of spectrum auctions, liquor license auctions as well as online bidding of sand operations in Andhra Pradesh.
Going by the June 2021 shareholding pattern, both LIC and individually investor, Mukul Agarwal, hold large chunks but they have lightened their positions in the past quarter.
Now, if MSTC can become a pure and a core B2B eCommerce player, then it could be ripe for a potential re-rating.
At 3:10 pm, the shares of MSTC were trading 5.33 percent higher at Rs 274.75 apiece on the BSE.
Watch the accompanying video of CNBC-TV18’s Nigel D’Souza for more details.