- Established track record and controlling stake of the Government of India
MSTC Limited is a Mini Ratna Category-I PSU under the administrative control of the Ministry of Steel, Government of India. The GoI currently has a 64.75 percent controlling stake in MSTC. It is a strategically important entity and played a key role in government sector penetration in the B2B e-commerce industry enabling transparent practices for the sale of scarce natural resources and government assets through e- auction and e-procurement of goods/services/works by the government owned entities. Over the years, it has added various new products and services to its portfolio. Acuité believes that the controlling stake of GoI in MSTCL would be one of the key rating sensitivity factors
- Stable operating income and healthy margins
On a consolidated level MSTCL has reported moderate y-o-y growth of 5.00 percent in FY2024 as compared to FY2023. Revenue stood at Rs 758.07 Cr, in FY 2024 as against Rs 722 Cr. in FY 2023. The reason behind stable operating income is favourable revenue mix with an e-commerce business and scrap business. Under e-commerce business, revenues are generated in the form of service charges from the buyer, or transaction fees collected from the vendor/supplier before participation in the event. Operating profit margins ranged declined to 22.26 percent in FY2024 from 27.24 percent in FY2023on account of increase in employee costs and selling expenses (which the company has shown as provisions and write-offs) in FY2024.
On a standalone basis MSTCL’s revenue stood at Rs 316.25 Cr. in FY 2024 as against Rs 324.72 Cr. in FY 2023. Further, it recorded revenue of Rs. 140.96 Cr. in H1FY2025 as compared to revenue of Rs.163.47 Cr. in H1FY2024. The continuing moderation in revenues is on account of lower e-commerce revenues, which declined primarily due to subdued demand levels for scrap as compared to the previous year. The operating profit margins ranged between 28.21-45.19 percent in the last two years ending in FY2024. The company recorded an operating profit margin of 53.6 percent in H1 of FY2025 as compared to 61.91percent in H1FY2024. Acuité believes that going forward improvement in revenues and profitability from the e-commerce segment will be key monitorable.
- Healthy financial risk profile
On a consolidated level MSTCL demonstrated strong free cash flow generation, leading to significant deleveraging and a healthy net worth position supporting its healthy capital structure. The net worth of the company stood at Rs 882.99 Cr. and Rs. 785.55 Cr. as on March 31, 2024, and 2023, respectively, mainly on account of the accretion of reserves. The gearing stood at 0.16 times as on March 31, 2024 against 0.18 times as on March 31, 2023. Acuité expects the long-pending sub judice liability (classified as external debt) towards Standard Chartered Bank (SCB) to remain at similar levels over the medium term on account of the ongoing litigations against the company. The robust debt protection metrics—interest coverage ratio and debt service coverage ratio—stood at 421.61 times and 264.82 times as on March 31, 2024, respectively, as against 2256.92 times and 56.66 times as on March 31, 2023, respectively. TOL/TNW stood at 1.42 times and 2.19 times as of March 31, 2024, and 2023, respectively. The debt to EBITDA stood at 0.40 times as on March 31, 2024, as against 0.41 times as on March 31, 2023.
On a standalone level also, the financial risk profile stood healthy, marked by healthy net worth, low gearing, and healthy debt protection metrics. Its net worth stood at Rs. 658.62 Cr. and Rs. 593.28 Cr. as on March 31, 2024, and 2023, respectively. The gearing level stood at 0.22 times as on March 31, 2024, against 0.24 times as on March 31, 2023. Debt protection metrics— interest coverage ratio and debt service coverage ratio—stood robust at 602.69 times and 370.63 times as on March 31, 2024, respectively, as against 2198.02 times and 1688.05 times as on March 31, 2023, respectively. The debt to EBITDA stood at 0.50 times as on March 31, 2024, as against 0.45 times as on March 31, 2023.
Acuité believes that going forward, financial risk profile of the company is expected to remain healthy, backed by steady accruals and no major debt- funded capex plans.
|
- Working capital intensive nature of operations
On a consolidated level, the working capital management of the company improved yet remained intensive with high GCA days at 415 days in FY2024 as against 783 days in FY2023. The GCA days in FY2024 improved on account of lower debtor days. Further, the GCA days are also led by high cash and bank balances of Rs.269.65. Inventory days stood at 3 days in FY2024 as against 4 days in FY2023. The inventory holding period stood low as the material is directly shipped to the customer, which eliminates the need for storage. The debtor day stood at 250 days in FY2024 as against 234 days in FY2023.
Further, on a standalone basis the working capital management of the company improved yet remained intensive with high GCA days at 704 days in FY2024 as against 1520 days in FY2023. The GCA days in FY2024 improved on account of lower cash and bank balances as compared to previous year. Further, the GCA days are also led by high cash and bank balances of Rs.242.29 Cr. The debtor day stood at 366 days in FY2024 as against 375 days in FY2023.
Going ahead, the working capital operations are expected to remain at similar levels over the medium term.
Standard Chartered Bank (SCB) paid to MSTCL towards the purchase of export bills for gold jewellery during 2008-09 under a Receivable Purchase Agreement. As per the agreement, SCB would purchase the bills raised by MSTC on foreign buyers and pay 95 percent of the amount to MSTC, and foreign buyers would be paying against the bill directly to SCB on the respective due dates of the bills. The said export transactions were also insured by SCB with ICICI Lombard General Insurance Company. On non-receipt of proceeds from the foreign buyers, SCB claimed the amount from the insurance company. The insurance company repudiated the claim of SCB. Thereafter, SCB converted the receivables into debt and filed a case in the Debt Recovery Tribunal, Mumbai. MSTCL under the Receivables Purchase Agreement into loans/debts as if owing by MSTCL, claimed the amount from MSTCL with interest, and filed a case, being the original application in the Debt Recovery Tribunal (DRT), Mumbai, in the year 2012, which MSTCL has denied and disputed. Against this petition, an Interim order claiming Rs. 222.51 Cr. was passed by the DRT, Mumbai on I6.09.2017, which has been set aside by the Debt Recovery Appellate Tribunal (DRAT), Mumbai by its order dated 07.08.2023. MSTCL has shown liability in its books for Rs.143.62 crore (as borrowings with corresponding debtors) as on March 31, 2024. Consequently, the recovery proceedings have since been dropped. As a result of which MSTCL has got refund of Rs. 90 Cr (pre-deposit amount towards hearing of appeal) along with interest of Rs. 53.43 Cr. The attached properties have also been released. Other proceedings challenging the claim of SCB are also pending before various forums including the Hon'ble High Court, Bombay and in the Civil Court at Alipore, Kolkata initiated by MSTC both against SCB and the Insurance Company. Any adverse outcome of the legal proceedings impacting the debt coverage indicators is a key rating sensitivity.
|
