#MSTC – With and without #Scrappagepolicy

Scenario 1 – No Scrappage Policy

As promised by management, MSTC will be able to clean up the balance sheet by Sep’21. Trading business is already closed. FSNL divestment has started by DIPAM.

Post Sep’21, MSTC may have around 800 crs cash (assuming 300 crs proceeds from FSNL) in the BS, Rs 115 per share..

It will have E-Comm as the only business with multiple opportunities which are detailed in the note attached below..

Ex cash RoCE will be 50% plus with growth rate of 15-20% for E-Comm business with 250 crs topline and 100 crs PAT (excl. other income) for FY22. Estimated EPS of Rs 15 for core E-comm business.

At 15x PE for core E-Comm value = 15x15 + 115 = 340…
At 20x, it would be 415..

Scenario 2 – Scrappage Policy

There are 24 Mn end-of-life vehicles in India with average age of car being 18 yrs. Total 6 Mn ton steel scrap imported by India. Report says, Scrappage policy can generate 40,000 cr scrap annually. #MSTC has two benefits..

1 – Mahindra Cero (50:50 JV with MSTC) is only authorized scrap recycling company today with 4 centers. It plans to set up 25 centers once the policy is announced and further can expand to 50. Assuming 5000 crs (8% market share and average 100 crs per center) revenue in 5 years

and 7% NPM, it can generate 350 crs PAT after 5 yrs, contributing 175 crs to MSTC PAT.

2 – Assuming 10,000 crs (25% market share) scrap getting auctioned on MSTC platform and 2% fees, it can generate 200 crs additional revenue and 150 crs additional PAT for MSTC…

I tried to put all my assumptions upfront, one can play with the assumptions based on his understanding and arrive at his own valuation..

Disc. – This is not a reco…I am invested https://drive.google.com/file/d/1SI4HwrGxiRlsApbCnpfkQ71uMQt-2BRO/view?usp=sharing