MSTC-Mahindra Intertrade to set up India’s first auto shredding facility in Gujarat: BB Singh, MSTC Ltd

BB Singh, CMD, Metal Scrap Trading Corporation (MSTC) Ltd talks about the three business lines of the company, the impact of foreign exchange fluctuations on his business and client concentration during an interview with Swati Khandelwal, Zee Business. Excerpts: 

Q: MSTC is functional in three different business lines. Can you brief about the three businesses?
A: MSTC is primarily into three types of businesses and they are
1.    e-commerce, which is the largest business for MSTC.
2.    Trading Business. 
3.    Recycling.
Forward option, e-procurement and reverse auction are practised in e-commerce and under the process, we serve to government institutions whether it belongs to the central government or a PSU or a state government. At the same time, we are trying to penetrate the private sector with an aim to bring more business from it. The sector remains untapped for MSTC so far. 

Q: e-Commerce has a contribution of about 65 per cent to your revenues while the trading business contributes 35 per cent to it. What is the importance of foreign exchange fluctuations on your financials?
A: Foreign exchange fluctuations don’t matter to MSTC as the changes are passed on to the buyers. 

Q: If trading materials are considered, then MSTC has traded materials worth Rs4,270 crores in the last six months but you don’t own a single warehouse of your own. Is it a strategical move of the company, if yes, then explain the rationale behind it?
A: Our business is based on the 'Cash and Carry model' in which the imported materials are kept at the buyer’s premise. And the materials are looked after by our custodian. Then, the raw material is released in accordance with the payment that is made by the buyer. 

Our second business, trading is a risk-free and gives 110 per cent returns. In addition, we also have an Associate Supplier Model, where the imported thermal coal is provided to the thermal power plants, which are based in Peninsular India. Under the process, we also supply line pipes to Gas Authority of India Limited (GAIL). 

Our third business is related to recycling and it is an upcoming opportunity for MSTC. Under the process, MSTC and Mahindra Intertrade Limited have formed a 50:50 joint venture (JV) to set up India’s first auto shredding facility in Gujarat. The feeder unit for this shredding facility has been established and it is functional in Greater Noida. Interestingly, this is going to be the country’s first authorised recycling unit for the end of life vehicles (ELVs). 

Q: My next question is related to client concentration, i.e. government entities has 90 per cent contribution to your e-commerce business while top three clients have 93 per cent contribution to your trading business. How will you address it (the concentration) which is risky in nature?
A: It is true that government entities provide 90 per cent business to our e-commerce business. When it comes to the 93 per cent contribution of the trading business that is based on the Cash and Carry model than we are reducing the model. The model is being replaced by e-commerce enabled trading business, which is a more risk-free business. We are also entering 110 per cent BG (Bank Guarantee) backed procurement, a complete risk-free business. Apart from this, we are also expanding the scope of Associate Supplier model, the third model of our business, and will pursue it in the coming days. 

Q: What led to provisioning in the trading business?
A: See, the recession that struck the world of 2008 had a negative impact on the steel sector also and dampened the sector in a way that it has not been able to recover from it completely yet. This dampening converted our exposure, through raw materials, in the sector into bad debt. 
Secondly, the NCLT regime that came into force last year has pulled in a few of our clients under its purview. Therefore, we provisioned those accounts in accordance with the SEBI norms. Yes, this provisioning had a negative impact on our balance sheet, but it was a onetime measure and we have cleared on it. 

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Q: What is your view on B2C business? Also, let us know about the future plans of the company and provide an outlook on it?
A: We are into the B2B (business-to-business) sector through the e-commerce business. Now, we want to focus on the B2C (business-to-customer) segment and have also launched M3 portal, ‘M3 Metal Mandi’ for the purpose. The portal will help us in serving the micro small & medium enterprises (MSMEs) sector. We also have plans to launch a separate portal dedicated to handicrafts and paintings. This portal will help us to spread ourselves into the B2C segment.