Price band Rs860-1,032
Issue is open for subscription from 22-Feb-2012 to 24-Feb-2012

Company Background

Multi Commodity Exchange of India Ltd (MCX), backed by strong parentage of Financial Technologies India Ltd (FTIL), is the largest commodity exchange in India (market share of 87.3%) and fifth largest globally. It’s a de-mutualised exchange facilitating online trading, clearing and settlement operations of commodities future transactions across the nation. During CY10 and H1 CY11, MCX was the largest silver exchange; second largest gold, copper and natural gas exchange; and the third largest crude oil exchange in terms of the number of contracts traded in each of these commodities thereby giving it a competitive advantage. Currently it offers trading in 49 commodity futures (based on contract specifications) spread across varied commodities like bullion, ferrous and non-ferrous metals, energy and agriculture. The top four commodities traded on MCX (Gold, Silver, Copper & Crude oil) accounts for 90.4% of the total value of the commodity futures contracts traded on this exchange. It operates through 2,153 members, with over 296,000 terminals spread over 1572 towns and cities all over India. Apart from providing trading services, it also offers market data and information services (regarding commodity futures contracts) to third parties. MCX has also been a significant contributor in increasing the awareness about the Indian Commodity Industry among the market participants, by launching various training and educational programs.

IPO – Offer for Sale

This IPO is a pure offer for sale made by Financial Technologies India Ltd (FTIL), State Bank of India, GLG Financial fund, Alexandra Mauritius Ltd, Corporation Bank, Bank of Baroda and ICICI Lombard General Insurance Company Ltd, all being the selling shareholders. Therefore, MCX will not be entitled to receive any of the proceeds raised through IPO. The only objective behind this IPO is to avail listing benefits and carry out the divestment of equity shares by the Selling Shareholders.

Valuation & Recommendation

MCX’s IPO price band of Rs860-1032 translates into P/E band of 15-18x based on annualized 9m FY12. Global commodity exchanges like CME group and NYSE Euronext, with an RoE of <10% and earnings growth of 10-20%, are trading in the range of 12-17x CY11 P/E. Considering the dominant market share of MCX in India, robust fundamentals as indicated by CRISIL’s 5/5 IPO grading, strong volume and earnings growth at ~80% and ~70% respectively in 9m FY12 and handsome RoE of 25%+, MCX deserves a premium valuation. Being the first commodity exchange in India to list, the issue would also attract scarcity value. We believe this IPO has strong potential to provide material listing gains as well as substantial investment returns. Recommend ‘SUBSCRIBE’.