Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic commodity futures exchange, and enjoys nearly monopolistic market share of around 90.50 % in commodity market & enjoys triopolistic situation as MCX-SX accounts for nearly 6 % market share in total currency derivtives in India. MCX enjoys a competitive edge, and has its own Economic Moat (A competitive advantage is, that one company has over the other companies in the same industry – by Warren Buffett) and is expanding its moats which is a very strong sign of as a future Multi-bagger. Technology for the exchange industry is difficult to replicate, and this provides the MCX as a company with a competitive advantage. Recently, on 8 December 2014, SEBI granted the MCX Stock Exchange Ltd (MCX-SX) the stock exchange arm of MCX its renewal of licence to run the stock exchange and also approved its new name from MCX-SX to ‘mSXI’ Metropolitan Stock Exchange of India Ltd. This new name will build its new identity and will bring in volumes hence will help its stock exchange to be in competition with its rivals BSE & NSE. Exchanges are almost the perfect business models with limited competition, high operating leverage and robust cash flows. Stock exchanges in particular have strong correlation to underlying economic activity. In India only two exchanges accounts for nearly 99 % market share in equities trading. Across a number of macroeconomic and broad market factors the Indian capital markets are at a “multiyear to multi decade low”. Stock exchanges would benefit substantially from the anticipated improvement in overall economic activity there by leading to high earnings growth over the next few years. NSE the Unlisted and BSE also Unlisted along with the MCX-SX which is also unlisted but directly related to MCX will be one of the best investments to play the impending recovery in economy and capital markets. India is already seeing initial signs of volume recovery with last two months & cash market volumes are up 100 % YoY. At current levels the velocity is in-line with eight year average of 60 %. Moreover with a number of new products having high potential (such as Interest Rate Derivatives, Corporate Debt, Volatility Index) in their nascent stages, exchanges would have robust volume growth over the medium term. Recently, Financial Technologies India Ltd (FTIL) sold an additional 1.65 lakh shares to ace investor Rakesh Jhunjhunwala for Rs. 2,47,500 in stock exchange MCX-SX, thereby completely exiting the bourse. Earlier on November 25, 2014, FTIL signed agreements to sell its entire 5 % stake, comprising of 2.71 crore equity shares and 56,24,60,000 warrants, for Rs. 88.41 crore. The 2.71 Cr equity shares were sold only to Rakesh Jhunjhunwala, and 38.48 Cr warrants were divided between him and Edelweiss Commodities Services, Trust Investment Advisors, Viral A Parikh, Nemish S Shah, Derive Investments, Kalpraj Dharamshi, Dhanesh Sumatilal Shah, Uday Shah, Madhuri Kela, Renuka Shah, and Madhu Vadera Jayakumar. For both MCX has received the consideration and this transaction is completed and so, the Jignesh Shah-led FTIL has now completely exited MCX as well as MCX-SX making it entirely a new scam free entity. MCX-SX has total shares of 94,31,83,776 Shares of Face value of Rs. 1 each. On the financials side real improvement in MCX’s financials could be seen from FY16 onwards as the market is keenly awaiting any financial impact of the NSEL crisis on MCX’s numbers. While the chances here of such a development is very low, even if it were to happen this will be a one off but the core business model of MCX will remain strong. Over the next 3 to 5 years, in a growing economy like India, commodity exchanges are likely to see significant growth as financial markets would see many new changes which will attract local and global capital flows into the Indian economy. Future, with the FCRA Bill the potential remains exciting given that the new products will attract new participants & India has 20 lakhs client accounts as compared with 1.9 Cr – 2 CR Demat accounts so this industry has only scratched the surface with respect to potential volumes so there’s also a new road for MCX. MCX, with its new opportunities and with the policy to maintain 50 % dividend pay-out ratio will be positive for MCX valuation. The valuation of MCX’s standalone business at 25x FY15E EPS of Rs. 30.79 gives us the standalone valuation of MCX at Rs. 770 per share; the valuation of the stake in MCX-SX (incl. warrants) contributes additional Rs. 110 per share to MCX. It is expected that MCX to have volumes growth of 15 % CAGR over FY12-15 and a PAT CAGR of 13 % over this period. Also, the ROE should sustain its level in the high 20's. Even as on Mar 2014 MCX has a balance sheet size of Rs 1743 Crs with Cash position of Rs 350 crs, a networth of Rs 1316.10 Crs with no debt on the balance sheet as on date. On a rough cut basis, in FY15, Top line will see a steady rise wherein Topline is expected to touch Rs. 375 Crs in FY15E and may be Rs. 412 in FY16E. On the bottom line level the company can report a PAT of Rs. 157 Crs in FY15E and may be Rs. 171 Cr in FY16E. Thus on a conservative basis, MCX should report EPS of Rs. 30.79 for FY15E. For FY16E expectation is EPS of Rs. 33.54.
|SALES (₹ Crs)||523.96||340.66||375.00||412.50|
|NET PROFIT (₹ Cr)||299.00||153.16||157.00||171.00|