Multi Commodity Exchange (MCX) India's largest Commodity Exchange by turnover provides online trading facility along with clearing and settlement operations for commodity futures across India. MCX had more than 2,107 registered members in their platform and 1.8 lac terminals in over 1,139 cities across India. The company allows trading in more than 50 commodities across sectors like bullion, metals, energy, weather, and agricultural products. The company who placed its footprint 8 years ago is ranked number one silver futures exchange in the world and number two in gold, copper and natural gas, as per the MCX website have commanding around 70% of the Rs 175 lac Crore Indian commodity derivatives market. Being a stock exchange, it derives its income from transaction fee, subscription fee, brokerage fee and similar related modes of a typical stock exchange.
MCX's is a well reputed commodity exchange in India. Its strength lies in its ability to introduce new and innovative products. It was the first exchange in India to offer futures trading in steel, crude oil and almond and first exchange in India to initiate evening sessions to synchronies with the trading hours of global exchanges in London, New York, Singapore and other major international markets.
The company will open its Initial Public Offering (IPO) of 64.27 lac equity shares (dilution of 12.6% post issue) for subscription during February 22-24, 2012. MCX has set a price band of Rs 860 – 1032/- a share for its Initial public offering that aims raise as much as Rs 660 Crore. From filings by the exchange, the average cost of acquisition per equity share for FT is Rs 8. It has a face value of Rs. 10 per Equity Share with a market lot of 6 Share. The IPO comprises a net offer of 64.27 lac equity shares to the public and a reservation of up to 2.5 lac equity shares for the company employees. The shares of MCX post-issue will be listed only on the BSE (Bombay Stock Exchange). MCX had 87% share in total commodities trading turnover for nine months ended December 2011. The IPO will be listed at BSE and NSE.
The main Objective of MCX behind coming with IPO is to sale 6,427,378 Equity Shares by the Selling Shareholders and achieves the benefits of listing on the Stock Exchange.
After a long period of time an IPO of this size and stature has hit the market which is unique of its own. According to regulatory filings, 3.21 lac options were granted and exercised under the Esop (originally popular as a retention tool in the attrition-prone information technology sector, has become popular in the non-IT segment too) scheme of 2006. Another 1.64 million options were granted under Esop 2008. “The employees may sell the shares held by them on exercise of options within three months after the listing,” the company official said.
This will be the first Indian IPO this year and it is believed the offering will boost the dead IPO market in India. It would be a key test of investor appetite for share sales in Asia's third-largest economy after weak markets forced many companies to shelve stock offerings last year and with the share issue MCX will become India's first exchange to get publicly listed. MCX-promoter Jignesh Shah said, "The last private placements of MCX shares to institutional investors done in 2007 were at Rs 1,050 a share. In 2007, the income and profits of the exchange were half of what they are now." The Rating agency CRISIL (Credit Rating and Information Services of India Ltd.) assigned a grade 5/5 to the IPO, which means company has “Strong Fundamentals”.
MCX is currently held by many financial institutions. Among them, some like Financial Technologies, GLG Financials Fund, State Bank of India, Alexandra Mauritius, Corporation Bank, ICICI Lombard General Insurance and Bank of Baroda are selling a part of their shares through this IPO. The promoter of the company is Financial Technologies India Ltd (FTIL) which is a leader in offering trading solutions like ODIN and other similar products. The FTIL holds 31.18% before IPO and will dilute to 26%. Promoter FTIL and other shareholders like SBI and the Corporation of Bank are together selling 12.6 per cent stake in the exchange.
The EPS of MCX for the reported year 2010 stands at Rs 27 with the book value at Rs.175. The company had recorded Rs 447.5 Crore of total income and net profit of Rs 176.2 Crore with an equity capital of about Rs 38 Crores for the year March 31, 2011. Considering return on equity of 30%, the current year EPS would be around Rs.35 and at the lower price band of Rs.860, the issue is done at 25 times earnings. Though the pricing seems on the higher side, considering the huge growth potential, the issue price is justified. Hence long term investors can invest in this MCX IPO, not for listing gains alone. Once this issue is gone through, one could expect couple of similar IPOs from BSE and NSE also.
The forthcoming MCX IPO valuation looks attractive, given the under-penetrated commodity markets in India, but there are too many risk factors which investors can’t ignore before investing in the issue. As MCX was high dependence on top ten members, which accounted for close to 40 per cent of turnover, according to the prospectus filed by MCX in 2008. Business of running a Stock Exchange is also a sensitive one and risky, regulatory intervention both at the business and product level is a live possibility. MCX’s lot of fortunes depends on FMC decision. As FMC’s decision has a key role to play in commodity exchanges. Any adverse decision by the FMC in connection with the investor protection fund required to be maintained by the company, could adversely affect the results of operations.
The Improving margins due to operating leverage, on the back of expanding turnover, suggest strong earnings growth. It is expected that volume in the derivative trade will be increased in the coming years, so the company can gain in the particular market conditions and from the point of view of its leadership position in the industry and its niche business it is good buying opportunity for both listing and medium to long term gains.
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