MCX IPO - Indian IPO Blog Analysis

Multi Commodity Exchange of India Ltd (MCX), the Indian electronic commodity futures exchange, is entering the capital markets with an Initial Public Offering (IPO) with a certain amount of bang around it and an expectation from many of reviving the bleeding IPO market. Does it have what it takes? Let's try to find out....

MCX provides online trading facility along with clearing and settlement operations for commodity futures across India. MCX is the largest among the five officially recognized electronic multi-commodity national exchanges in India and accounts for more than 80% of the market share of the Indian commodity futures exchange industry. As of December 31, 2010, MCX has more than 2,107 registered members operating through over 180,000 trader work stations in over 1,139 cities across India. MCX emerged as the 5th largest exchange in the world

MCX IPO would be open for subscription between February 22, 2012 and February 24, 2012. Citigroup Global Markets India Private Limited, Edelweiss Capital Limited, Morgan Stanley India Company Private Limited are the Book Running Lead Manager to the Issue while Karvy Computershare Private Limited is the Registrar to the Issue


Promoter Background:
MCX is promoted by FTIL with a pre-IPO stake of 31.18%. FTIL is a software developer and a technical service provider of automated electronic solutions in the areas of finance and technology like foreign exchange, commodities and equities. It is listed on the BSE, the NSE, the Ahmedabad Stock Exchange and the Madras Stock Exchange. The promoters of FTIL are Mr Jignesh Shah (18.1%), Mr Dewang Neralla (0.13%) and La-Fin Financial Services Private Ltd (26.5%).

 
IPO Rating from CRISIL: 
CRISIL has assigned an IPO Grade 5 to MCX IPO. This means as per CRISIL, the company has 'Strong Fundamentals'. CRISIL assigns IPO grading on a scale of IPO Grade 1 to IPO Grade 5, with IPO Grade 1 indicating poor fundamentals and IPO Grade 5 indicating strong fundamentals

The grade reflects MCX’s leadership position in the Indian commodity futures market over the past four years, with a share of 82% of the overall traded turnover in FY11. It is a leader in the trading of bullion, crude oil, copper and natural gas (which accounted for ~85% of MCX’s traded turnover in FY11). Historically, metals and energy commodities have witnessed lower regulatory intervention. With a strong technology-backed trading platform and infrastructure (supplied by its promoter Financial Technologies India Ltd), MCX is able to provide high liquidity and low impact cost of transactions – key criteria for the success of any exchange


According to the Grading Report, the grade takes into account the benefits that MCX will derive from amendments to the Forward Contracts (Regulation) Act, which will allow trading of options and indices, and participation by institutional investors, leading to increase in the traded turnover on commodity exchanges. The grade also draws support from MCX’s strong management team and its ability to attract talented and experienced personnel

While new commodity exchanges have been set up over the past couple of years, they have not been able to nudge MCX from the top. However, given the high profitability and cash-churning nature of the business, we expect competition to intensify in the future


Read Analysis of Financials and more in MCX IPO - Analysis - Part 2>>

MCX IPO - Indian IPO Blog Analysis - Part 2

Analysis of Financials of MCX IPO:
The Statement of Assets and Liabilities and Income and Expenses of the Company as per the RHP are as under:

Statement of Financial Position:


The company is building upon strongly on the Net Worth from around Rs.5000 mn in FY09 to around Rs.8500 mn in FY11. MCX holds long-term investments in other operational exchanges – MCX Stock Exchange Ltd (5% equity stake) and Dubai Gold and Commodities Exchange Ltd (5% equity stake). MCX also holds 634 mn warrants in MCX-SX, which carry no voting or dividend rights. The company therefore, has the option to generate more cash as and when it decides to liquidate these investments

Statement of Income:
 
MCX’s sources of operating income are
(a) Transaction fees,
(b) Membership admission fees,
(c) Annual subscription fees and
(d) Terminal charges

Transaction fee is the largest contributor to operating revenue. MCX’s operating revenue has grown at a CAGR of 32% over FY09-11, with much of the growth coming through transaction fees, which grew at a CAGR of 37% over the same period.

EBITDA margin improved to 60.4% in FY11 from 53.6% in FY09, on account of operating leverage. Also, adjusted PAT margin has improved from 35.5% in FY09 to 39.4% in FY11

The company also has an excellent business profile. MCX offers more than 40 commodities across various classes such as bullion, ferrous and non-ferrous metals, and a number of agri-commodities on its platform. Globally, MCX is the largest silver exchange; the 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

Taking into account the strong profile of the company backed by financial performance, the IPO is clearly worthy of a full blooded go.

Read Indian IPO Blog Analysis on MCX IPO - Part 1