Feb 22, 2012, 11.32 AM IST | Source: Moneycontrol.com

MCX IPO: Good addition to portfolio, says Mehta Equities

Mehta Equities has come out with its report on MCX IPO. As per the research firm one can subscribe for the IPO as its a good scrip to add to portfolio.

Mehta Equities has come out with its report on MCX IPO. As per the research firm one can subscribe for the IPO as its a good scrip to add to portfolio.

Multi Commodity Exchange of India (MCX) is the country's largest commodity bourse and the first to hit the capital market. It offers futures trading across bullion, ferrous and nonferrous metals, energy and a number of agriculture commodities. Backed by a network of 2,153 members having 2,96,000 trading terminals, the company is recognized as Indias leading commodity exchange house, commanding market share of 87 per cent (as on December 31, 2011) in terms of value of futures contracts traded.

Largest Commodity Exchange in India: MCX enjoys a leadership position in Indian Commodity Futures market over the past four years, with a share of over 87% of the traded turnover as on 31st December 2012. 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. Going forward, even if the competition intensifies we do not expect it to pose a huge threat for MCX as the updated technology and liquidity that it enjoys is very difficult to replicate.

Metal and Energy the highest trading turnover in the world: Around 85% of MCXs turnover is through metal and energy commodities which are benchmarked to international prices. These commodities not only enjoy high volumes but also high turnover, which in turn generates higher revenues for MCX through transaction fees. Metals and Energy have also witnessed low regulatory intervention which further facilitates higher volumes growth. MCX is the largest silver exchange, the second largest gold, copper and natural exchange and third largest crude oil exchange in terms of number of contracts traded (As on June, 2011).

Updated technology powers MCX to be globally competitive: MCX being an electronic platform for trading requires highly skilled technology and expertise. FTILs technical expertise helps MCX to maintain that high standard and ensure speedy execution, transparency, prompt and reliable order routing and market surveillance. It is this technology that has helped MCX be the 5th largest commodity exchange globally.

Financial Performance: MCX primarily earns income from transaction fees which accounts for 81.5% of the total Income. Other sources of income include membership fees and annual subscription fees. The exchange has a daily average turnover over Rs 51,400 crore and a Networth of Rs 1073.9 crore as 31st December 2011. MCXs operating revenue has grown at a CAGR of 32% over FY09-11 and the EBITDA margin improved to 60.4% in FY11.

We believe MCX being the first exchange to hit the market is a good opportunity to invest. The 5/5 IPO Grade accredited by CRISIL is in itself a certificate of its excellence. With the above rationale like strong financial performance, updated technology and the 5th largest commodity exchange in the world, we advice investors to park their funds in this company with a medium to long term horizon. With less or no competition in the business segment the exchange is well set in its segment. MCX being the face for all the commodities listed in that exchange ensures diversification in its core form. Trading at an annualized EPS 56.64 and a PE of 18.22x (Calculated at upper band price) its a good scrip to add to ones portfolio. Hence we recommend investors to subscribe for the IPO.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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