Subscribe to MCX IPO with long term view: FIFL

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Subscribe to MCX IPO with long term view: FIFL

Fortune Interfinance (FIFL) has come out with its report on Multi Commodity Exchange of India (MCX) IPO. Research firm advised subscribing to the issue with a long-term view.

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Fortune Interfinance (FIFL) has come out with its report on Multi Commodity Exchange of India (MCX) IPO. Research firm advised subscribing to the issue with a long-term view.

MCX is offering 6.4 million equity shares at a price band of Rs 860-1,032 through an offer for sale, valuing the company at Rs 43.8-52.6 billion. The shareholders selling their shares are Financial Technologies (India) Ltd , State Bank of India , GLG Financials Fund, Alexandra Mauritius Ltd, Corporation Bank , ICICI Lombard General Insurance, and Bank of Baroda .

MCX is India's largest commodity futures exchange with a market share of over 85% (87.3% during 9MFY12) of the Indian commodity futures market, and has more than 2,153 registered members operating through 2,96,896 terminals spread over 1,572 cities and towns across India. The Exchange is the fifth largest commodity exchange (no. of contracts traded for 6MCY11), among all the commodity exchanges in the world as per Futures Industry Association survey.

MCX offers trading facilities in 49 commodity futures across bullions, metals, energy and agriculture products. The transaction fees (charges paid by members for execution of trades) contributed 96 per cent of the operating income as on December 31, 2011. The annual subscription fees, membership admission fees and terminal charges constitute the remaining portion of its operating income.

Valuation: India is one of the fastest growing economies in the world. The growth of the overall economy in India is likely to drive the underlying demand for commodities. The increase in physical market volumes may increase the hedging requirements of industry players, which influences derivative trading volumes. In developed markets, commodity derivatives volumes are generally a multiple of the underlying physical commodity volumes. Therefore, as the consumption of physical commodities increases in India, the volumes of commodity derivatives being traded may also increase going ahead. MCX holds a leadership position in the Indian commodity futures market, with a share of 87.3% of the overall traded turnover in 9 months FY12. MCX will derive from amendments to the Forward Contracts (Regulation) Act, if it is passed by the government, which will allow trading of options and indices, and participation by institutional investors, leading to increase in the traded turnover on commodity exchanges. MCX is the first exchange tapping the capital market in India. With descent financial performance and good industry prospects, the company looks to be a good investment to bet upon for long-term. MCX is valued at a P/E of 15.1x-18.1x on its annualized FY12 EPS of Rs 57.0 on a price band of Rs 860-Rs1032, respectively. There are no listed companies in India that are engaged in a business similar to MCX. However, on comparing with global players, the valuation looks attractive. We at FIFL are of the view that investor should "subscribe" to the issue with a long-term view.

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.

To read the full report click on the attachment