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Feb 22, 2012, 06.02 PM IST | Source: CNBC-TV18

Subscribe to MCX IPO; see huge growth potential: Experts

According to experts, investors should subscribe to the MCX IPO because of the growth potential of the company and the valuations it has.

Silky Jain, Analyst, Nirmal Bang

As the leading commodity exchange in India, and the fifth in the world, MCX s initial public offer has attracted a lot of interest in the primary market. According to experts, the growth potential of the company and the valuations are good, and therefore investors should subscribe to the IPO.

Seeing the continuous improvement in the volumes, we believe that its a good investment bet at the current level and we would recommend a subscribe on the IPO, said Silky Jain, analyst at Nirmal Bang. She goes on to say that the company could record around 20% growth over the next two-three years, which adds to its appeal.

Also read: Big bang MCX IPO to revive primary market?

AK Prabhakar, senior vice president of equity research at Anand Rathi also agrees, but has a higher growth target for the company. Due to the craze towards precious metals in India, the growth of the exchange, which has been 34%, will sustain, he said.

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: What would your recommendations be on this IPO and what would you rationale be behind the recommendation?

Prabhakar: I have recommended subscribing the IPO. It is the fifth largest commodity exchange in the world and almost 35% of silver and 25% of gold is traded in the exchange. Due to the craze towards precious metals in India, the growth of the exchange, which has been 34%, will sustain.

Q: What is your call?

Jain: After a long time we are seeing an IPO which has been credited by five on five IPO grade by Crisil, so that itself is a certificate of excellence. One cannot argue about the fundamental strength of MCX business as well as the operational ability as it is the leading commodity exchange house and globally it ranks fifth.

Seeing the continuous improvement in the volumes, we believe that its a good investment bet at the current level and we would recommend a subscribe on the IPO.

Q: How would you respond to the potential rise in commodity transaction tax (CTT) and the impact in terms of financials for the company and second in terms of whether there is risk of a greater payout to its parent company Financial Technologies?

Jain: What I feel is that the commodity transaction tax will definitely impact the volumes going forward, because as we have seen regulatory impositions can have impact on the volumes as well as the financials. So the volume might fall a little, but overall the growth story will remain intact for the commodity market. The commodity market is at a very nascent stage, so there is a lot of scope for improvement and growth going forward.

So over the long-term, we continue to remain positive on the same even though there maybe some regulatory hindrances in the current scenario.

Q: What kind of earnings potential does MCX have from hereon because it seen some good operating leverage because of which its margins have gone all the way from 60% last year to 70% in the nine months of FY12. What kind of a further scale up do you expect the earnings to see?

Jain: We have seen around 70% increases in the volume for MCX during the last nine months. This is because of very high increase in new registration for sub-brokers as well as new product inventions, so this is likely to continue in the near future also. We can see around 20% CAGR growth over the next two-three years visible on the companys financials so there is a lot of scope for improvement on margin front from here.

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