MCX IPO opens on Feb 22: Should you subscribe it?

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MCX IPO opens on Feb 22: Should you subscribe it?

Multi Commodity Exchange of India (MCX), country's largest commodity exchange, is set to open its initial public offer for subscription on February 22. This is India’s first exchange to hit the capital market, offering 64.27 lakh equity shares (dilution of 12.6% post issue) through issue.

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Sunil Shankar Matkar

Moneycontrol Bureau

Multi Commodity Exchange of India (MCX), country's largest commodity exchange, is set to open its initial public offer for subscription on February 22. This is India's first exchange to hit the capital market, offering 64.27 lakh equity shares (dilution of 12.6% post issue) through issue.

Most experts are bullish on the issue as it is the fifth largest exchange globally and enjoys big market share (87%) in commodities market. Rating agency CRISIL too has also rated it 5/5 as it has robust business model of the company.

Investment Advisor, SP Tulsian and Manish Bhatt of Prabhudas Lilladher recommend subscribing to the issue. On a positive note, Tulsian is expecting the issue to give a return of over 20% in first three months.

"The company showed a growth of over 70% in first nine months of FY12. However, considering the new commodities and products, being added by the exchange and huge inflow of new registration of sub-brokers, company should be able to post a CAGR of over 25% for next 3 years. At upped end of price band of Rs 860-1032, valuation per share works out at PE of 17 times based on estimated of EPS of Rs 60 for FY12. With this kind of financial performance, IPO is likely to evoke excellent response from institutional investors," Tulsian reasoned.

Meanwhile, brokerages like Mehta Equities and Aditya Birla Money feels it is a good investment opportunity for investors.

Nirmal Bang in its report said, "Considering promoter's position in the market, visible brand, better operational parameters and diversified portfolio, we expect MCX can command higher premium going ahead. Therefore, we recommend subscribing."

Based on the comparison of the trading volumes of MCX with the leading global commodity futures exchanges in the world, for the calendar year 2010 and the six months ended June 30, 2011, MCX was the largest silver exchange, the second largest gold, copper and natural gas exchange and the third largest crude oil exchange for this period. Nirmal Bang believes that the leadership position in these products gives MCX a competitive advantage.

Independent analyst Rajesh Tambe, however, is not convinced about the price band. According to him, there are lots of options available in the secondary market than applying for shares of one exchange with issue price of about Rs 1,000.

He points out that PTC India (quoting at Rs 67 and is a debt free PSU), Cairn India (quoting at Rs 391), Petronet LNG (quoting at 172 with company having monopolistic position in gas supply and getting gas from D6 block of Reliance), BGR Energy (quoting at Rs 359 with company having good order book and recently tied up with big international firm Hitachi for super critical technology for boilers).

Tambe feels that the issue is completely overvalued. The only factor that Tambe considers as positive for the issue is its promoters Financial Technologies.

MCX will not get any money through this IPO. The issue consists of an offer for sale by Financial Technologies (India) Limited, State Bank of India, GLG Financials Fund, Alexandra Mauritius Limited, Corporation Bank, ICICI Lombard General Insurance Company Limited and Bank of Baroda.

Promoter Financial Technologies will reduce its stake in MCX to 26% from 31.18% through the offer. SBI will cut its holding to 1.04% to 5.18%, Corporation Bank to 3% from 3.48% and Bank of Baroda to 0.82% from 1.03%.

GLG Financials Fund will offload its stake to 0.38% from 1.92% and Alexandra Mauritius Limited to 0.19% from 0.96%.

The book running lead managers for the issue are Edelweiss Financial Services Limited, Citigroup Global Markets India Private Limited and Morgan Stanley India Company Private Limited. Karvy Computershare Private Limited is the registrar.

sunil.matkar@network18online.com