Expect 15% listing gains on MCX IPO: KRChoksey

KRChoksey has come out with its research report on Multi Commodity Exchange of India Ltd (MCX) IPO. According to research firm, one can subscribe to the issue and can expect 15% listing gains on the issue from upper end of price band of Rs 860-1032/share.

Domestic commodity future market turnover grew strongly 51.6% CAGR over FY09-9mFY12. MCX has been market leader in term of turnover with market share close ~ 87.3% in 9MFY12. Based on FIA survey, MCX has ranked fifth largest commodity exchange in terms of turnover in the globe. We believe MCX is likely to maintain its market leadership position on the back of focus on product research and development, introduction of new commodity classes and favorable policy for commodity futures. Generally, exchange business requires heavy investment in infrastructure and product development in initial years and thereafter sees higher trading volumes lead to operating leverage and better margins. We believe MCX has completed major portion of capital expenditure cycle in last five years, now we expect operating leverage to play out which will likely to impact positively growth and profitability. Financial sector participants include banks, insurance companies, asset management, financial services companies, NBFCs, rating agencies and exchanges. Most of the funding businesses are operating in range of 18-24% RoE on normalized basis. But MCX has generated ~ 32% RoE on sustainable basis in last five years. We believe higher operating leverage, lighter capex cycle and deepening and diversifying operating income from existing product and developing new services will help MCX to maintain superior return ratio. According to the FIA, options trading volumes in the global derivatives markets constituted around 50.8% of the total future and option volumes traded. If trading in commodity options are permitted by the government, will result into increases in volumes and overall growth in the Indian commodity derivative market. We believe favorable policy push and change in regulation will be a key trigger for developing and deepening commodity derivative market and introduce new product and services. Market leader positioning, scalable business model, superior return ratios and robust business growth outlook are key value drivers for MCX in our view. On quick estimates basis, MCX issue is quoted 16.9x FY13 earnings. Exchange businesses are traded at 16-18x in developed markets. We believe market leader position, medium term superior return ratios, scalable business model and strong business growth outlook deserve premium valuation. Hence we recommend to subscribe the issue with medium term investment objective. We also expect 15% listing gains on the issue from upper band. 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

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