Equity Research

July 1, 2013 BSE Sensex: 19577

INDIA

Multi Commodity Exchange of India
Slow start to Q1FY14; watch out for CTT
Mid-Cap
Target price Rs1,047 Shareholding pattern
Promoters Institutional Investors MFs and UTI FIs/Banks FIIs Foreign Corporate Bodies Others Source: BSE, NSE Sep ‘12 26.0 56.5 3.0 19.7 11.2 22.6 17.6 Dec ‘12 26.0 57.0 2.7 19.6 13.1 22.6 16.0 Mar ‘13 26.0 58.2 2.2 18.6 17.2 20.2 15.8

BUY
Maintained

Rs784

Reason for report: Company update
The Multi Commodity Exchange of India (MCX) witnessed a 1% MoM drop and a 9% YoY drop in its turnover in June 2013. While the impact of the Commodities Transaction Tax (CTT), which comes into effect on July 1, 2013, on MCX’s turnover remains to be largely seen, we have factored in a 15% lower turnover for MCX in FY14 due to CTT. Turnover in Q1FY14 was up 3% YoY. f Silver in worse shape than gold: Bullion turnover declined 8% MoM and 24% YoY primarily due to weakening prices. Silver’s 30-day volatility was way higher than that of gold, but a sharper slide in silver’s price level affected its turnover and kept the overall bullion turnover in check. f Quarterly trend positive: MCX’s Q1FY14 turnover was 4% higher than that of Q4FY12 and 3% higher than that of Q1FY13. As shown in table 2, in Q1FY14, silver and copper suffered a setback in turnover, whereas gold, crude oil and natural gas reported significantly higher turnover. f CTT – Wait and watch: From July 1, 2013, the CTT proposed in the Union Budget will be operationally implemented. While CTT’s impact on MCX’s turnover remains to be seen, we have factored in a 15% lower turnover for MCX in our FY14 EPS. f Maintain BUY with target price of Rs1,047: We maintain BUY on MCX and value it at 18.0x FY15 PER and also believe any CTT-led price correction should create a further buying opportunity. Our target price is Rs1,047/share while the DCF-based value comes to Rs985/share. Currently, the stock is trading at a PER of 16.9x for FY14E and 13.6x for FY15E.

Price chart
1,650 1,400

(Rs)

1,150 900

Jul-12 Sep-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13

650

f Risks: Revenue decline due to lower trading volumes or continually declining commodity prices or both, possibility of intense volatility in commodity prices inviting regulatory intervention, larger-than-estimated impact of CTT and concentration risk arising out of large share of bullion in overall turnover. Table 1: Price and volatility trend
Silver Gold Crude Oil Copper Natural Gas Source: Bloomberg Market Cap Reuters/Bloomberg Shares Outstanding (mn) 52-week Range (Rs) Free Float (%) MCX Futures Price (Rs) Jun-2013 May-2013 Jun-2012 40,208 43,616 51,987 25,669 26,874 29,665 5,763 5,273 4,695 407 413 429 215 228 156 30-day avg. volatility (%) Jun-2013 May-2013 Jun-2012 31.8 18.4 20.2 21.4 15.5 13.2 18.4 22.7 29.7 14.3 25.5 19.7 30.5 33.8 58.9

Rs29.9bn/US$502mn MCX.BO/ MCX IN 51.2 1597/753 74.0 20.2 5,632 (10.8) (25.2) 2.8 12.5

Year to Mar (Cons) Revenue (Rs mn) Rec. Net Income (Rs mn) Rec. EPS (Rs) % Chg YoY P/E (x) CEPS (Rs) EV/E (x) Dividend Yield (%) RoCE (%) RoE (%)

FY12 5,262 3,009 59.3 72.1 13.2 64.6 8.2 3.1 23.4 32.6

FY13E 5,039 2,923 57.6 (2.9) 13.6 63.6 8.4 3.2 17.6 27.3

FY14E 4,323 2,359 46.5 (19.3) 16.9 52.8 10.9 2.5 11.3 19.6

FY15E 5,232 2,917 57.5 23.7 13.6 64.2 7.3 3.2 13.8 21.9

Nimit Shah
nimit.shah@icicisecurities.com +91 22 6637 7588

FII (%) Daily Volume (US$/'000) Absolute Return 3m (%) Absolute Return 12m (%) Sensex Return 3m (%) Sensex Return 12m (%)

Jeetendra Khatri
jeetendra.khatri@icicisecurities.com +91 22 6637 7416

Please refer to important disclosures at the end of this report

1 2.3 2.4 2.4 3. July 1.4 14 13.9 Chart 2: Turnover trend of silver 5 4 3 2 1 0 3.7 3.Multi Commodity Exchange of India.6 13.4 3.5 3.2 3.3 3 2.8 3.3 2.3 3.7 (Rs tn) 10 8 6 Oct-12 (Rs tn) 12 Oct-12 Apr-13 Nov-12 Nov-12 Aug-12 Sep-12 Dec-12 Aug-12 Sep-12 Dec-12 Jun-12 Jan-13 Jun-12 Jun-13 Jan-13 Apr-13 May-13 Source: Company Chart 3: Turnover trend of gold 4 3.6 3.2 3.0 2.4 2.2 2.7 3.2 12.3 13.8 2.7 2.1 4.1 13.7 2.5 Chart 4: Turnover trend of crude oil 4 3.3 12.5 3.3 2.7 3.2 11.3 3 2.7 3.0 12.5 2.8 3.7 2.6 2.0 3.8 3.212.0 12.0 (Rs tn) 2 (Rs tn) 2 1 1 Oct-12 Oct-12 Apr-13 Aug-12 Sep-12 Nov-12 Dec-12 Aug-12 Sep-12 Nov-12 Dec-12 Jun-12 Jan-13 Jun-12 Jun-13 Jan-13 Apr-13 May-13 Source: Company 2 May-13 Mar-13 Mar-13 Feb-13 Feb-13 Jun-13 Jul-12 Jul-12 0 0 May-13 Mar-13 Mar-13 Feb-13 Feb-13 Jun-13 Jul-12 Jul-12 .7 10.2 2. 2013 Table 2: Turnover trend for June All Commodities Silver Gold Crude Oil Copper Natural Gas Source: Company % MoM (1) (11) (6) 19 (3) (27) ICICI Securities % YoY (9) (41) (6) 13 (20) 50 Fiscal YTD (%) 3 (25) 15 20 (22) 126 Chart 1: Turnover trend of all commodities 16 14.3 3.412.5 3.

0 3 .3 1. July 1.5 0.6 0.2 1.7 0.5 1.5 0.7 0.0 ICICI Securities Chart 6: Turnover trend of natural gas 1.0 Oct-12 Oct-12 Apr-13 Aug-12 Sep-12 Dec-12 Aug-12 Sep-12 Nov-12 Nov-12 Dec-12 Jun-12 Jan-13 Jun-12 Jun-13 Jan-13 Apr-13 May-13 Chart 7: Share of all commodities in turnover Silver 3 11 20 4 10 26 5 10 26 3 9 19 25 27 29 22 31 Gold 5 8 23 Crude Oil 4 8 19 5 7 19 Copper 6 8 17 5 8 19 Natural Gas 8 9 19 8 9 18 6 10 21 5 10 25 28 23 25 26 26 25 25 28 30 29 22 26 25 29 29 27 27 24 25 21 19 Nov-12 Jun-12 Jan-13 Source: Company May-13 Feb-13 Mar-13 Aug-12 Sep-12 Dec-12 Jun-13 Jul-12 Oct-12 Apr-13 May-13 Mar-13 Mar-13 Feb-13 Feb-13 Jun-13 Jul-12 Jul-12 0.6 0.0 1.3 1.6 0.7 0.9 0.0 1.2 1.8 0.5 1.6 (Rs tn) 0.5 (Rs tn) 0.0 1.1 1.0 0.9 1.4 0.1 0.5 1.Multi Commodity Exchange of India. 2013 Chart 5: Turnover trend of copper 2.3 1.2 1.0 1.0 1.5 0.

in the event of continually declining commodity prices. However. Hence. it can witness intense volatility. are charged on the traded value of commodity contracts and not on their volumes. This could attract intervention by the regulator. Concentration risk MCX’s turnover has largely been concentrated in bullion and energy. which form around 95% of the company’s revenues. A sharp decline in bullion and energy volumes or a sudden decline in market share can affect the company’s revenues in the near term.Multi Commodity Exchange of India. 2013 ICICI Securities Risks Sudden price declines may reduce fees Transaction charges. which can impact the volumes at the exchange. CTT impact can be larger than estimated The impact of CTT on the turnover of MCX could be larger than our current assumption. the threat stands mitigated. July 1. transaction charges (based on the traded values of contracts) and thereby revenues would correspondingly go down. Intense commodity volatility may invite regulatory intervention Since the commodity market is dominated by individuals / speculators. as most of the commodities traded at MCX have international linkage. 4 .

230 % growth (YoY) 5 EBITDA 756 Margin (%) 61.0 1.9 7.6 16.9 12.4 6.129 Source: Company data.356 1.430 11.129 FY13E 7.917 (1.7 30.0 29.4 9.471) Interest paid (0) Chg.323 2.5 52.6 7.3 6.9 342 1.347 % margins 63.1 Other Income 1.978 Total Liabilities 10.5 322 1.203 14.8 225 46.593 (1.2 8.544 14.9) (1.8 20.092 1.6 Depreciation & Amortisation 272 Net Interest 0.2 8.6 8.3 16.8 13.749) 11.753 151 508 10 13.5 5.1 64.6 63.6) (17.544 867 4.3) (17.027 57.160 529 Capital Commitments (2.246 Mar-13 1. year ending March 31) FY12 Assets Total Current Assets of which cash & cash eqv.925) 847 Free Cash Flow 585 3.877 507 1 10.599 8.1 74.9) (2.4 5.9 17.262 Other operational income Total Income 5.039 2.8) (9. year ending March 31) FY12 FY13E Operating Cash flow post tax 2.4 16.3 8.7 11.356 1.207 Profitability Ratios (%) EBITDA Margins 63.1 13.662 936 11.356 1.2 13.014 59.350 2.155 9.032 1.0 248 57.5 57.039 5.9 10.5 1.240 9.4 338 814 (4) (3) 723 58.424 4.314 53.3 26.0 27.8 23.232 2.8 484 766 5 .7 277 Table 4: Balance sheet (Rs mn.8 13.Deferred tax (4) Less: Minority Interest & Share in associates 2 Net Income (Reported) 2.511 2.511 2.323 4.163 9. 2013 ICICI Securities Financial summary (Consolidated) Table 3: Profit & Loss statement (Rs mn.6 24.5 64.510 Cash flow from Investing Activities Issue of Share Capital 0 Buyback of shares Inc (Dec) in Borrowings Dividend paid (296) (1.7 57.0 1.538 5.511 2.205 3.867 Source: Company data.819 607 11.232 5.511 2.6 29.153) 788 1.7 1. I-Sec research 151 508 10 10.6 13.756 807 14.204 8.8 21.581 FY14E 7. Net Income Margins 47. FCF (pre -Capex) Operating Ratios Software support charge / Revenue Employee charge / Revenue Effective Tax Rate (%) Current ratio 56.5 13.322 963 2.617 5.6 57.094 (555) 11.031 Recurring PBT 4.187) 41 (1.7 23. year ending March 31) FY12 Gross Turnover Excise Duty Revenue from operations 5. in Cash & Bank balance 289 2.3 (1.1 Table 5: Quarterly trends (Rs mn.3 6.1 197 57.503 5.101 .052 14.095 12.5 73.470 Net Worth 9.2 15.324 4.134 Working Capital Changes 1.4 RoNW 32.3) (19.753 FY15E 10.Current tax 1.8 45.9 43.0) 23.9 50 2.6 72.5 41.581 151 508 10 12.6 Rec. I-Sec research FY13E FY14E FY15E Table 6: Cashflow statement (Rs mn.192 2.6 50 2.262 Operating Expenses 1. Total Current Liabilities & Provisions Net Current Assets Investments of which Strategic/Group Others Net Fixed Assets of which intangibles Capital Work-in-Progress Goodwill Total Assets 5.8 RoCE 23.025 3.5 46.1 17.3 19.359 5.039 Source: Company data.468) 3.330 3.602 12.3 50 2. year ending March 31) Jun-12 Total Income 1. July 1.310 Dec-12 1.356 1.3 57.6 27.8 306 1.036 Table 7: Key ratios (Year ending March 31) FY12 FY13E FY14E FY15E Per Share Data (Rs) EPS(Basic Recurring) Diluted Recurring EPS Recurring Cash EPS Dividend per share (DPS) Book Value per share (BV) Growth Ratios (%) Operating Income EBITDA Recurring Net Income Diluted Recurring EPS Diluted Recurring CEPS Valuation Ratios P/E P/BV EV / EBITDA EV / EBIT EV / Op.203 67.923 11.109 1.8 Source: Company data.6 24.6 Liabilities Borrowings Deferred Tax Liability 151 Minority Interest Equity Share Capital 508 Face Value per share (Rs) 10 Reserves & Surplus 9.259) 11.6 Dividend Payout Ratio 47 Dividend Yield 2.7 21.9 53. I-Sec research FY14E 1.797 707 12.0 372 759 637 52.380 3.155 9.9 (16) 817 62. I-Sec research 59.9 13.227 FY15E 2.155 9.Multi Commodity Exchange of India.2) (19.923 4.155 9.3 64.367 (1.640 (3.109 2. I-Sec research Sep-12 1.009 2.2 24.5 59.915 EBITDA 3.6) (23.5 Other income 233 Add: Extraordinaries Net profit 647 Source: Company data.3 9.9) (2.105 Add: Extraordinaries (142) Less: Taxes .124 8.

The recipient should independently evaluate the investment risks. This report is not directed or intended for distribution to. in circumstances where ICICI Securities is acting in an advisory capacity to this company. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. who must make their own investment decisions. ICICI Securities.Multi Commodity Exchange of India. CA and Jeetendra Khatri. This report is based on information obtained from public sources and sources believed to be reliable. research analysts and the authors of this report or any of their family members does not serve as an officer. research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. Inc. country or other jurisdiction. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. to any other person or to the media or reproduced in any form.com. Actual results may differ materially from those set forth in projections. The contact details of ICICI Securities. corporate finance. ADD: 5% to 15% return. Nothing in this report constitutes investment. publication. which include earnings from Investment Banking and other business. is. Our research professionals are paid in part based on the profitability of ICICI Securities. This may not be taken in substitution for the exercise of independent judgement by any recipient. Tel: +65 6232 2451 and email: navneet_babbar@icicisecuritiesinc. research analysts and the authors of this report. 6 . ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Nimit Shah. We also certify that no part of our compensation was. its subsidiaries and associated companies. Nimit Shah. without prior written consent of ICICI Securities. The securities discussed and opinions expressed in this report may not be suitable for all investors. or in connection with. Singapore . The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way. transmitted to. in so far as it includes current or historical information. This report has not been prepared by ICICI Securities. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. Though disseminated to all the customers simultaneously. Our research professionals provide important input into our investment banking and other business selection processes. their directors and employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. integrated investment banking. charges for brokerage services on execution of transactions do not in substance constitute charge for research reports and no charges are levied for providing research reports to such investors. where such distribution. However. "In case of eligible investors based in Japan. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. ICICI Securities generally prohibits its analysts. (Singapore branch) in respect of any matters arising from. there may be regulatory. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. SELL: < negative 5% return ANALYST CERTIFICATION We /I. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings. director or advisory board member of the companies mentioned in the report.com. or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. foreign exchange rates or any other reason. in part or in whole. Forward-looking statements are not predictions and may be subject to change without notice. REDUCE: Negative 5% to positive 5% return. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service. investment banking or other advisory services in a merger or specific transaction. has reviewed the report and. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. but no independent verification has been made nor is its accuracy or completeness guaranteed. hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. 2013 ICICI Securities This report may be distributed in Singapore by ICICI Securities. (Singapore branch) are as follows: Address: 10 Collyer Quay. based on their own investment objectives. or in certain other circumstances. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. availability or use would be contrary to law. compliance or other reasons that may prevent ICICI Securities from doing so. CA and Jeetendra Khatri. Nonrated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies. state. #37-16 Ocean Financial Tower. or use by. copied or distributed. Also. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. legal. The value and return of investment may vary because of changes in interest rates. this report. BMS. investment management and brokerage and financing group. July 1." New I-Sec investment ratings (all ratings based on absolute return) BUY: >15% return.049315. ICICI Securities. Rishi_agrawal@icicisecuritiesinc. Inc. Inc. Inc. although its accuracy and completeness cannot be guaranteed. financial positions and needs of specific recipient. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. BMS. any person or entity who is a citizen or resident of or located in any locality. While we would endeavour to update the information herein on reasonable basis. BMS. Inc. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. Any recipients of this report in Singapore should contact ICICI Securities. not all customers may receive this report at the same time. It is confirmed that Nimit Shah. persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. it is believed to be reliable. (Singapore branch). CA and Jeetendra Khatri. Past performance is not necessarily a guide to future performance.

Sign up to vote on this title
UsefulNot useful