MCX IPO: Triggers & Concerns
Issue Snapshot:
Offer for sale of 64.27 lac shares by existing
shareholders
Issue Open: February 22 - February 24, 2012
Price Band: Rs860 - Rs1032
Issue Size: Rs552.75 cr - Rs663.30 cr
Issue Size: 6,427,378 equity shares
Objects of Issue:
The object of the Offer is to achieve the benefits of listing on the BSE and to carry out the sale of 6,427,378 Equity Shares by the Selling Shareholders - Financial Technologies (India) Limited, State Bank Of India (Equity), Glg Financials Fund, Alexandra Mau ritius Limited, Corporation Bank, ICICI Lombard General Insurance Company Limited and Bank of Baroda. Company will not receive any proceeds from the Offer.
Triggers:
Leadership Position in the Commodity Futures Industry: MCX is the leading commodity futures exchange in India in terms of value of commodity futures contracts traded in metals, energy and certain agricultural commodities. Among the national commodities exchanges in India, its market share based on the total value of commodities traded in futures markets for the nine months ended December 31, 2011 for gold, crude oil, silv er, copper and natural gas futures contracts was approximately 97.1%, 94.8%, 98.5%, 94.9% and 99.9%, respectively. It is the fifth largest commodity futures exchange globally, among all the commodity exchanges considered in the FIA survey, in terms of the number of contracts traded and were among the leading commodity exchanges in the world in terms of trading volumes of certain commodities. Leadership position of MCX in these products give s it a competitive advantage.
Product and Service Innovation: Strength lies in MCX’s ability to introduce new and innovative products, i.e. commodity futures contracts, and services on the Exchange. It has launched MCXCOMDEX, India‘s first real time composite commodity futures index, which provide its members with valuable information regarding market movements in the key commodities, as determined by physical market size in India, which are actively traded on Exchange. It has also introduced several other indices, including MCXAgri (agricultural commodities index), MCXEnergy (energy commodities index) and MCXMetal (me tal commodities index). It also have three rain indices, namely RAINDEXMUM (Mum bai), RAINDEXIDR (Indore), and RAINDEXJAI (Jaipur) which tracks the progress of monsoon rains in their respective geographic locations. MCX is the first exchange in India to initiate evening sessions to synchronize with the trading hours of global exchanges in London, New York and other major internati onal markets. In addition, it provide its members with real time market information regarding prices and trading activity .
Technology Infrastructure is a key factor in development: MCX’s technology infrastructure is the foundation of its business and a key factor in its development. Its online trading platform is accessible to its members through its trader workstation or compu ter-to-computer link (CTCL) using multiple media of connectivity including VSATs, VPN, leased lines, and the Internet. It has deployed effective technology to minimise the various risks including member defaults. The system tracks its members‘ margin utilizations and tracks mark-to-market (MTM) losses online against their deposit available with Exchange and autom atically generates alerts and takes pre-decided actions. Electronic trading platform of MCX is suppli ed by its Promoter FTIL, whic h is one of the leading technolog y companies in the development, and deployment of exchange related software and technology in India. The technical expertise and experience of FTIL enables it to obtain speedy and efficient technology solutions, su ch as customisati on and development of new software for new products and services.
Concerns:
- Promoter and Group Companies of MCX are party to certain legal proceedings, which could harm its reputation and adversely affect the business
- If MCX is unable to maintain or grow the turnover of commodi ty futures contracts traded on its Exchange or retain its current members or attract new members to its Exchange its business and results of operations may be adversely affected
- The turnover of commodity futures contracts traded on MCX in the past has been concentrated in silver, gold, crude oil and copper. A decline in volume of trade or in its market share in such commodities may adversely affect its business and results of operat ions.
- MCX may face competition from existing players and new entrants in the industry, whic h could adversely affect its business, financial condition and results of operations.
- MCX’s strategic investments, alliances and joint ventures involve risks and may not produce the results it expect, which could adversely affect its business, financ ial condition and results of operations.
- MCX has made investments in form of equity share capital and warrants in MCX-SX. In the event of an adver se outcome in the outstanding litigation between MCX-SX and SEBI in relation to the application for di versification of tradi ng operations, it may not be able to benefit from its invest ments as anticipated by it.
- Any adverse decision by the FMC in connection with the investor protec tion fund required to be maintained by the Company, could adversely affect MCX’s results of operations.
Conclusion:
India being one of the fast growi ng economies in the world could witness growing demand for commodities and in turn the volumes in futures and options based on the underlying commodities could also see a steady rise. 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 is valued at a P/E of 15.1x-18.1x on its annualized FY12 EPS of Rs57.0 on a price band of Rs860-Rs1032, respectively. There are no listed companies in India that are engaged in a business similar to MCX. Compared with global players, the valuation seems reasonable given the company’s strong parentage, good business model and robust growth prospects. Fu rther given the small issue size, demand from institutional players in the IPO and post-listing could be large.
Offer for sale of 64.27 lac shares by existing
shareholders
Issue Open: February 22 - February 24, 2012
Price Band: Rs860 - Rs1032
Issue Size: Rs552.75 cr - Rs663.30 cr
Issue Size: 6,427,378 equity shares
Objects of Issue:
The object of the Offer is to achieve the benefits of listing on the BSE and to carry out the sale of 6,427,378 Equity Shares by the Selling Shareholders - Financial Technologies (India) Limited, State Bank Of India (Equity), Glg Financials Fund, Alexandra Mau ritius Limited, Corporation Bank, ICICI Lombard General Insurance Company Limited and Bank of Baroda. Company will not receive any proceeds from the Offer.
Triggers:
Leadership Position in the Commodity Futures Industry: MCX is the leading commodity futures exchange in India in terms of value of commodity futures contracts traded in metals, energy and certain agricultural commodities. Among the national commodities exchanges in India, its market share based on the total value of commodities traded in futures markets for the nine months ended December 31, 2011 for gold, crude oil, silv er, copper and natural gas futures contracts was approximately 97.1%, 94.8%, 98.5%, 94.9% and 99.9%, respectively. It is the fifth largest commodity futures exchange globally, among all the commodity exchanges considered in the FIA survey, in terms of the number of contracts traded and were among the leading commodity exchanges in the world in terms of trading volumes of certain commodities. Leadership position of MCX in these products give s it a competitive advantage.
Product and Service Innovation: Strength lies in MCX’s ability to introduce new and innovative products, i.e. commodity futures contracts, and services on the Exchange. It has launched MCXCOMDEX, India‘s first real time composite commodity futures index, which provide its members with valuable information regarding market movements in the key commodities, as determined by physical market size in India, which are actively traded on Exchange. It has also introduced several other indices, including MCXAgri (agricultural commodities index), MCXEnergy (energy commodities index) and MCXMetal (me tal commodities index). It also have three rain indices, namely RAINDEXMUM (Mum bai), RAINDEXIDR (Indore), and RAINDEXJAI (Jaipur) which tracks the progress of monsoon rains in their respective geographic locations. MCX is the first exchange in India to initiate evening sessions to synchronize with the trading hours of global exchanges in London, New York and other major internati onal markets. In addition, it provide its members with real time market information regarding prices and trading activity .
Technology Infrastructure is a key factor in development: MCX’s technology infrastructure is the foundation of its business and a key factor in its development. Its online trading platform is accessible to its members through its trader workstation or compu ter-to-computer link (CTCL) using multiple media of connectivity including VSATs, VPN, leased lines, and the Internet. It has deployed effective technology to minimise the various risks including member defaults. The system tracks its members‘ margin utilizations and tracks mark-to-market (MTM) losses online against their deposit available with Exchange and autom atically generates alerts and takes pre-decided actions. Electronic trading platform of MCX is suppli ed by its Promoter FTIL, whic h is one of the leading technolog y companies in the development, and deployment of exchange related software and technology in India. The technical expertise and experience of FTIL enables it to obtain speedy and efficient technology solutions, su ch as customisati on and development of new software for new products and services.
Concerns:
- Promoter and Group Companies of MCX are party to certain legal proceedings, which could harm its reputation and adversely affect the business
- If MCX is unable to maintain or grow the turnover of commodi ty futures contracts traded on its Exchange or retain its current members or attract new members to its Exchange its business and results of operations may be adversely affected
- The turnover of commodity futures contracts traded on MCX in the past has been concentrated in silver, gold, crude oil and copper. A decline in volume of trade or in its market share in such commodities may adversely affect its business and results of operat ions.
- MCX may face competition from existing players and new entrants in the industry, whic h could adversely affect its business, financial condition and results of operations.
- MCX’s strategic investments, alliances and joint ventures involve risks and may not produce the results it expect, which could adversely affect its business, financ ial condition and results of operations.
- MCX has made investments in form of equity share capital and warrants in MCX-SX. In the event of an adver se outcome in the outstanding litigation between MCX-SX and SEBI in relation to the application for di versification of tradi ng operations, it may not be able to benefit from its invest ments as anticipated by it.
- Any adverse decision by the FMC in connection with the investor protec tion fund required to be maintained by the Company, could adversely affect MCX’s results of operations.
Conclusion:
India being one of the fast growi ng economies in the world could witness growing demand for commodities and in turn the volumes in futures and options based on the underlying commodities could also see a steady rise. 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 is valued at a P/E of 15.1x-18.1x on its annualized FY12 EPS of Rs57.0 on a price band of Rs860-Rs1032, respectively. There are no listed companies in India that are engaged in a business similar to MCX. Compared with global players, the valuation seems reasonable given the company’s strong parentage, good business model and robust growth prospects. Fu rther given the small issue size, demand from institutional players in the IPO and post-listing could be large.
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