most- multi commodity exchange- 3qfy13 results update- 2 february 2013

7/29/2019 MOSt- Multi Commodity Exchange- 3QFY13 Results Update- 2 February 2013

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Ashish Chopra ([email protected]); +91 22 3982 5424 1Investors are advised to refer through disclosures made at the end of the Research Report.

Multi Commodity ExchangeCMP: INR1,398 BuyBSE Sensex S&P CNX

19,781 5,999

Bloomberg MCX IN

Equity Shares (m) 51.0

M.Cap. ( INR b)/(USD b) 71.3/1.352-Week Range ( INR) 1,617/838

1,6,12 Rel. Perf. (%) -5/18/-

2 February 2013

3QFY13 Results Update

Financials & Valuation (INR b)

Y/E March 2013E 2014E 2015E

Sales 5.1 6.0 7.3

EBITDA 3.0 3.6 4.5

PAT 2.7 3.2 3.9

EPS (INR) 53.6 61.9 75.8EPS Gr. (%) -4.5 15.5 22.4

BV/Sh. (INR) 223.0 252.3 288.3

RoE (% 25.6 26.1 28.0

RoCE (%) 24.6 25.2 27.2

Payout (%) 54.6 52.9 52.5

Valuations

P/E (x) 26.1 22.6 18.4

P/BV (x) 6.3 5.5 4.8

EV/ EBITDA (x) 19.4 15.9 12.1

Div. Yield (%) 2.1 2.3 2.8

MCX's 3QFY13 revenues at INR1.25b (-3.9% YoY, -4.9% QoQ) was in line with

our estimate. EBITDA margin at 58% was marginally below our estimate of

58.9%. PAT at INR758.7m (+10% YoY but -6.8% QoQ) was higher than our

estimate of INR667.7m, on the back of other income (INR372.5m, v/s our

estimate of INR271.5m).

Lower revenues YoY was on the expected lines as the total value of volumes

declined to INR37t in 3QFY13 by 3.6% YoY, from INR38.4t in 3QFY12. Although

employee costs at 5.4% of revenues declined 50bp QoQ (110bp below our

estimate), administration and other expenses increased 230bp QoQ (+110bp

v/s our estimate) to 19.6% and offset the gain from the former.

Over 9MFY13, volumes stood at INR112.7t, down by 5.9% YoY. The decline is

led by silver (-31.1% YoY) and gold (-14.6% YoY), offset only partially by crude

oil (+28.9% YoY) and copper (+8.7% YoY). Near-monopolistic market share

continued, with 9MFY13 share at 87% v/s 86% in FY12. Average daily turnover

at the exchange in 3QFY13 was INR481b, down from INR510b in 2QFY13 and

INR503b in FY12.

Current CFO Mr Mahesh Joshi resigned and Mr Hemant Vastani, Head-Finance

& Accounts has been named the acting CFO of the company.

We expect MCX to post transaction fees at a CAGR of 14% over FY13-15E and

EPS at a CAGR of 19% during this period. We separately value MCX's stake

(including warrants) in MCX-SX. The standalone exchange's business is valued

at 20x FY15E earnings and attribute INR110 (under revision, likely to be

revised upwards) as the value to its stake in MCX-SX. Maintain Buy.


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Multi Commodity Exchange of India

2 February 2013 2

Source: Company, MOSL

EBITDA margin during the quarter was 58%, only marginally below our estimate of

58.9%. Although employee costs at 5.4% declined 50bp QoQ and was 110bp below our

estimate, administration and other expenses increased 230bp QoQ to 19.6% (+150bp

v/s our estimates). EBITDA at INR723m declined 11.8% YoY and 11.5% QoQ (v/s our

estimate of INR733m). EBIT margin was further lower at 51.2% v/s estimate of 53.3%,

as depreciation was up 1.4pp QoQ to 6.8% of revenues (v/s estimate of 5.6%).

EBIT margin declined on lower revenues, below estimate due to higher depreciation

3QFY13: Operationally in line; PAT above estimate on higher other income

Revenues at INR1.25b declined 3.9% YoY and 4.9% QoQ and was in line with our

estimate of INR1.24b. Lower revenues YoY was on the expected lines as the total

value of volumes declined to INR37t in 3QFY13 by 3.6% YoY from INR38.4t in 3QFY12.

Revenues declined both QoQ and YoY, but on expected lines as volumes on the exchange remained

soft


Other income (including other operating income) was INR372.5m, v/s our estimate of

INR271.5m. Higher other income drove above-estimate PAT during the quarter. PAT at

INR758.7m (v/s estimate of INR667.7m) grew 10% YoY but declined 6.8% QoQ.


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2 February 2013 3

Volumes update: 9-month performance dragged by decline in silver, gold

volumes

Over 9MFY13, volumes stood at INR112.7t, down by 5.9% YoY. The decline is led by

silver (-31.1% YoY) and gold (-14.6% YoY), but offset only partially by crude oil (+28.9%

YoY) and copper (+8.7% YoY).

Total volumes by value in 3QFY13 were INR37t, -5.38% QoQ and -3.6% YoY. Total

contracts traded during the quarter were INR101.3m, +4.2% QoQ but -9.1% YoY.

YoY decline in quarterly volumes was led by muted activity in gold and silver counters

v/s corresponding quarter last year. Total traded value of gold was down 17.4% YoY in

3QFY13 and silver was down 14.3% YoY.

Volumes in both the key commodities declined YoY -

Total traded value declined both YoY (3.6%) and QoQ (5.3%) gold (-17.4%) and silver (-14.3%)

Combined market share of gold and silver declined from 60% in 3QFY12 to 52% in 3QFY13

3QFY12 3QFY13

Operational performance: Average daily volumes down, market share

inches up

Total commodity contracts traded in 9MFY13 increased 2.8% YoY to 296.8m. Average

daily turnover at the exchange in 3QFY13 was INR481b, down from INR510b in 2QFY13

and INR503b in FY12. Near-monopolistic market share was retained, with 9MFY13

share at 87%, v/s 86% in FY12.



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2 February 2013 4

Company description

Multi Commodity Exchange of India Ltd (MCX) is a state-

of-the-art electronic commodity futures exchange,

offering futures trading in over 47 commodities, mainly

gold, silver, copper and crude oil. It began operations in

November 2003 and has over 86% share (as on March 31,

2012) of the Indian commodity futures market. In terms

of contracts traded in CY11, it is the third largest globally,

second-largest in gold, largest in silver, second-largest

in natural gas and third-largest in crude oil.

Key investment arguments

Supply of technology platform by its parent,

Financial Technologies India (FTECH), gives MCX acompetitive edge that is difficult to replicate.

The Union Cabinet approved a proposal to move

official amendments to the FCRA Bill. This will give a

fillip to MCX's volumes, with the introduction of

options trading, new commodity classes like

intangibles and new participants like banks and MFs.

Key investment risks

Low volatility could drive lower volumes, resulting

in an even bigger hit to profits, given operatingleverage.

Delay in amendments by the regulator will impair

growth in volumes at the exchange.

Recent developments

Current CFO Mr Mahesh Joshi resigned and Mr

Hemant Vastani, Head-Finance & Accounts, has been

named the acting CFO of the company.

Shareholding pattern (%)

Dec-12 Sep-12 Dec-11

Promoter 26.0 26.0 -

Domestic Inst 23.0 23.4 -

Foreign 35.8 33.9 -

Others 15.2 16.7 -

Multi Commodity Exchange of India: an investment profile

Stock performance (Since 8 March 2012)

Current price and recommendationCurrent Reco.

Price (INR)

1,398 Buy

EPS: MOSL forecast v/s consensus (INR)MOSL Consensus Variation

Forecast Forecast (%)

FY13 53.6 58.8 -8.9

FY14 61.9 68.7 -9.9

MCX-SX's launch date has been set on February 9,

2013.

Valuation and view We expect MCX to post transaction fees at a CAGR of

14% over FY13E-15E and EPS at a CAGR 19% during

this period. We currently value the standalone

exchange business at 20x FY15E earnings and

attribute INR110 as value to its stake in MCX-SX.

With the launch of MCX-SX's equity operations

following a successful membership drive, we expect

significant upward revision in potential value

unlocking from MCX-SX for MCX. Maintain Buy.

Sector view

Indian commodities exchanges are highly regulated

and hence under the current regulatory

environment, foreign institutional investors (FIIs),

banks and mutual funds cannot trade on these

exchanges.

Growth potential in an economy like India remains

huge over the next decade, which is expected to

drive the demand for commodities. The increase in

physical market volumes consequently increases

hedging requirements for industry players, thus

influencing derivative trading volumes.

Penetration remains low - globally, futures gold

volumes are 70-80x that of physical trade, v/s 17-18x

in India, 20x in crude v/s ~7x in India, 100x in

aluminum v/s 8-9x in India.


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2 February 2013 5

Financials and Valuation


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Disclosure of Interest Statement Multi Commodity Exchange of India

1. Analyst ownership of the stock No

2. Group/Directors ownership of the stock No

3. Broking relationship with company covered No

4. Investment Banking relationship with company covered No

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most- multi commodity exchange- 3qfy13 results update- 2 february 2013

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