Visit http://indiaer.blogspot.com/ for complete details �� ��
Initiating Coverage report on Financial Technologies (I) Ltd.
Financial Technologies (I) Ltd. (FT) is a Mumbai based IT company specialising in capital market solutions. Broadly speaking, FT’s value proposition empowers broking and exchange activities, through technology, ecosystem and exchange offerings. On the technology front, FT dominates, both, exchange and brokerage segments with products like DOME, CnS and ODIN.
FT also provides a full set of technology enabled market systems through its exchange and ecosystem businesses. FT holds majority stake in India's largest commodity exchange MCX and has embarked on a growth trajectory by systematically tapping potential for exchange traded products through strategic investments in bourses across the globe.
Investment rationale
Potential for value unlocking through Exchange & Ecosystems businesses
Recently, FT went live with SMX, a Singapore based commodities exchange and GBOT. The company also plans to tap exchange opportunities in global emerging economies, with Bourse Africa and BFX on the anvil.
On the other hand, FT is yet to realise the potential embedded in its domestic operations viz. MCX, MCX-SX and NBHC.
Stable cash flows and non-linearity further add to FT’s lucrativeness
The company has a valuable pool of assets, providing stable perpetual cash flows, with 550000 ODIN licenses paying ~Rs3000 per annum and, almost risk free long term contracts with allied exchanges, amounting to ~Rs170Cr p.a., excluding the variable topline contribution that may knock-in.
The value derived from these cash flows qualifies FT as a robust shelter for India exposure.
Divestment opportunities to aid future entrepreneurial efforts
FT’s success as an exchange incubator has been impeccable indeed. The company pioneered India’s leading commodity exchange while cornering more than 80% market share, as of 2010.
We attribute a certain premium to FT’s entrepreneurial zeal, allowing the company to create deep-in-value assets for future encashment, generously contributing to its bursaries, while aiding the adventurous journey that lies ahead.
Robust growth expected in brokerage business
Currently, participation in Indian capital markets is restricted to less than 2% of domestic households, in comparison to western countries, where the participation is~40%. With household savings estimated at ~$300-350bn/year and sustained 8-9% GDP growth rates, retail broking presents immense growth potential, expected to reach $6535.7bn worth trading volumes by 2015 (Source: Research and Markets).
This bodes well for FT, with flagship ODIN monopolising over more than 80% of the installed base of trading terminals, spread across a profound network comprising of more than 4000 members of major Indian exchanges (Source: Company).
Valuation
At CMP of Rs1038.9 FT’s common stock is trading at 27.3x FY12E earnings (standalone). We initiate coverage with buy recommendation and target price of Rs1270 based on SOTP methodology.
No comments:
Post a Comment