MCX IPO valuations are attractive: Nirmal Bang

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Nirmal Bang has recommend investors to 'Subscribe' to initial public offering of Multi Commodity Exchange of India (MCX) as it believes the company's "valuations are attractive at current levels." "The Developed countries Exchanges like CME, CBOT enjoy an EBITDA margin of approximately 60% with a growth of around 9-10%. These exchanges enjoy a P/E of around 17-18x on CY12 earnings. The developing countries also enjoy an EBITDA margin of around 60% with a growth of 10-15% and enjoy a P/E of 24-25x on CY12E. Whereas, MCX being the first listed company is trading at a P/E of 18x on annualized FY12E earnings. We believe that MCX enjoys a lower multiple as compared to other exchanges even though the growth rate is higher. We believe that the valuations are attractive at current levels," the report said. MCX is planning to raise between Rs 553-663 crore by offering equity shares at a price band of Rs 860-1032 per share. The issue opens February 22, 2012 and closes on February 24, 2012. "MCX shares are offered at 4.9x P/BV and 18.11x P/E calculated at higher band of price for 9MFY12 annualized EPS. We believe that the leadership position in the commodities industry with minimal competition, MCX will definitely command a premium multiple. Considering promoter's position in the market, visible brand, better operational parameters & diversified portfolio, we expect MCX can command higher premium going ahead. Therefore, we recommend a "SUBSCRIBE". Since the offer is a pure offer for sale, the company would not receive any proceeds from the offer. The main object of the issue is to get listed on the exchange. CRISIL has assigned a 'Grade 5' to the MCX IPO which indicates 'Strong Fundamentals'.