Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Exchanges globally have been businesses with strong monopoly status, robust EBIDTA margins, low capex requirements, negative working capital cycle which enable high free cash flow generation and robust dividend payout ratios. MCX, India’s first listed exchange is the largest commodity exchange with 87% market share appears to have multiple triggers for its business growth predominantly driven by regulatory outcomes. Though the exchange is the largest commodity exchange in India and the third largest in the world in terms of volumes of contracts traded, its breadth has been shallow with four commodities (gold, silver, crude, copper) together accounting to 90% of the total turnover value. MCX has benefited from the appreciation of commodity prices during (FY09-FY12) as its revenue model is depended on the value of the contracts traded. We believe that going forward there are multiple triggers on the volume growth front depending on the regulatory outcomes which include Introduction of options and indices trading in commodities, allowing banks, mutual funds and foreign institutional investors to trade in commodity exchanges etc. Global exchanges have been trading at wide P/E bands (15x-23x on forward earnings) depending on the exchange portfolio mix, revenues, margins and profits trends. Considering growth triggers we value MCX at P/E of 20x on FY14E EPS which yields a TP of `1320/Share. Initiate with Buy.
Options and commodity indices introduction could boost volumes
FCRA bill which allows introduction of commodity options, commodity indices and Institutional participation in commodity exchanges is awaiting the parliament approval. We believe that MCX’s strong parentage in technology (MCX is promoted by FT) would enable quicker launch of new product portfolio post the regulatory outcomes which could act as growth driver for volumes. Globally options account 17%-25% of the total transaction volumes in commodities and introduction of options and indices at MCX could act as substantial volume booster for the exchange. Further MCX is likely to introduce new products like Real estate indices, Rain indices etc which could act as growth drivers. FCRA bill clearance would also allow banks, institutions and FII’s to participate in commodity trading which could boost the exchange turnover.
Non linearity enables sustaining the robust EBIDTA margins
MCX has seen solid EBIDTA margin expansion with current EBIDTA margin at over 65% for nine months ended Dec 2011 driven by non linearity in the model up from 36% registered in FY09. MCX pays software & support charges (`one hundred and Twenty million + 12.5% of its gross transaction revenues) to Financial Technologies Ltd (which provides platforms), which is the only variable cost. The remaining cost structure includes salary and other administrative costs and hence inducing non linearity to the margin structure.
Multiple catalysts to drive the stock performance going ahead
MCX has 5% stake in MCX-SX as well as 634mn warrants and holding structure is under litigation with SEBI. FCRA bill approval, outcome of MCX-SX litigation could be the key catalysts which should drive stock performance going ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Exchanges globally have been businesses with strong monopoly status, robust EBIDTA margins, low capex requirements, negative working capital cycle which enable high free cash flow generation and robust dividend payout ratios. MCX, India’s first listed exchange is the largest commodity exchange with 87% market share appears to have multiple triggers for its business growth predominantly driven by regulatory outcomes. Though the exchange is the largest commodity exchange in India and the third largest in the world in terms of volumes of contracts traded, its breadth has been shallow with four commodities (gold, silver, crude, copper) together accounting to 90% of the total turnover value. MCX has benefited from the appreciation of commodity prices during (FY09-FY12) as its revenue model is depended on the value of the contracts traded. We believe that going forward there are multiple triggers on the volume growth front depending on the regulatory outcomes which include Introduction of options and indices trading in commodities, allowing banks, mutual funds and foreign institutional investors to trade in commodity exchanges etc. Global exchanges have been trading at wide P/E bands (15x-23x on forward earnings) depending on the exchange portfolio mix, revenues, margins and profits trends. Considering growth triggers we value MCX at P/E of 20x on FY14E EPS which yields a TP of `1320/Share. Initiate with Buy.
Options and commodity indices introduction could boost volumes
FCRA bill which allows introduction of commodity options, commodity indices and Institutional participation in commodity exchanges is awaiting the parliament approval. We believe that MCX’s strong parentage in technology (MCX is promoted by FT) would enable quicker launch of new product portfolio post the regulatory outcomes which could act as growth driver for volumes. Globally options account 17%-25% of the total transaction volumes in commodities and introduction of options and indices at MCX could act as substantial volume booster for the exchange. Further MCX is likely to introduce new products like Real estate indices, Rain indices etc which could act as growth drivers. FCRA bill clearance would also allow banks, institutions and FII’s to participate in commodity trading which could boost the exchange turnover.
Non linearity enables sustaining the robust EBIDTA margins
MCX has seen solid EBIDTA margin expansion with current EBIDTA margin at over 65% for nine months ended Dec 2011 driven by non linearity in the model up from 36% registered in FY09. MCX pays software & support charges (`one hundred and Twenty million + 12.5% of its gross transaction revenues) to Financial Technologies Ltd (which provides platforms), which is the only variable cost. The remaining cost structure includes salary and other administrative costs and hence inducing non linearity to the margin structure.
Multiple catalysts to drive the stock performance going ahead
MCX has 5% stake in MCX-SX as well as 634mn warrants and holding structure is under litigation with SEBI. FCRA bill approval, outcome of MCX-SX litigation could be the key catalysts which should drive stock performance going ahead.
No comments:
Post a Comment