Multi Commodity Exchange -CEO Stepping Down, Turnover Stepping Up  Citi Research

Multi Commodity Exchange Ltd. (MCEI.BO)
CEO Stepping Down, Turnover Stepping Up
 CEO stepping down end on June 12, replacement soon — MCX’s current CEO, Mr
Lamon Rutten, will not seek an extension to his current term (ending June 2012) due to
family reasons; however, will continue to be present on its Board (as a non-executive
director). We believe the company is operationally stable and is expected to announce
a replacement soon, which will need the regulator’s (FMC) approval as well.

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 Average Daily Turnover higher in May vs April — Average Daily Turnover (ADT) for
May 2012 was Rs494bn vs Rs426bn in April (+16% mom, +12% yoy). Management
believes lower ADT for April was largely due to non-recurring issues: a) Jewelry sector
strike (mid-March to mid-April); b) Low volatility in commodity prices internationally,
especially gold; and c) High INR volatility impacting turnover. While May ADT is still
below FY12 (Rs503bn), it has started normalizing towards end May and management
is hopeful of continued ADT strength near term.
 Positive regulatory news — MCX has seen some positive developments on the
regulatory front: a) it has been allowed to retain its 37% warrants in MCX-SX (where a
recent favourable ruling from Supreme Court suggests equity trading likely to be
approved soon) for three years; and b) press reports suggests domestic banks are
likely to be allowed to trade in commodity exchanges (though the time line is still
uncertain). We believe these would support turnover on commodity exchanges.
 FY12 results marginally below estimates, but outlook unchanged — MCX’s FY12
net profits were up 71% yoy, though slightly below our estimates – largely on account
of transfer of member penalties to a separate investor protection fund (regulatordriven).
Excluding the above, earnings were largely in line with our estimates. MCX has
increased its dividend payout ratio to 50% for FY12, but has not changed its dividend
policy yet (max 50% board limit). We maintain our turnover estimates, but revise
earnings marginally (-2% to -3% for FY13-14E) to account for higher dividend payouts.
We believe valuations are attractive at 14x FY13E P/E; maintain Buy.