MCX IPO— The new buzz word on Dalal Street has attracted way too much investor interest already. Most brokerages have a buy call on the IPO due to the exchange’s strong financial performance and good industry prospects. But is the IPO really worth investing when the market has clearly seen a rally because of one sole factor— Foreign Institutional Investors?
Here are 10 things you must know about the Multi Commodity Exchange of India before subscribing to its shares:
1. MCX is India’s leading commodity market and also the first exchange tapping the capital market in India. It ranks first globally in terms of silver trading by volume, second for gold, copper and natural gas, third for crude oil and fifth in terms of overall traded ‘futures’ volume. Due to the craze towards precious metals in India, the growth of the exchange is likely to sustain.
2. Anchor investors bought 926,606 shares at a price band of Rs 1,032 a share in the pre-IPO sale yesterday, totaling Rs 95 crore. The anchor investors that bought shares in the pre-IPO sale include BlackRock Global Funds, Deutsche Securities, Kuwait Investment Authority Fund, Credit Suisse, ICICI Prudential Mutual Fund and Tata AIG Life Insurance, the filings showed.
3. MCX holds a leadership position in the Indian commodity futures market, with a share of 87.3 percent of the overall traded turnover in 9 months FY12. The overall volume on the commodity exchange has grown by 32 percent and the overall operational margins and operational leverage in this company are big, say experts. Moreover, in the last nine months alone, there has been a 70 percent increases in the volume for MCX. This is because of very high increase in new registration for sub-brokers as well as new product inventions. Experts expect around 20 percent CAGR growth over the next two-three years visible on the company’s financials.
4. The IPO has got a five out of five rating from rating agency Crisil. Such a strong rating indicates continuous improvement in volumes. Also domestic brokerage firm Enam Direct has said that regulatory reforms in the form of granting permission for trading in options and indices and approval to foreign as well as domestic institutions and banks to participate in commodity futures trading can be the next big trigger for growth in exchange volumes.
5. The biggest strength of the company comes from India’s economic growth. An Aditya Birla Money note on the IPO estimates 30 percent growth in revenues in the next year, along with a high operating margin of 50.2 percent.
6. Growth of the overall economy in India is likely to drive the underlying demand for commodities. The increase in physical market volumes may increase the hedging requirements of industry players, which influences derivative trading volumes.The number of contracts in the nine months of financial year 2012 has increased to 289 million from 213 million in financial year 2011.
7. The company not only has a profitability track record, but also a strong professional management. Moreover, it has a long list of marquee sponsors like Financial Technologies, State Bank of India, NYSE , Fidelity, Merrill Lynch, IFCI, Corporation Bank, ICICI, Passport Capital, Union Bank, HDFC Bank, Bank of India, Bank of Baroda, etc.
8.The markets have seen a dramatic turnaround in the last one-and-a-half months with inflows of around $4 billion. Investors are clearly not so risk averse at the moment and it seems MCX has got its timing bang on.
9. Investors who are in for the long-run can subscribe to the shares as well as there are no other listed companies in India that are engaged in a business similar to MCX.The stock is valued at a P/E ( price per earning ratio) of 15.1x-18.1x on its annualized FY12 EPS of Rs 57.0 on a price band of Rs 860-Rs1032, respectively.
10. According to CLSA, the IPO has been priced reasonably. Unlike other exchanges, MCX operates a vertically integrated model, is profitable and generates positive cash flow besides debt free, the agency noted. According to BSE, around 65 ercent of the MCX’s issue has already been subscribed.
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