Is MCX the Leading Commodity Stock – Fully Valued ?
April 16, 2012
MultiCommodity Exchange Ltd a Monopoly exchange in its own way in the Indian Commodity Segment listed with a appreciable premium [Read our MCX IPO Review here] and is all set to enter the Equity Trading Segment to get a slice of market from the National Stock Exchange.
Business of Commodity Exchnages in India: Commodity exchanges distinct from stock exchanges with a separate regulator; Multiple competitors (five national exchanges); Closely regulated list of products and participants; and Pricing is low and based on turnover rather than number of contracts.
MCX Management We believe MCX is a step ahead in innovation, product mix and business volumes, and should retain its potent mix of high returns and potentially high growth. Key reasons for our positive bias. Rise in market share to 86% (FY12) from 45% (FY06) despite increase in competitive intensity. Finally, MCX is indirectly backed by Reliance group with Jignesh Shah being the Front Face of it.
MCX Business Growth Over 80% of MCX’s revenue comes from transaction fees linked to trading volumes, 90% of which are from the top four commodities. Strong turnover growth (59% CAGR over FY06-12) even amid declining commodity prices; High profitability (EBITDA margins of 59% in 9MFY12) and profit growth (36% CAGR over FY06-12); Cash surplus, with no debt/capex requirements in near future.
MCX Valuation Leading Institutional Investors Value the Stock at a Forward P/E of 18. However, they differ in their Earnings Estimates. Morgan Stanley expects MCX to earn Rs 67 / share while Citi expects it to earn Rs 72 for FY 2013 and thus have a target price of Rs 1300 and Rs 1500 respectively on the stock.
Keep an eye on the developments that can be EPS accretive.