Mumbai: India’s largest commodity bourse, Multi Commodity Exchange of India Ltd (MCX), is set to become the first exchange to get listed in the country, and one of the most expensive exchanges across the world. MCX will sell 6.4 million shares, or 12.6% of its stake, through an initial public offering (IPO) that starts on 22
February and ends two days later.
The MCX IPO is the first public share sale of the year and could signal the fate of primary markets in 2012. The total amount raised through IPOs in India fell 85% to Rs. 6,129 crore in 2011.
MCX on Thursday announced a price band of Rs. 860-1,032 that makes the bourse worth Rs. 5,263 crore, or roughly $1 billion at the upper end of the band. At the higher end of the price band, MCX will trade at nearly 30 times earnings in the past fiscal. The price-earnings (P-E) multiple at the lower end of the price band is 25. Depending on the offer price of the issue, the MCX IPO will raise between Rs. 553 crore and Rs. 663 crore.
The bourse had an 87% share of the commodity derivatives market in India worth Rs. 137 trillion in the nine months ended December. It dominates trading in metals such as gold, silver and copper as well as crude oil.
The average P-E for exchanges globally is around 18, but Asian exchanges tend to trade at a premium to their global peers. The largest exchange in the world, CME Group Inc., which has a market capitalization nearly 20 times higher than MCX, has a P-E multiple of 11.
While listed global exchanges trade at 17-18 times their earnings on average, Asian exchanges trade at an average P-E of 25, V.K. Bansal, chairman of Morgan Stanley India Co. Pvt. Ltd, told reporters. The MCX valuation is close to that of Hong Kong Exchanges and Clearing Ltd, which trades at 29 times historical earnings.
Morgan Stanley India, Citigroup Global Markets India Pvt. Ltd and Edelweiss Financial Services Ltd are the merchant bankers managing the share sale. They said the valuation was justified, citing the higher growth in business generated by MCX. The bourse has seen much faster business growth compared with peers at over 40% compounded annual growth rate (CAGR) in the past few years, said Ravi Kapoor, managing director of Citigroup Global Markets India.
Turnover on the bourse has risen at 46% CAGR between fiscal 2009 and fiscal 2011, the red herring prospectus (RHP) filed by MCX showed. Neither revenue nor profit has grown at the same pace though. While revenue grew at a CAGR of 10.6% to Rs. 447 crore, profit grew at a CAGR of 5% to Rs. 172 crore over the same period. Profit has picked up in the current fiscal though, rising to Rs. 217 crore in the nine months ended 31 December, the RHP showed.
Financial Technologies India Ltd (FTIL), the promoter of MCX, saw its stock move up nearly 4% to Rs. 862.65, even while the broader market was flat on Thursday. FTIL’s stock has risen 63% so far this year after declining 41% in 2011.
MCX will not be raising capital by issuing new shares. The IPO is only an offer for sale that will enable FTIL to meet regulatory requirements, which bar a promoter from holding more than 26% in a commodity exchange, and allow investors an exit option. Several investors have covenants with MCX that mandate an IPO.
FTIL currently has a 31.2% stake in MCX, which will come down to approximately 26% after the issue. FTIL stands to gain about Rs. 273 crore at the higher end of the price band.
Mint’s publisher, HT Media Ltd, has a 0.2% stake in MCX.
Ashwin Ramarathinam contributed to this story.
The MCX IPO is the first public share sale of the year and could signal the fate of primary markets in 2012. The total amount raised through IPOs in India fell 85% to Rs. 6,129 crore in 2011.
MCX on Thursday announced a price band of Rs. 860-1,032 that makes the bourse worth Rs. 5,263 crore, or roughly $1 billion at the upper end of the band. At the higher end of the price band, MCX will trade at nearly 30 times earnings in the past fiscal. The price-earnings (P-E) multiple at the lower end of the price band is 25. Depending on the offer price of the issue, the MCX IPO will raise between Rs. 553 crore and Rs. 663 crore.
The bourse had an 87% share of the commodity derivatives market in India worth Rs. 137 trillion in the nine months ended December. It dominates trading in metals such as gold, silver and copper as well as crude oil.
The average P-E for exchanges globally is around 18, but Asian exchanges tend to trade at a premium to their global peers. The largest exchange in the world, CME Group Inc., which has a market capitalization nearly 20 times higher than MCX, has a P-E multiple of 11.
While listed global exchanges trade at 17-18 times their earnings on average, Asian exchanges trade at an average P-E of 25, V.K. Bansal, chairman of Morgan Stanley India Co. Pvt. Ltd, told reporters. The MCX valuation is close to that of Hong Kong Exchanges and Clearing Ltd, which trades at 29 times historical earnings.
Morgan Stanley India, Citigroup Global Markets India Pvt. Ltd and Edelweiss Financial Services Ltd are the merchant bankers managing the share sale. They said the valuation was justified, citing the higher growth in business generated by MCX. The bourse has seen much faster business growth compared with peers at over 40% compounded annual growth rate (CAGR) in the past few years, said Ravi Kapoor, managing director of Citigroup Global Markets India.
Turnover on the bourse has risen at 46% CAGR between fiscal 2009 and fiscal 2011, the red herring prospectus (RHP) filed by MCX showed. Neither revenue nor profit has grown at the same pace though. While revenue grew at a CAGR of 10.6% to Rs. 447 crore, profit grew at a CAGR of 5% to Rs. 172 crore over the same period. Profit has picked up in the current fiscal though, rising to Rs. 217 crore in the nine months ended 31 December, the RHP showed.
Financial Technologies India Ltd (FTIL), the promoter of MCX, saw its stock move up nearly 4% to Rs. 862.65, even while the broader market was flat on Thursday. FTIL’s stock has risen 63% so far this year after declining 41% in 2011.
MCX will not be raising capital by issuing new shares. The IPO is only an offer for sale that will enable FTIL to meet regulatory requirements, which bar a promoter from holding more than 26% in a commodity exchange, and allow investors an exit option. Several investors have covenants with MCX that mandate an IPO.
FTIL currently has a 31.2% stake in MCX, which will come down to approximately 26% after the issue. FTIL stands to gain about Rs. 273 crore at the higher end of the price band.
Mint’s publisher, HT Media Ltd, has a 0.2% stake in MCX.
Ashwin Ramarathinam contributed to this story.
