Assignment 3

Incorporated in 2003, Multi Commodity Exchange of India Ltd (MCX) is India based electronic commodity futures exchange. MCX provides online trading facility along with clearing and settlement operations for commodity futures across India. There are five officially recognized electronic multi-commodity national exchanges in India including MCX, NCDEX, NMCE, ICEX and ACE. These five national multi-commodity exchanges accounted for 99.5% of the turnover of commodity futures contracts traded in India. MCX is the largest among these and have above 80% of the market share of the Indian commodity futures exchange industry. MCX allows trading in more than 50 commodities across sectors like bullion, metals, energy, weather, and agricultural products. The Exchange is the world's largest exchange in Silver, the second largest in Gold, Copper and Natural Gas and the third largest in Crude Oil futures, with respect to the number of futures contracts traded. As of December 31, 2010, MCX has more than 2,107 registered members operating through over 180,000 trader work stations in over 1,139 cities across India. MCX emerged as the 5th largest exchange in the world. Exchange wise market share of financial year 2010: Multi Commodity Exchange of India Limited (MCX) - 82.3% National Commodity and Derivatives Exchange Limited (NCDEX) - 11.8% National Multi Commodity Exchange of India Limited (NMCE) - 2.9% Indian Commodity Exchange Limited (ICEX) - 1.8% ACE Derivatives & Commodity Exchange Limited (ACE) - 0.1% Others - 1.1

Company Financials:
Particulars Total Income Profit After Tax (PAT) 31-Dec-11 4,745.02 2,205.34 For the year/period ended (in Rs. Million) 31-Mar-11 31-Mar-10 31-Mar-09 4,475.60 4,937.01 3,658.44 1,730.97 2,207.26 1,574.19

Objects of the Issue:

The objects of the offer are:

1. To sale 6,427,378 Equity Shares by the Selling Shareholders & 2. To achieve the benefits of listing on the Stock Exchange.

Issue Detail:
Issue Open: Feb 22, 2012 - Feb 24, 2012 Issue Type: 100% Book Built Issue IPO Issue Size: 6,427,378 Equity Shares of Rs. 10 Issue Size: Rs. 663.31 Crore Face Value: Rs. 10 Per Equity Share Issue Price: Rs. 860 - Rs. 1032 Per Equity Share Market Lot: 6 Shares Minimum Order Quantity: 6 Shares Listing At: BSE

MCX IPO Grading

CRISIL has assigned an IPO Grade 5 to MCX IPO. This means as per CRISIL, company has 'Strong Fundamentals'. CRISIL assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. Read MCX IPO Report

Issue Subscription Detail / Current Bidding Status

Qualified Institutional Buyers (QIBs) 2,162,083 0.7400 3.6800 49.1200 Number of Times Issue is Subscribed (BSE + NSE) Non Retail Institutional Individual Employee Total Investors Investors Reservations (NIIs) (RIIs) 926,607 2,162,082 250,000 5,500,772 0.1600 1.5000 0.0000 1.0000 1.8800 6.9100 0.0500 4.4800 150.3500 24.1400 0.1800 54.1300

As on Date & Time

Shares Offered / Reserved Day 1 - Feb 22, 2012 17:00 IST Day 2 - Feb 23, 2012 17:00 IST Day 3 - Feb 24, 2012 20:30 IST

MCX IPO Rating

Rating:

3.5

MCX IPO Listing Date

Listing Date: BSE Scrip Code: NSE Symbol: Listing In: Sector: ISIN: Issue Price: Face Value: Friday, March 09, 2012 534091 MCX 'B' Group of Securities Other Financial Services INE745G01035 Rs. 1,032.00 Per Equity Share Rs. 10.00 Per Equity Share

Listing Day Trading Information

NSE Rs. 1,032.00 Rs. 1,408.00

BSE Issue Price:

Rs. 1,032.00

Open: Low: High: Last Trade: Volume:

Rs. 1,387.00 Rs. 1,282.10 Rs. 1,426.00 Rs. 1,297.05 6,018,387

Rs. 1,282.20 Rs. 1,428.55 Rs. 1,296.70 7,941,567

Company Contact Information

Registered Office : Exchange Square, Suren Road, Chakala, Andheri (East), Mumbai 400 093 Phone: (91 22) 6731 8888 Fax: (91 22) 6649 4151 Email: mcxofs@mcxindia.com Website: http://www.mcxindia.com

MCX IPO Registrar

Karvy Computershare Private Limited Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad - 500 034 Andhra Pradesh, India Phone: +91-40-23312454 Fax: +91-40-23311968 Email: mailmanager@karvy.com Website: http://karisma.karvy.com

MCX IPO Lead Manager(s)

1. Citigroup Global Markets India Private Limited 2. Edelweiss Capital Limited 3. Morgan Stanley India Company Pvt Ltd

Rewiev

Issue Summary
Issue Period: 22nd Feb - 24th Feb Price Band: (Rs) 860-1,032 Issue Size: (Rs Cr) 553-663 Mcap: (Rs Cr) 4,386-5,263 Grading: CRISIL IPO Grade 5 Promoter: Financial Technologies ltd Listing: BSE Grey Market Premium: Rs 350

Company Background
Multi Commodity Exchange of India Limited (MCX) incorporated in 2002, is the leading commodities exchange in India based on value of commodity futures contracts traded. It is a de-mutualized exchange and has received permanent recognition from the Government of India on Sept 2003, to facilitate nationwide online trading, clearing and settlement operations of commodities futures transactions. MCX has 2,153 members on its Exchange platform with over 2,96,000 terminals including CTCL spread over 1,572 cities and towns across India. MCX offers trading in 49 commodity futures based on contract specifications, from a diverse range of classes including bullion, ferrous and non-ferrous metals, energy and agriculture. The total value of the commodity futures contracts traded at the Exchange was Rs 119,807 bn as of Dec 31st,2011 which accounts for 87.3% of the Indian commodity futures industry in terms of the value of commodity futures contract traded.

Globally, MCX is the largest silver exchange; the second largest gold, copper and natural gas exchange; and the third largest crude oil exchange in terms of the number of contracts traded in each of these commodities (in CY10 and 6 months ended June 30, 2011). Silver, Gold, Crude Oil and Copper accounts for 38%, 28%, 16% and 9% respectively, of the total value of commodity futures contracts traded on the Exchange.

Company Financials

MCX's major source of revenue is transaction fees with a revenue share of more than 96% in 9mFY12. The other revenue sources are membership admission fees, annual subscription fees and terminal charges. Its total revenue grew at a CAGR of 32% during FY09-FY11 on the back of spurt in average daily turnover from Rs 149 bn in FY09 to Rs 321 bn in FY11. In 9mFY12, MCX reported total income of Rs 474 Cr more than its total revenue of Rs 448 Cr in FY11 as the average daily turnover improved to Rs 514 bn in 9mFY12. It reported a PAT of Rs 218 Cr during the same period. MCX operating margins improved from 54% in FY09 to 60% in FY11 as it enjoys operating leverage because of its fixed and semi-fixed costs . In 9mFY12 it posted an EBITDA margin of 70%. PAT margins also increased from 28% in FY09 to 38% in FY11. In 9mFY12 it posted PAT margin of 46%. RoE fell from 32% in FY09 to 21% in FY11 on the back of equity dilution. RoE as of 9mFY12 is 23% unannualised. MCX has investments of Rs 1,096 Cr (as of 31st Dec '11) out of which Rs 123 Cr is in Dubai Gold & Commodity Exchange (5% stake), MCX CCL (100%), MCX-SX (5%), MCX-SX CCL (26%) and in SME Exchange of India ltd (51%). The balance Rs 973 Cr is in liquid Mutual Fund schemes. MCX market capitalization is Rs 4,386 Cr at Rs 860 and Rs 5,263 Cr at an upper price band of Rs 1,032. As MCX is the first commodity exchange to be listed in India there is no listed comparable in the domestic market. MCX is asking for a valuation of 14.9-17.9 times its annualized FY12 EPS which is at a discount compared to its global comps at a lower price band of Rs 860 and slightly at a premium at Rs 1,032. Considering its 87% market share in the domestic market and strong fundamentals we believe it deserves a premium. We recommend investors to subscribe this issue.

Other Comments
Risk to our forecast
The success of the business majorly depends on the MCX's ability to maintain and increase the number of members and the turnover on the exchange and the resultant income from the transaction fees. Any decline in the trading volume or the number of members trading on the Exchange could lead to a decline in the income from transaction fees.

Promoter
MCX is promoted by FTIL with a pre-IPO stake of 31.2%. FTIL is a software developer and a technical service provider of automated electronic solutions in the areas of finance and technology like foreign exchange, commodities and equities. It is listed on the BSE, the NSE, the Ahmedabad Stock Exchange and the Madras Stock Exchange. The promoters of FTIL are Mr Jignesh Shah (18.1%), Mr Dewang Neralla (0.13%) and La-Fin Financial Services Private Ltd (26.5%).

Proposed amendments to Forward Contracts Regulation Act, 1952

Under the current regulatory environment, foreign institutional investors, banks and mutual funds cannot trade on commodity exchanges. Further, trading in options in commodities futures is prohibited in India. The proposed amendments to the FCRA have been made to strengthen the powers of Forward Markets Commission (FMC), permit trading in options and derivatives, demutualization of existing bourses and setting up of a separate clearing corporation. If the FCRA amendments are approved it will be a key trigger for growth at MCX.

Conclusion / Investment Strategy

MCX is asking for a valuation of 15-18 times its annualized FY12 EPS which is marginally at a premium to its global peers. We believe it deserves a premium as it has 87% market share in the Indian commodity futures industry with strong fundamentals. If the proposed FCRA amendment to allow options trading in commodities gets approved, it

would trigger the next phase of growth for the Exchange. We recommend investors to Subscribe to this issue from a medium to long term time frame.

IPO Review Author

Research Analyst Afshan Sayyad +91 22 40023026 afshan@kmglobal.in Head of Research Aditya Damani +91 22 22630125 aditya@kmglobal.in Head Office KM Global Finserv Pvt. Ltd. (MLR Investment Research) 4th Floor, Surya Mahal 5, Burjorji Bharucha Marg Fort, Mumbai 400001 Website: www.kmglobal.in

Submitted to: Prof. Gaurang Badheka