COMPANYUPDATE

MULTICOMMODITYEXCHANGEOFINDIA
Fortifyingpoleposition
IndiaEquityResearch|BankingandFinancialServices

Multicommodityexchange(MCX)hasbeenfraughtwithchallengessince EDELWEISS4DRATINGS
past few years with its promoter, Financial Technologies (FTIL), being AbsoluteRating BUY
declared not fit to run the exchange post the NSEL fallout leading to RatingRelativetoSector Outperformer
rejig of entire top management. Moreover, imposition of CTT impacted RiskRatingRelativetoSector Medium
tradingvolumes,coupledwithasharpfallincommodityprices.Despite SectorRelativetoMarket Overweight
such turmoil, the company emerged unscathed and maintained
leadership position (with >80% market share), bearing testimony to its
MARKETDATA(R:MCX.BO,B:MCXIN)
underlying business strengths. In fact, the model has evolved much
CMP :INR973
stronger with an experienced management at the helm backed by a
TargetPrice :INR1,100
strong financial partner (Kotak). Benefits of the same, supported by
52weekrange(INR) :1,010/425
structural and potential growth levers are yet to reflect in companys Shareinissue(mn) :51.0
operational and financial performance. We estimate trading volumes to Mcap(INRbn/USDmn) :50/798
report24%CAGRoverFY1517andoperatingleveragebenefitstoresult Avg.DailyVol.BSE/NSE(000) :1,437.8
in higher EPS CAGR of 32%, aiding higher dividend payout. We
recommendBUYwithTPofINR1,100,basedon30xFY17EEPS. SHAREHOLDINGPATTERN(%)
Current Q2FY15 Q1FY15
Reinsinstronghands Promoters* 26.0
Akeyconcernwasthefalloutoftopmanagementandkeyshareholder(thishampered MF's,FI's&BKs 41.0 40.5 19.2
focusonoperationalperformance).Nowwithanewmanagementteamisatthehelm FII's 15.3 15.9 17.7
alongwithstrongshareholders(KotakhasreplacedFTIL),weexpectstabilitytoreturn Others 43.7 43.6 37.1
andconcomitantfocusonoperationalaspects,whichwilldrivegrowth. *Promoterspledgedshares : NIL
(%ofshareinissue)

Triggersinplacetospurgrowth RELATIVEPERFORMANCE (%)
MCX during challenging times has been hit hard in terms of sentiments and volumes Stockover
Sensex Stock
dwindled. Commendably, the company still maintained >80% market share. We Sensex
foreseehostoffavorablefactorsenablingMCXcapitaliseonemergingopportunities(a 1month 2.4 12.1 9.7
glimpsevisibleinQ3FY15).Also,potentialregulatorychangeslikeclearingofFCRAwill 3months 5.1 9.1 4.0
providenewgrowthavenuesbywayofoptiontradingandinstitutionparticipation. 12months 43.5 80.0 36.5

Outlookandvaluations:Backinreckoning;maintainBUY
Whilewehavebeenstaunchsupportersoftheexchangemodelsinherentstrengths,
theNSELimbroglioanditsimpactongroupentities,includingtopmanagementrejig,
rendered limited visibility. However, now with major impediments eliminated and
structuralgrowthleversinplace,werecommendBUY/SO. KunalShah
+912240407579
Financials kunal.shah@edelweissfin.com
YeartoMarch FY13 FY14 FY15E FY16E

NileshParikh
Revenues(INRmn) 6,447 4,399 3,241 3,723 +912240635470
PAT(INRmn) 2,986 1,527 1,080 1,412 nilesh.parikh@edelweissfin.com

EPS(INR) 58.6
29.9 21.2 27.7 PrakharAgarwal
EPSgrowth(%) 0.3 (48.9) (29.3) 30.7 +912266203076
prakhar.agarwal@edelweissfin.com
PE(x) 16.6 32.5 46.0 35.2

Pricetobook(x) 4.3 3.8 3.6 3.4
RoE(%) 27.8 13.3 9.2 11.3 February20,2015
EdelweissResearchisalsoavailableonwww.edelresearch.com,
BloombergEDEL<GO>,ThomsonFirstCall,ReutersandFactset. EdelweissSecuritiesLimited
 BankingandFinancialServices

Emergedunscathedmaintainingmarketleadership
Imposition of commodity transaction tax (CTT) in July 2013 had an adverse impact on
average daily trading volume (ADTV), which fell drastically from ~INR500bn to INR250
300bn. Later, the NSEL fallout in September 2013 further dented volumes with ADTV
slippingbelowINR200bn.However,whatwasimpressivewasthefactthatevenamidstsuch
mayhem, the company maintained its leadership position (>80% market share), with
competition unable to make any significant dent, bearing testimony to its underlying
businessstrengths.Goingforward,withthisoverhangliftingandasconfidencereturns,we
expect the company to retrace to higher volume levels (a glimpse of which was seen in
recentperformanceADTVhasbeenimprovinggradually).

Chart1:VolumescrashedduetoCTTimposition&NSELfallout Chart2:Volumesstabilised;greenshootsemergingfor
recovery

690 613

576 514

415

(INRbn)
461
(INRbn)

347 316

232 217

118 118
May12

Nov12

May13

Nov13
Jan12

Sep12

Jan13

Sep13
Mar12

July12

Mar13

July13

Dec13

Dec14
June13

June14
Aug13
Oct13

Aug14
Oct14
Apr13

Apr14
Feb14
ADTV ADTV

Chart3:Maintainedmarketleadershipevenduringchallengingtimes
100.0

80.0

60.0
(%)

40.0

20.0

0.0
Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

MCX NCDEX Others

Source:Company

2 EdelweissSecuritiesLimited

Table1:Managementprofile
Name
SatyanandaMishra,IAS(Retd.)
V.Balasubramaniam*
RaviKamalBhargava,IAS(Retd.) IndependentDirector,FMC
DineshKumarMehrotra
SantoshKumarMohanty
PravinTripathi
G.Anantharaman,IRS(Retd.)
M.A.K.Prabhu
R.Amalorpavanathan
AjaiKumar
ParveenKumarSinghal
MultiCommodityExchangeofIndia
Stablemanagementathelmalongwithstrongshareholders
The NSEL fallout had seen credibility loss in MCXs platform, essentially as FTIL was its
promoterthen.Regulatorofcommodityexchanges,theForwardMarketCommission(FMC)
haddeemedFITLasnotfittorunanyexchange.Asaresult,FITLsolditsentire26%stakein
MCXintrancheswithKotakMahindraBank(KMB)buyingin15%stakeforconsiderationof
INR4.6bn (INR600/share). This had seen disintegration of top management and key
shareholdersinturnimpactingoperationalperformance.Now,withanewmanagementat
thehelmalongwithastrongshareholder(KMB),weexpectstabilitytoreturnandrenewed
focusonoperationalaspectswilldrivegrowth.
Mr.V.BalasubramaniamappointedMDandCEO
MCXhasannouncedappointmentofMr.V.BalasubramaniamasMDandCEO.Hehasrich
22yearsofexperienceintechnologyandexchangebusiness,andiscurrentlyChiefBusiness
OfficerattheBSE.AspartofthecoreteamthatsetuptheNationalStockExchange(NSE),
MrBalasubramaniamwasinvolvedinestablishingtradingsystemsfortheequitysegment,
creation of indices and introduction of the equity derivative segment. He was also co
founder of Marketplace Technologies, a frontend technology platform, which was later
boughtoverbyBSE.
Designation Experience
Chairman,Independent FormerInformationCommissioner
Director,FMCApproved
MD&CEO ChiefBusinessOfficeroftheBSE
FormerSecretaryGeneral,NationalHumanRightsCommission
Nominated FormerAdditionalSecretary,Dept.ofJustice,MinistryofHomeAffairs
FormerAdditionalSecretary,MinistryofMines,GovernmentofIndia,etc
IndependentDirector,FMC FormerChairman,LifeInsuranceCorporation
Nominated FormerConvener&MemberSecretaryofExpertGroupCommitteeformed
bytheMinistryofFinance,GovernmentofIndia
IndependentDirector,FMC OfficerintheIndianRevenueServices
Nominated DirectorofForwardMarketsCommissionFMC)
IndependentDirector,FMC FormerDeputyComptrollerandAuditorGeneralofIndia
Nominated FormerMemberofCompetitionAppellateTribunal(COMPAT)
IndependentDirector,FMC Presently,SpecialAdvisortotheChairman,TataRealty&Infrastructure
Approved FormerChiefCommissionerofIncomeTax,Mumbai
FormerwholetimememberofSEBI
ShareholderDirector,Canara Presently,ManagingDirector(IntegratedTreasuryWing),CanaraBank
Bank Securities
WorkingwithCanaraBanksince2001invariousseniorcapacities
ShareholderDirector,NABARD Presently,DeputyManagingDirector,NABARD
ShareholderDirector Presently,SeniorStrategicAdvisorRetailandBusinessBanking,YesBank
FormerChairman&ManagingDirector,CorporationBank
JointManagingDirector,MCX FormerDivisionchiefSEBI
FormerDirectorFMC
FormerExecutiveDirector&CEODelhiStockExchange
Source:Company
3 EdelweissSecuritiesLimited
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Newtechnologicalagreementinplace
ErstwhilepromoterofMCX,FinancialTechnologies(FTIL)forwardintegratedandventured
into the exchange space leveraging its technological expertise. FTILs highly efficient, cost
effectiveanddifficulttoreplicateproprietaryexchangesolutionsoftwareprovidedMCXkey
competitiveedge.WithMCXbeingsolelydependentonFTILfortechnologysupport,which
ceasedtobeapromoterafterFMCdeclareditnotfit,therewereconcernsregardingthe
fate of various technology agreements and concerns were relevant as the success of an
exchangeisunderpinnedbytechnologythatcreates,integrates,drivesandmakesmarkets
more accessible. However, post the management rejig, the terms of the agreement has
beenrenegotiatedinfavourofMCX.Keychangesandthecontracttermsinclude:

SoftwarechargeswerereducedtoINR13mn/monthfromINR20mnearlier.

Transactionbasedchargeswereloweredto10.3%(versus12.5%earlier).

Agreementdurationhasbeencurtailedto10yearsfrom33years;theagreementwill
nowexpireinOctober2022.

Structuralvolumegrowthleversinplace
Exchanges, in general, have a unique and resilient business model due to inherent
characteristics such as: (1) sticky liquidity; (2) annuity income by way of
transaction/membership fees; (3) high operating leverage (4070% EBITDA margin) with
strong cash generation capabilities; and (4) upward trajectory in volumes over medium to
longterm(thoughvolumesininterimtendtobevolatileacrossbusinesscycles).

Activespotmarketimplieshumungouspotential
Indias active spot commodities market provides humungous growth potential for
commodity futures trading. Also, the country is the worlds leading producer of several
agriculturecommoditiesandthelargestconsumerofgoldandsilver.

Atnascentstagewhencomparedtoglobalexchange
Volumes in futures markets for any specific commodity tend to be in multiples of the
physical production/consumption of that commodity due to hedging/arbitrage/speculative
purposes. In India, the volumes traded on commodity futures exchanges are very low as
compared to the size of the physical market for the commodity. Thus, the potential for
commodityderivativesishuge.

Table2:Futuresmultiplieronglobalexchangesindicateshugegrowthpotential
FuturesMultiplierYear2014 FuturesMultiplierYear
Commodity
(GlobalBenchmarkExchanges) 2014(MCX)
Gold 67.0 5.0
Silver 136.0 45.9
Copper 100.0 12.4
CPO 12.0 1.1
Cotton 34.0 0.6
Source:Company
*Note:FuturesMultiplierreferstonumberoftimesfuturemarketvolumeistophysical
marketsize.

4 EdelweissSecuritiesLimited
 MultiCommodityExchangeofIndia

Opportunitiesaboundsubjecttoregulatorychanges
Webelievethefollowingregulatorychangescanactaskeytriggerstoboostvolumegrowth
incommodityexchanges:

Currently, regulations do not permit MFs, FIIs and banks to trade on commodity
exchanges.Ifallowed,thismaydriveoverallparticipationinthesegment.
Commodity options were banned in 1952. Opening up of options trading can
significantlyboostvolumesandoverallgrowthforIndiancommodityfuturesexchanges
(in general) and MCX (in particular). Globally, options contribute ~48% of derivatives
volume traded on exchanges. MCX has already developed the software technology
infrastructureandotherinhouseexpertisetolaunchtradingincommoditiesoptions,
whensuchtradingispermitted.

Similarly, intangibles like weather derivatives and freight rates are not currently
permitted by the government. Speculators tend to use proxy contracts like guar for
weather/rainfall.Introductionofintangiblescouldenhanceparticipationincommodity
exchanges.

Financialoutlook
Over past couple of years, MCX has been marred by various issues (viz., imposition of
commodity transaction tax and NSEL fallout leading to management rejig, among others),
which along with lower volatility contributed to the falling volumes. The above factors
resultedinADTVdecliningfrom~INR500bninFY12to~INR200bnin9mFY15.This,inturn,
impactedrevenues,andwithlargepartofexpensesbeingfixedinnature,EBIDTAmargins
felltosub55%inFY14fromsteadystateaverageof6570%.

Chart4:Volumesmarredbyvariouschallenges Chart5:leadingtocontractioninoperatingmargin
604.0 84.0

483.2 75.8

362.4 67.6
(INRbn)

(%)

241.6 59.4

120.8 51.2

0.0
43.0
FY11 FY12 FY13E FY14E FY15E
FY11 FY12 FY13 FY14 FY15E
Gold Silver CrudeOil Agri Others
OperatingMargins

Source:Company,Edelweissresearch

Volumestorecoverwithstructuralgrowthdriversinplace

Overaperiodoftime,mostoftheissuesseemtohavesettleddownandthecompanyhas
beenmakingsomeprogressgreenshootswerevisibleinQ3FY15performanceADTVup
12%.WeexpectfurtherrecoveryinADTVwithincreasedparticipation(asitwouldleverage
on customer franchise of some of its financial investors) and rise in prices of some
commodities. We estimate volumes to touch INR311bn by FY17 (albeit lower than FY12

5 EdelweissSecuritiesLimited
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given impact of CTT), leading to 24% CAGR over FY1517E (post 27% decline in FY14).
However, our volume assumption doesnt factor in any upsides arising from regulatory
changes(passageofFCRAbill,etc),whichposesupsiderisk.

Table3:ADTVgrowthCommoditywiseassumptionsforFY16andFY17
FY14 FY15E FY16E FY17E
SILVER
Avgdailyvolume(INRbn) 57 37 44 56
Vol(kgs) 1,266 944 1,105 1,348
Avgprice(INR) 45,373 39,094 39,876 41,870
Proportionoftotalvolume(%) 20.7 18.2 18.1 18.2
GOLD
Avgdailyvolume(INRbn) 80 48 59 75
Vol(gms) 28,513 17,901 21,481 26,207
Avgprice(INR) 28,085 26,783 27,318 28,684
Proportionoftotalvolume(%) 28.8 23.7 24.1 24.2
COPPER
Avgdailyvolume(INRbn) 25 14 16 21
Vol(kgs) 60 36 42 51
Avgprice(INR) 4.2 3.9 3.9 4.1
Proportionoftotalvolume(%) 9.0 7.1 6.7 6.6
CRUDEOIL
Avgdailyvolume(INRbn) 58 48 62 81
Vol('000bbls) 10 10.7 13 16
Avgprice(INR) 58.1 45.0 46.4 49.6
Proportionoftotalvolume(%) 20.8 23.7 25.4 26.0
ZINC
Avgdailyvolume(INRbn) 7 10 12 15
Vol(kgs) 65,991 78,144 89,865 109,636
Avgprice(INR) 1.1 1.3 1.3 1.4
Proportionoftotalvolume(%) 2.7 5.1 5.0 5.0
LEAD
Avgdailyvolume(INRbn) 13 8 9 12
Vol(kgs) 103,496 67,296 77,390 92,869
Avgprice(INR) 1.2 1.2 1.2 1.3
Proportionoftotalvolume(%) 4.6 4.1 3.7 3.8
NICKEL
Avgdailyvolume(INRbn) 6 11 12 15
Vol(kgs) 7,011 10,117 11,635 13,962
Avgprice(INR) 8.6 10.4 9.9 10.4
Proportionoftotalvolume(%) 2.2 5.2 4.7 4.7
AGRI 5.7 4.5 5.1 6.2
Proportionoftotalvolume(%) 2.1 2.2 2.1 2.0
OTHERS 25.3 21.4 24.7 30.1
Proportionoftotalvolume(%) 9.1 10.6 10.1 9.7
TOTAL 278 202 243 311
Source:Company,Edelweissresearch

6 EdelweissSecuritiesLimited
 MultiCommodityExchangeofIndia

ReductionintransactionchargesandnotradinginnonagricommoditiesonSaturdays
Transaction fee has been one of the key revenue drivers for the company, which is
correlated to trading volumes, trading days and average realisation. The company has
tweaked its fee structure recently now charging INR2.1 for every INR0.1mn of trades for
customers with average daily turnover of up to INR3.5bn, and INR1.4 for average daily
turnovermorethanINR3.5bn.Thishasresultedinaveragecurrentrealisationof~INR1.85
per INR0.1mn of volumes traded. Besides, the number of trading days has come off from
305310inafiscalto250255astheFMChasdirectedMCXtostoptradingonSaturdaysin
nonagri commodities w.e.f., September 23, 2013. However, since volumes in nonagri
commodities on Saturdays were not significant, it had negligible effect on exchange
revenues.ImprovingADTVisexpectedtodriverevenues,asweexpectpricing(transaction
fees) to remain steady. We are building in 24% CAGR in volumes over FY1517, leading to
similargrowthintransactioncharges.

Table4:Revisedfeestructure Table5:AveragerealisationofINR1.85
Transactionfee(per Avgvaluerealisation
Avgdailyturnover FinancialYear
INR0.1mnofturnover) (perINR0.1mntraded)
Nonagricommodities FY14 1.8
UptoINR3.5bn INR2.1 9mFY15 1.9
Onincrementalturnover>INR3.5bn INR1.4
Agricommodities
UptoINR0.2bn INR0.75
Onincrementalturnover>INR0.2bn INR0.5
Source:Company

Chart6:Volumesappeartohavebottomedout Chart7:Stablerealisationtoleadtohealthyincomegrowth
604.0 6,050

515.4 5,121

4,191
(INRmn)

426.8
(INRbn)

338.2 3,262

249.6 2,332

161.0 1,403
FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY11 FY12 FY13 FY14 FY15E FY16E FY17E
ADTV TransactionFee

Source:Company,Edelweissresearch

Operatingleveragetokickin
AlargepartofMCXsoperatingcostisfixedinnature(includingsoftwaresupportcharges,
license fee, employee cost, promotional and other operating expenses). We foresee dual
benefits on this front: 1) MCX has renegotiated terms with FTIL in its favour (thus, we
expectonly5.6%increaseinopexoverFY1517E);and2)riseinrevenueswilloutpacecosts
asoperatingleveragestartsplayingout.Thereon,weexpectoperatingmargintoimproveto
63%byFY17from55.7%inFY14(69.5%inFY12).

7 EdelweissSecuritiesLimited
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Chart8:Operatingleveragebenefittokickin Chart9:andreturnprofilewillimprovegradually
55.0 38.0

48.8 31.6

42.6 25.2
(%)

(%)
36.4 18.8

30.2 12.4

24.0
6.0
FY12 FY13 FY14 FY15E FY16E FY17E
FY12 FY13 FY14 FY15E FY16E FY17E
Opex/revenues
RoE

Source:Company,Edelweissresearch

Impendingregulatoryrequirements
SEBIhasdirectedMCXtodivestitsholdinginMCSSX(holds27.1mnsharesand634mn
warrants with investment value of INR1.3bn) and MCXSXCCL (6.5mn shares of
INR65mn). However, MCX vide its letter of October 14 has represented to SEBI that
FTIL and MCX no longer act in concert, with FTIL ceasing to be a promoter and
thereforethecompanyshouldnotberequiredtodivestholdings.MCX,initsfinancial
statements,hasconsideredcostofitsacquisitionasfairvalueoftheseinvestmentsas
ofdate,andisintheprocessofevaluatingtheseinvestments.

MCX has conducted a stress test in accordance with the FMC circular of March14 to
determineadequacyoftheSettlementGuaranteeFund(SGF)andcorpusofINR2.7bn
(including INR1.8bn of cash component) being adequate, the company has not made
anycontributiontoSGFfrom9mFY15profits.

Valuation
While we have been staunch supporters of the exchange models inherent strengths, the
NSEL imbroglio and its impact on group entities, including drastic top management rejig,
renderedlimitedvisibilityinMCXsoperatingandfinancialparametersandkeptusvigilant.

Despite being fraught with challenges MCX emerged unscathed bearing testimony to its
underlyingbusinessstrength.WelikeMCXforitsmarketleadership,edgeininnovation,and
stickyliquidity.Infact,themodelhasevolvedmuchstrongerwithexperiencedmanagement
teambackedbystrongfinancialpartner(Kotak).MCXisingrowthphaseofitslifecyclewith
structural levers in place for upward trajectory in volumes over the long term: increased
participation,rampupincustomerbase,continuedvolatility,riseinsomecommodityprices
Potential regulatory changes (FCRA Act clearance) will provide further legup. Trading
volumesappeartohavebottomedoutandareestimatedtoreport24%CAGRoverFY1517.
Operating leverage benefit will provide higher EPS CAGR of 32%. With excess liquidity on
balancesheet,wealsoanticipatedividendpayouttoimprovegoingforward.
The stock is trading at a premium to its global peers (26.6x FY17E EPS). We expect the
valuationgaptosustaingivenMCXshighgrowthpotentialandvalueitatINR1,100(on30x
FY17EEPSversushistoricalaverage/peakmultiplesof24x/40x).Ourestimates/valuationdo

8 EdelweissSecuritiesLimited
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not take into consideration the possibility of opening of option trading or participation of
FIIs, MFs, banks etc with clearance of FCRA Act. Now with major impediments eliminated
andstructuralgrowthleversinplace,werecommendBUY/SectorOutperformer.

Table6:Valuationsnapshotofglobalcommodityexchanges
M.Cap PE(x) PB(x) Revenue PAT EBITDA PAT EPS
(USDmn) FY16 FY17 FY16 FY17 (USDmn) (USDmn) margin(%) margin(%) CAGR(%)
MCX 802 35.2 26.6 3.4 3.2 55 25 43.8 45.0 31.5
LondonStockExchange 13,065 18.1 14.4 3.5 3.2 1,851 263 58.7 14.2 17.0
NASDAQOMXGroup 8,426 13.4 12.4 1.4 1.2 3,500 414 25.5 11.8 13.7
ICEgroup 26,296 16.6 14.6 2.0 1.6 3,092 981 44.8 31.7 21.3
CMEGroup 31,582 21.7 19.8 1.5 1.5 3,113 1,127 56.8 36.2 13.0
BM&FBOVESPA 6,172 10.5 9.1 0.9 0.9 716 344 66.3 48.1 6.7
JSESouthAfrica 920 14.8 12.9 NA NA 136 44 38.2 32.1 13.3
OSAKASecuritiesExchange 7,139 23.2 22.1 3.9 3.3 978 251 44.0 25.7 8.9
HongKongExch.&Clearing 26,672 29.9 26.5 9.5 8.4 970 587 71.7 60.5 22.4
Source:Edelweissresearch

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CompanyDescription
MCXisaleadingelectroniccommodityfuturesexchangeinIndiapromotedbyFTIL(though
has not ceased to be a promoter with NSEL fallout) facilitating online trading, clearing &
settlement operations for futures market across the country. The exchange started
operations in November 2003 and within eight years it has emerged the market leader in
commoditiesfutureindustrywith85%plusmarketshare,leveragingonproductandservice
innovations and effective use of technology. Well designed technology platform that
ensures security, reliability, flexibility and scalable architecture with handling capacity of
40mntransactionsinaday.Intermsofinnovation,itisthefirstexchangeinIndiatolaunch
mini contracts to cater to needs of small traders and SMEs and has initiated evening
sessions to synchronise with trading hours of exchanges in London, New York and other
majorinternationalmarkets.

InvestmentTheme
Multi commodity exchange (MCX) was fraught with challenges since past couple of years
withitspromoter,FTIL,beingdeclarednotfitandpropertoruntheexchangepostNSEL
falloutleadingtoentiretopmanagementrejig.Moreover,impositionofCTThadanadverse
impact on trading volumes, coupled with sharp fall in commodity prices. Despite such
turmoils, the company emerged unscathed maintaining market leadership (with >80%
marketshare)bearingtestimonytoitsunderlyingbusinessstrength.Infact,themodelhas
evolved much stronger with experienced management backed by strong financial partner
(Kotak). This further supported with structural growth levers and potential regulatory
changes (FCRA Act clearance) place MCX in a favorable position to capitalise on emerging
opportunities.Tradingvolumesappeartohavebottomedoutandareestimatedtoreport
24%CAGRoverFY1517.OperatingleveragebenefitwillprovidehigherEPSCAGRof32%.

KeyRisks
Higherregulatoryrisksduetospeculativenatureoftrades:i)Delayinimplementation
ofproposedpolicymeasures;ii)Banontradingincertaincommodities;iii)Revisionin
openpositionlimits,highermarginrequirement,CTTimpositionetc

Significant dependence on a few commodities: Top four commoditiesgold, silver,

crudeoilandcopperaccountedformorethan85%oftotalvolumesonMCX

Longtermpricingpressurelikelyincommoditiesfutures

Revenuestiedtotransactionfeeandmarketvolatility
Creditriskofmembers

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FinancialStatements
Assumptions Incomestatement (INRmn)
YeartoMarch FY14 FY15E FY16E FY17E YeartoMarch FY14 FY15E FY16E FY17E
GDP(YoY%) 4.7 5.4 6.3 7.3 Revenues 4,399 3,241 3,723 4,476
Inflation(Avg) 9.5 6.8 5.5 5.5 TransactionFee 3,053 1,754 2,135 2,726
Reporate(exitrate) 8.0 7.8 6.8 6.3 MembershipFee/Terminalcharges 144 161 173 185
USD/INR(Avg) 60.5 61.0 62.0 62.0 VSATConnectivityInc 92 82 82 83
Creditgrowth(%) 14.0 16.0 18.0 18.0 Int.&Div.&InvestIncome 941 1,071 1,149 1,286
Depositgrowth(%) 15.0 16.0 18.0 18.0 OtherIncome 169 173 183 195
CRR(%) 4.0 4.0 4.0 4.0 Operatingexpenses 1,950 1,485 1,524 1,656
SLR(%) 23.0 23.0 23.0 23.0 EmployeeCost 313 354 402 461
Gsecyield(%) 8.5 7.8 7.0 7.0 TechnololgyCosts 660 431 408 471
Operatingmetricassumptions(%) Advt.&BusinessDevelopment 96 76 80 84
Operatingmargin 55.7 54.2 59.1 63.0 Admin&OtherExpenses 880 624 634 640
Employeecost/revenues 7.1 10.9 10.8 10.3 Operatingmargin 2,450 1,757 2,199 2,820
Technologycost/revenues 15.0 13.3 11.0 10.5 Depreciation&Amortization 343 257 238 226
Penaltiesas%offee 0.0 0.0 0.0 0.0 EBIT 2,107 1,500 1,961 2,594
Dividendpayout 33.4 25.0 35.0 45.0 PBT 2,096 1,500 1,961 2,594
Dividendtax 17.0 17.0 17.0 17.0 PBTincludingextraordinaryincome 2,096 1,500 1,961 2,594
Taxrate 27.1 28.0 28.0 28.0 Tax 569 420 549 726
Balancesheetassumption(%) PAT 1,527 1,080 1,412 1,868
AverageDailyTradingVolumes 278 202 243 311 Netprofit(reported) 1,527 1,080 1,412 1,868
Gold 80 48 59 75 DilutedEPS(INR) 29.9 21.2 27.7 36.6
Silver 57 37 44 56 DPS(INR) 10 5 10 16
CrudeOil 58 48 62 81 Dividendpayout 33 25 35 45
Agri 6 4 5 6
Others 77 65 74 92 Growthratios(%)
Commissionyields(INR/lakh) 1.8 1.7 1.7 1.7 YeartoMarch FY14E FY15E FY16E FY17E
#ofmembers 2083 2067 2074 2101 Revenuegrowth (31.8) (26.3) 14.9 20.2
#ofemployees 277 285 295 310 Transactionfeegrowth (36.6) (42.6) 21.7 27.7
#ofterminals 467,000 499,690 549,659 604,625 Opexgrowth (6.6) (23.8) 7.3 6.9
Taxrate 27 28 28 28 Operatingmargingrowth (43.8) (28.3) 0.3 1.3
PBTgrowth (48.3) (28.4) 7.3 11.9
PATgrowth (48.9) (29.3) 30.7 32.3

Operatingratios(%)
YeartoMarch FY14E FY15E FY16E FY17E
Operatingmargin 55.7 54.2 59.1 63.0
PATmargin 34.7 33.3 37.9 41.7
Employeecost/revenues 7.1 10.9 10.8 10.3
Technologycost/revenues 15.0 13.3 11.0 10.5
Opex/revenues 44.3 45.8 40.9 37.0
Taxrate 27.1 28.0 28.0 28.0

11 EdelweissSecuritiesLimited
 BankingandFinancialServices

Balancesheet (INRmn) Keyoperatingmetrics

Ason31stMarch FY14E FY15E FY16E FY17E YeartoMarch FY14E FY15E FY16E FY17E
Liabilities AverageDailyTradingVolumes 277.8 202.3 243.4 310.8
EquityCapital 510 510 510 510 Gold 80.1 47.9 58.7 75.2
Reserves(excl.revaluationreserves) 12,651 13,415 14,249 15,133 Silver 57.4 36.9 44.0 56.4
NetWorth 13,161 13,925 14,759 15,643 CrudeOil 57.9 48.0 61.8 80.7
DeferredTaxLiability(Asset) 152 160 171 186 Agri 5.7 4.5 5.1 6.2
Total 13,313 14,085 14,930 15,829 Others 76.7 65.0 73.7 92.4
GrossBlock 3,541 3,641 3,766 3,916 Commissionyields 1.8 1.7 1.7 1.7
Depreciation 1,808 2,065 2,303 2,529 #ofmembers 2,083 2,067 2,074 2,101
NetBlock 1,735 1,576 1,463 1,387 #ofemployees 277 285 295 310
Investment 10,898 11,098 11,898 12,648 #ofterminals('000) 467 500 550 605
CurrentAssets 4,782 4,805 5,463 6,458
CashandBankBalance 530 670 785 847 Valuationmetrics
FixedDeposits 2,888 3,088 3,438 4,138 YeartoMarch FY14E FY15E FY16E FY17E
Sundrydebtors 90 69 97 144 DilutedEPS(INR) 29.9 21.2 27.7 36.6
Loan&advances 956 596 685 779 EPSgrowth(%) (48.9) (29.3) 30.7 32.3
othercurrentassets 319 382 459 551 Bookvaluepershare(INR) 258.1 273.0 289.4 306.7
CurrentLiabilities 3,660 2,907 3,359 4,076 RoE(%) 13.3 9.2 11.3 14.1
SecurityDeposits 105 108 110 112 DilutedP/E(x) 32.5 46.0 35.2 26.6
NetworkingEquipmentDeposits 3 3 3 3 Price/BV(x) 3.8 3.6 3.4 3.2
TradingMarginfromMembers 2,585 2,023 2,434 3,108 Dividendyield(%) 1.0 0.5 1.0 1.7
OtherCurrentliabilities 967 774 812 853
NetCurrentAssets 1,122 1,898 2,104 2,383
Provisions 443 487 536 589
Total 13,313 14,085 14,930 15,829

Peercomparisonvaluation
Marketcap DilutedPE(X) Price/BV(X) ROAE(%)
Name (USDmn) FY15E FY16E FY15E FY16E FY15E FY16E
MultiCommodityExchangeofIndia 798 46.0 35.2 3.6 3.4 9.2 11.3
HDFC 33,708 35.5 30.5 7.3 6.6 21.7 22.8
InfrastructureDevelopmentFinanceCo 4,342 14.7 12.0 1.6 1.4 11.3 12.6
LICHousingFinance 3,774 16.7 14.1 3.0 2.6 19.3 19.5
Mahindra&MahindraFinancialServices 2,335 18.3 11.5 2.5 2.2 14.7 20.4
ManappuramGeneralFinance 466 10.9 9.1 1.1 1.0 10.2 11.4
MuthootFinance 1,405 12.8 10.6 1.7 1.6 14.5 15.4
PowerFinanceCorp 5,906 5.8 5.2 1.1 1.0 21.0 20.1
RelianceCapital 1,808 13.2 11.8 0.8 0.8
RuralElectrificationCorporation 5,047 5.6 4.9 24.2 22.9
ShriramCityUnionFinance 2,128 23.1 18.0 3.2 2.8 16.2 16.4
Median 14.7 11.8 1.6 1.4 14.7 16.4
AVERAGE 18.9 15.3 2.0 1.8 13.9 14.7
Source:Edelweissresearch

12 EdelweissSecuritiesLimited
 MultiCommodityExchangeofIndia

AdditionalData
DirectorsData
RaviKamalBhargava Nominee SatyanandaMishra Chairman
DineshKumarMehrotra Director SantoshKumarMohanty Director
PravinTripathi Director G.Anantharaman Director
MAKPrabhu Director RAmalorpavanathan Director

AjaiKumar Director ParveenKumarSinghal Director

AuditorsShahGupta&Co.
*asperlastannualreport

HoldingTop10
Perc.Holding Perc.Holding
KotakMahindra 15.00 BlackstoneGPVCapital 4.79
IFCI 4.79 JhunjhunwalaRakesh 3.94
IDFCMF 3.73 NABARD 3.06
AginyxEnterprises 2.33 BirlaSunLifeAssetManagement 2.31
AxisAssetManagement 1.95 InterCapital 1.62
*asperlastavailabledata

BulkDeals
Data Acquired/Seller B/S QtyTraded Price
27Aug2014 SbiLifeInsuranceCompanyLtd Buy 343400 830.00
27Aug2014 FinancialTechnologiesIndiaLtd Sell 1370000 827.59
16Jul2014 FinancialTechnologiesIndiaLtd Sell 2040901 752.83
15Jul2014 RakeshRadheyshyamJhunjhunwala Buy 490000 734.49
15Jul2014 RareEnterprises Sell 490000 734.48
09Apr2014 BarcaGlobalMasterFundLp Buy 638863 519.05
09Apr2014 Clsa(Mauritius)Ltd Sell 638863 519.05
*inlastoneyear

InsiderTrades
ReportingData Acquired/Seller B/S QtyTraded
03Jul2014 CorporationBank Sell 115968.00
30Jun2014 CorporationBank Sell 69950.00
25Jun2014 CorporationBank Sell 75000.00
20Jun2014 CorporationBank Sell 60000.00
*inlastoneyear

13 EdelweissSecuritiesLimited
 RATING&INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk
AllahabadBank BUY SP M AxisBank BUY SO M
BajajFinserv BUY SO L BankofBaroda HOLD SP M
DevelopmentCreditBank BUY SO M DewanHousingFinance BUY SO M
FederalBank BUY SO L HDFC HOLD SU L
HDFCBank BUY SO L ICICIBank BUY SO L
IndiabullsHousingFinance BUY SO M IndusIndBank BUY SO L
IDFC BUY SO L INGVysya BUY SO L
KarnatakaBank BUY SP M KotakMahindraBank HOLD SU M
LICHousingFinance BUY SO M MagmaFincorp BUY SO M
Mahindra&MahindraFinancialServices HOLD SU M ManappuramGeneralFinance BUY SP H
MaxIndia BUY SO L MultiCommodityExchangeofIndia BUY SO M
MuthootFinance BUY SO M OrientalBankOfCommerce BUY SP L
PowerFinanceCorp BUY SO M PunjabNationalBank HOLD SP M
RelianceCapital BUY SP M RepcoHomeFinance BUY SO M
RuralElectrificationCorporation BUY SO M ShriramCityUnionFinance BUY SP M
ShriramTransportFinance BUY SO L SouthIndianBank BUY SP M
StateBankofIndia BUY SO L UnionBankOfIndia BUY SP M
YesBank BUY SO M

ABSOLUTERATING
Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVERETURNSRATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe
within the sector

RELATIVERISKRATING
Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTORRATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

14 EdelweissSecuritiesLimited
 MultiCommodityExchangeofIndia

EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelweissfin.com
Digitally signed by NISCHAL MAHESHWARI
NischalMaheshwari
HeadResearch
NISCHAL DN: c=IN, o=Personal , CID - 3587686,
postalCode=400098, st=Maharashtra,
serialNumber=45105039e63e88261eaee3e0f

nischal.maheshwari@edelweissfin.com MAHESHWARI 6bb75d04325d625b2e26779646844a5e055a

6c0, cn=NISCHAL MAHESHWARI
Date: 2015.02.20 21:11:07 +05'30'

Coveragegroup(s)ofstocksbyprimaryanalyst(s):BankingandFinancialServices
AllahabadBank,AxisBank,BajajFinserv,BankofBaroda,DevelopmentCreditBank,DewanHousingFinance,FederalBank,HDFC,HDFCBank,ICICIBank,
InfrastructureDevelopmentFinanceCoLtd,IndiabullsHousingFinance,IndusIndBank,KarnatakaBank,KotakMahindraBank,LICHousingFinance,Max
India,MultiCommodityExchangeofIndia,ManappuramGeneralFinance,MagmaFincorp,Mahindra&MahindraFinancialServices,MuthootFinance,
OrientalBankOfCommerce,PunjabNationalBank,PowerFinanceCorp,RelianceCapital,RuralElectrificationCorporation,RepcoHomeFinance,State
BankofIndia,ShriramCityUnionFinance,ShriramTransportFinance,SouthIndianBank,UnionBankOfIndia,INGVysya,YesBank

RecentResearch
Date Company Title Price(INR) Recos

18Feb15 MaxIndia Amixedbag; 469 Buy

ResultUpdate
14Feb15 Reliance Corebusinessperformanceto 463 Buy
Capital drivevaluation;
ResultUpdate
14Feb15 HDFCBank Onrighttrack; 1,066 Buy
ResultUpdate

DistributionofRatings/MarketCap
EdelweissResearchCoverageUniverse RatingInterpretation

Buy Hold Reduce Total Rating Expectedto

RatingDistribution* 150 46 10 207 Buy appreciatemorethan15%overa12monthperiod
*1stocksunderreview
Hold appreciateupto15%overa12monthperiod
>50bn Between10bnand50bn <10bn

Reduce depreciatemorethan5%overa12monthperiod
MarketCap(INR) 143 58 6

Oneyearpricechart

1,202
1,040
877
(INR)

715
552
390
Apr14
Feb14

Sep14

Feb15
Mar14

Jun14

Dec14
Jul14

Aug14

Oct14
May14

Nov14

Jan15

MultiCommodityExchangeofIndia

15 EdelweissSecuritiesLimited
 BankingandFinancialServices

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