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Multi Commodity Exchange of India (MCX) Equity Research

HomeCompanyMulti Commodity Exchange of India (MCX) Equity Research

Date of Research – 19 January 2016

Price – Rs. 820.00

About the Company

Multi Commodity Exchange of India Limited (“MCX” or the “Company“) is India’s first listed exchange that facilitates online trading, and clearing and settlement of commodity futures transactions. MCX offers trading in more than 50 commodity futures contracts across segments including bullion, ferrous and non-ferrous metals, energy, and agricultural commodities. As of March 31, 2013, the Company has an extensive national reach, with over 2,100 members, operations through more than 4, 00,000 trading terminals across 1,770 cities and towns in India.

MCX is a market leader in Indian commodity futures market with 87.3 % market share in terms of the total value of commodities traded in the futures market for FY 2013.

MCX has strategic alliances with international exchanges including with CME Group, London Metal Exchange (LME), Shanghai Futures Exchange (SHFE) and Taiwan Futures Exchange (TAIFEX). The Company’s subsidiaries include Multi Commodity Exchange Clearing Corporation Limited and SME Exchange of India Limited.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 523.96 340.67 222.49 234.93  259.44 
Expenses 208.79 194.94 134.92 158.29  179.81  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 315.17 145.72 87.57 76.64  79.63  
Depreciation 30.75 34.30 25.93 24.59  18.57  
Finance Costs 0.03 1.06 1.37 0.04  0.20  
Other income 121.23 99.65 110.15 98.40  116.90  
Exceptional items 66.68  – 
PBT 405.62 210.02 170.42 83.74  177.76  
Tax 106.50 56.89 45.01 41.35  51.17  
PAT (before Minority Interest and share of Associates) 299.13 153.13 125.41 42.39  126.59  
Profit/ (loss) attributable to Minority Interest 0.001 0.001 –  – 
Share of profit / (loss) of Associates (0.03) (0.03) (0.36) (0.09)  – 
Consolidated Profit / (Loss) for the year 299.15 153.16 125.77 42.48  126.59  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 60.15 42.78 39.36 32.62  30.69 
Net Profit Margin Ratio 57.09 44.95 56.37 18.04  48.79 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Share Capital 50.77 51.00 51.00 51.00 51.00 
Reserves & Surplus 947.01 1,107.15 1,094.91 1,153.71 1,156.10 
Employee Stock Option Outstanding – 
Net worth (shareholders funds) 997.78 1,158.15 1,145.91 1,204.71 1,207.10 
Minority Interest 0.44 0.05 0.05 0.05 – 
Current liabilities 835.79 572.15 380.54 400.69 396.72 
Other long term liabilities and provisions 28.17 37.25 201.76 211.73 211.30 
Deferred Tax Liabilities 15.07 19.64 15.19 9.67 4.86 
Total Liabilities 1,877.25 1,787.23 1,743.44 1,826.85 1,819.98 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 187.71 204.43 173.53 145.10 140.11 
Noncurrent Investments 215.53 142.84 7.19 7.19 217.01 
Current assets 1,333.61 1,386.86 1,534.66 1,636.35 1,431.89 
Long term advances and other noncurrent assets 140.01 53.11 28.07 38.22 30.97 
Total assets 1,876.86 1,787.23 1,743.44 1,826.85 1,819.98 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 33.52 27.21 12.72 7.27 6.35 
ROE / RONW 28.74 25.83 13.37 10.44 3.51 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 523.96 340.67 222.49 234.93  259.44 
Growth (%) (0.43 %) (34.98 %) (34.69 %) 5.59 %  10.43 % 
PAT (Rs. Cr.) 299.13 153.13 125.41 42.39  126.59
Growth (%) 4.39 % (48.81 %) (18.10 %) (66.20 %)  198.63 % 
Earnings Per Share – Basic (Rs. ) 58.66 30.22 24.78 8.36  24.91 
Earning Per Share – Diluted (Rs. ) 58.66 30.20 24.77 8.36  24.89 
Price to Earnings 14.21 18.52 44.17 99.92  42.79 

Dividend History

The Company has maintained an average dividend yield of 2.00 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. MCX’s average current ratio over the last 5 financial years has been 1.65 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

MCX’s average long term debt to equity ratio over the last 5 financial years has been 0.00 which indicate that the Company is operating with a zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

MCX’s average interest coverage ratio over the last 5 financial years has been 6561.00 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

MCX is a professionally managed companies with no clear promoter group. Many large financial institutions hold varying amounts of stakes in MCX but no one in particular exercises significant influence in decision making. This gives the management enormous freedom and autonomy in diversification.

As of March 31, 2017, institutional holding in the Company stood at 55.42 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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