date: july 22, 2019€¦ · nse code mcx bloomberg mcx: in cmp jul 19, 2019 rs. 856.4 equity...

Date: July 22, 2019

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Pick of the Week – PCG Research

Leading Exchange with ~92% market share

High volatility along with price rise in Commodities lead to higher trading volumes

Multi Commodity Exchange (MCX)

INDUSTRY

CMP

RECOMMEND ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

Exchange

Rs. 856.4

Buy at CMP and add on declines

Rs. 802 – 856.4

Rs. 962 - 1048 Rs. 710

4 quarters

Key Highlights

Untapped commodity markets, still lot of growth opportunity Estimate 18% revenues and 15% PAT cagr over FY19-21E

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HDFC Scrip Code MCXLTDEQNR

BSE Code 534091

NSE Code MCX

Bloomberg MCX: IN

CMP Jul 19, 2019 Rs. 856.4

Equity Capital (cr) 51

Face Value (Rs) 10

Eq- Share O/S (cr) 5.1

Market Cap (Rs cr) 4360

Book Value (Rs) 246

Avg.52 Wk Volume 519713

52 Week High Rs. 917

52 Week Low Rs. 644

Red Flag Price Level Rs. 710

PCG Risk Rating * Yellow

Shareholding Pattern % (June 30, 2019)

Promoters -

Institutions 72.3

Non Institutions 27.7

Total 100.0

FUNDAMENTAL ANALYST

Kushal Rughani

[email protected]

Company profile: Multi Commodity Exchange of India (MCX) is a leading commodities exchange based on value of commodity futures contracts traded in India. The company is a de-mutualised exchange and received permanent recognition from the Government of India on September 26, 2003, to facilitate nationwide online trading, clearing and settlement operations of commodities futures transactions. MCX offers trading in varied commodity futures contracts across segments including bullion, industrial metals, energy and agricultural commodities. The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulates quality parameters and trade regulations, in conformity with the regulatory framework. The Exchange has an extensive national reach, with 692 registered members and operating through more than 18 lakh trading terminals. MCX is India's leading commodity derivatives exchange with a market share of ~91% in terms of the value of commodity futures contracts traded in the quarter ended June 2019.

Investment rationale: • Market Leader with ~92% market share

• Untapped Commodity Markets • Positive Regulatory Developments • Setting up of MCXCCL

Concerns: • Falling prices lead to decline in contract values • Vulnerable to Macro Economic Trends • Vulnerable to Regulatory Policy Changes • Competition from Competitors

View and valuation: The Indian commodity derivative markets have been witnessing various regulatory and business enablement since SEBI has taken over the reins in 2015. The commodity options contracts, which have just been launched has the potential to contribute significantly to the turnover and revenue of the Exchange, especially with the rationalization of transaction taxes at exercise, commencement of Liquidity Enhancement Scheme in Gold options and the availability of option contract in a suite of products. Regulatory tailwinds like Institutional participation, Indices launched by MCX in association with Thomson Reuters, and tie-up with Retail bank subsidiaries will boost trading volumes and depth in the long run. With concerns related to increase in competition and pricing pressure is subsiding, the market is expanding with entry of new market participants and products. We estimate 18% revenues cagr led by strong rise in volumes over FY19-21E. EBITDA is estimated to see 37% cagr led by operating leverage tailwinds. Margin is expected to surge ~11% to 42% for FY21E. Strong revenues coupled with margin expansion would ensure 15% PAT cagr over FY19-21E. PAT cagr is slow compared to EBITDA as we have taken steady Other Income and higher tax rate for the next two years. Owing to these factors, we are positive on MCX and recommend a buy on the stock at the current market price of Rs.856 with and add on declines to Rs 802 for sequential target price of Rs 962 and Rs 1048, valued using SoTP at 34x FY21 Core PAT + Net Cash.

mailto:[email protected]

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Key Highlights Multi Commodity Exchange of India (MCX) is a leading commodities exchange in India based on value of commodity futures contracts traded. The company is a de-mutualised exchange and received permanent recognition from the Government of India on September 26, 2003, to facilitate nationwide online trading, clearing and settlement operations of commodities futures transactions. The Exchange has an extensive national reach, with 692 registered members and 55656 authorised persons, operating through more than 18 lakh trading terminals (including Internet based trading (IBT), wireless trading (WT), Computer to computer link (CTCL)) spanning over 1056 cities and towns across India as at the end of FY19. In terms of shareholding if we see, Kotak Mahindra Bank holds 15% stake, various MFs have 24% and FIIs holding stands at ~30%. Cumulatively, Institutions holding stands at 72.3% as on Jun-19. MCX offers trading in varied commodity futures contracts across segments including bullion, industrial metals, energy and agricultural commodities. The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulates quality parameters and trade regulations, in conformity with the regulatory framework. MCX has forged strategic alliances with leading international exchanges such as CME Group, London Metal Exchange (LME), Dalian Commodity Exchange (DCE) and Taiwan Futures Exchange (TAIFEX). MCX also tied-up with various trade bodies, corporates, educational institutions and R&D centres across the country. The growth of the overall economy in India is expected to drive the underlying demand for commodities . Indian Commodity market penetration is quite low compared to global markets averages. Hedging Volumes still has a lot of upsides to grow from here on. Thus, the potential for commodity derivatives is huge. This augurs well for MCX given its leadership in Commodity exchanges.

Q1 FY20 Result Review:

Revenue was up 0.4/9.0% QoQ/YoY to Rs.79.5cr led by 0.2/9.3% QoQ/YoY increase in volume. Realisations declined 0.5/1.8% QoQ/YoY. Volume growth was strong at 22.5% in FY19. We expect growth to continue, fuelled by regulatory tailwinds and increasing retail participation. For the first three weeks of Jul-19, we have seen strong volumes and trend continuation would drive Q2 FY20 and FY20 performance as well.

EBITDA margin was better than expected at 34.9%, +305bps QoQ led by lower royalties to LME, cost control and absence of one-offs. Margin expansion of ~760bps over the past two quarters is encouraging.

APAT stood at Rs 43.7cr, +6.0% QoQ and increased 40% yoy

MCX’s market share remained stable at 91-92%. It’s difficult to shift volume from existing exchange only based on pricing, depth and impact cost is an important factor for participants.

Progress on institutional participation and Indices is slow but the opportunity is big. Options volume is now 2.3% of futures volume and the MCX will start charging for options trading only from FY21.

MCX offers trading in varied

commodity futures contracts across segments including bullion, industrial

metals, energy and agricultural commodities.

The Exchange has an extensive national

reach, with 692 registered members, operating through more than 18 lakh

trading terminals, spanning over 1056 cities and towns across India.

Company is India's leading commodity derivatives exchange with a market share of ~92% in terms of value of commodity futures contracts traded as

on June 2019.

In the first quarter, Crude oil accounted for 41% of trading vs. 30% in Q1 FY19,

while Gold at 17% as compared to 12% in Q1 FY19. Zinc and Silver contribution stood at 11% and 10% respectively.

We estimate 18% revenues cagr led by

strong rise in volumes over FY19-21E. Strong revenues coupled with margin

expansion would ensure 15% PAT cagr over FY19-21E. PAT cagr is slow

compared to EBITDA as we have taken steady Other Income and higher tax rate for the next two years.

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Investment Rationale: MCX is a market leader with ~92% market share MCX is a market leader and is expected to remain one with concerns related to competition now receding. MCX has held on to it s market share despite the recent entry of BSE and the National Stock Exchange of India (NSE) in the commodity derivatives space. The volume uptick in BSE & NSE is very slow and volume in MCX has been rising in the last few quarters. This is mainly because it is difficult to shift liquidity from one exchange to other for existing participants. SEBI’s approval for Institutional participation and Indices launch for commodity derivatives are welcome steps and will expand the market. MCX has ~92% market share of the commodity derivatives segment and is a market leader in base metals, energy and precious metals and stones segments (having more than 96% market share in the Indian Commodity futures space). After three years of subdued average daily volumes for FY19, average daily volumes for MCX have gone up ~21% to Rs. 25,648cr. This clearly shows, the preference of MCX over competitors and being the market leader and we believe that it will continue to grow with the market. Company and Industry Initiatives Driving Growth MCX is India’s first exchange to launch commodity Options and currently has Gold, Silver, Crude oil, Copper and Zinc futures. Options volume growth is slower than expected. MCX will not charge for options for the next two quarters in order to push to market and for volumes to grow. MCX also became the world’s first commodity exchange to launch Brass futures contracts. This is the first non-ferrous contract with compulsory delivery option. Further, it is the first time ever that an alloy is being traded in the form of a futures contract on any domestic exchange. MCX also commenced futures trading in Refined, Bleached and Deodorized (RBD) Palmolein and Black Pepper thereby further expanding its basket of agricultural products being traded on its platform. Going forward, MCX will continue to augment product offerings after seeking necessary regulatory approval by enabling options trading in multiple commodities as well as trading in indices and exotic derivative products such as weather derivatives. MCX can also look at developing deliverable contracts based on market feedback. MCX in association with Thomson Reuters, launched co-branded commodity index series, Thomson Reuters - MCX India Commodity Indices (iCOMDEX) that tracks the performance of commodity contracts on the Exchange on a real-time basis. Commodity Indices will find gradual acceptance in the market. They can eventually boost volumes via strong Institutional participation. ~80% of NSE’s derivative volumes comprises of Index futures an d options. MCX will launch Index futures ahead of Index options. MCX has strategic alliances with leading international exchanges viz. Mozambique Commodities Exchange (BMM) , Singapore Diamond Investment Exchange, CME Group, London Metal Exchange (LME), Dalian Commodity Exchange (DCE), and Taiwan Futures Exchange (TAIFEX). This allows the company to be integrated with the other global markets. MCX has also tied-up with various trade bodies, corporates, educational institutions and R&D centres across the country to improve trade practices, increase awareness, and facilitate overall improvement of the commodity market. MCX has tie-up with Axis Securities, ICICI Securities, Yes Securities and HDFC Securities etc. to tap the retail opportunity. This can add another dimension of growth over the next few years. MCX is considering the launch of a Gold and Natural Gas Spot exchange in the next six months. The regulatory cash requirement for setting up the spot exchange is ~Rs 150cr. Because of such initiatives, developments of new product and service offerings, and the huge untapped market, MCX continues to enjoy a healthy growth rate with a majority market share.

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Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) MCXCCL, a wholly-owned subsidiary of your Company, was set up for having a separate clearing house to provide services such as clearing and se ttlement of trades and guaranteeing counter party risk. MCXCCL has received an ‘in-principle’ approval from SEBI for commencing operations. A well-capitalised clearing entity, distinct from the exchange, helps in building confidence of exchange participants, particularly institutions having large positions. This would enable MCX to attract institutional participants to trade on its platform once permitted by SEBI and will lead to higher participation in the future. Higher Volatility in Crude and Gold augurs well High volatility along with price rise in international Gold and other commodity prices. The deep discounts in Gold prices in the physical market, following sharp increase in import duty, have increased trading interest in gold contracts on Exchanges with open interest rising significantly. Rising volumes both, in gold and several other commodities, have helped sharply increase MCX's revenues and profit in the June quarter. MCX prices being higher, traders are engaged in arbitrage, buying gold in the spot market and selling it on MCX for a profit and this in turn leads to higher turnover in Gold. In the fi rst quarter, Crude oil accounted for 41% of trading vs. 30% in Q1 FY19, while Gold at 17% as compared to 12% in Q1 FY19. Regulatory Developments:

The commodity markets are highly regulated and hence MCX depends heavily on the changes in the government policies and regulatory announcements. There have been a number of changes made in the recent times that have been very healthy for the market, and eventually for MCX to grow. Prior to 2017-18, only non-financial firms and individuals were permitted to take positions in Indian commodity derivative markets. The year 2017-18 saw major steps being taken by regulators enabling domestic financial institutions to participate in commodity markets. Alternative Investment Funds – Category III (AIF-Cat III) was the first category of domestic financial institutions to receive such permission and SEBI has recently allowed participation of Mutual Funds and Portfolio Managers in the commodity derivative markets which is very beneficial for the future and growth of the industry. The entry of institutional participants can spur retail participation and ease the access of small stakeholders, including the hedgers, to the hedging and investment platform of commodity exchanges.

A major decision in 2017-18 that has contributed positively to the business of MCX is enhancing distribution. Banks were allowed to become Professional Clearing Members (PCM), while their subsidiaries were allowed to offer broking services in commodity derivatives. Brokerage houses were allowed to integrate their entities across commodities and other asset classes under a single license. Banks, by leveraging on their geographical reach, research expertise and capital strength can enable more efficient price discovery and take the benefits of the commodity markets to more participants. Further, their long term strategies have high potential to improve the liquidity in the farther month contracts, which will be of immense benefit to physical market participants.

SEBI Board has approved a proposal to permit trading of commodity derivatives and other segments of securities market on a single exchange. While this means that the competition will go up for MCX, (NSE & BSE), this is also a positive as more participants will now be exposed to the commodity markets. Besides, for MCX, liquidity will remain strong in the segments where MCX has a definitive competitive advantage. More so, the volume uptick in BSE & NSE is slow and volume in MCX has risen in FY19 (post launch of commodity trading by NSE and BSE). It is diff icult to shift liquidity from one exchange to other and hence MCX will continue to enjoy the market share it has.

On the taxation front, the Union Budget 2018-19 significantly reduced the transaction taxes on exercise of commodity options. The launch of options in more commodities, reduction of taxes coupled with intensive efforts will result in options contracts contributing more significant ly to MCX’s volumes going forward. Also in the Union Budget 2019-20 the announcement on the corporate tax rate cut will reduce the effective tax rate of MCX by ~200 bps.

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Commodity Transaction Tax (CTT): Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges. CTT is applicable for those dealing in trading of commodities. It was introduced to tax the commodity trading in I ndia where both parties - buyer & seller of contract are taxed depending on the amount of contract size. While agricultural commodities are exempted from CTT, non-farm commodities like gold, silver and non-ferrous metals such as copper and energy products like crude oil and natural gas are taxed. CTT increases the transaction cos t of trading in non-agri commodities. The CTT is an additional burden on traders as already they pay deposit margin, brokerage, stamp duty and transaction charges making India one of the most expensive markets to hedge commodity price risk. The current government has shown an intent of amending the CTT owing to more efficient markets. Rationalisation of the CTT is a reform that can significantly contribute to the development of the markets as in its current form, the transaction tax is the single largest component in the cost of transactions. While the tax has had deleterious effects in the commodity market, some research studies have proven that CTT has been revenue negative. The collection from this tax has failed to compensate for the loss from lower income, corporate and service taxes as a result of the fall in volumes. The outlook of MCX and India’s commodity markets in general would improve if CTT is rationalised to a level which reflects the fundamental characteristics of commodity derivatives as a hedging instrument, compared to other financial instruments, the rationalized tax contributing to least distortion to the market while being revenue positive. Any form of reduction or abolishing of the CTT will be very positive for MCX and also for the growth of the commodity markets in India. About the Industry: India, a commodity based economy where two-third of the one billion plus population depends on agricultural commodities, surprisingly has an under developed commodity market. Unlike the physical market, futures markets trades in commodity are largely used as risk management (hedging) mechanism on either physical commodity itself or open positions in commodity stock. With a population forecast to rise to 1.44 bn by 2030, India could have a large effect on global commodity markets. However, while size is an important factor for commodity demand, a country’s stage of development matters, too. At low levels of development, growth is typically not very metals-or energy-intensive, but historical patterns show that once a country gets to a certain level of development, its growth typically becomes more commodity intensive. A positive view on India’s commodity demand is also supported by the idea that there is a large amo unt of investment needed in India. In particular, India’s current level of capital stock per worker is less than half that of China’s and an eighth of that in the US. A large part of India’s development is expected to be driven by further rapid urbanisation, which supports capital deepening and commodity demand, as housing and in frastructure develop. India’s urbanisation rate, at 34%, is still low compared to China, at 58%. Recent projections by Oxford Economics show that b etween now and 2035, 17 of the 20 fastest growing cities in the world (in terms of economic output) will be in India-including all of the top 10. For commodity markets, this backdrop is promising. Given its size and expected growth path, China is set to remain the largest consumer of most commodities for many years yet. Howeve r, for commodity markets, marginal demand matters most. And as China’s economy develops, its growth is set to become less commodity intensive. China is already nearing ‘peak construct ion’, which could start to weigh on its metals demand over time. The International Energy Agency (IEA), as well as the large global energy producers, forecast that India’s energy demand is set to rise rapidly in coming years. The IEA projects that India will be the biggest contributor to new energy demand between now and 2040, driving 30% of total global growth in energy consumption. Although consumption per capita is still low, India is already the world’s third-largest oil consumer. India’s oil needs will probably continue to increase for several decades. OPEC forecasts almost 150% increase by 2040, taking India’s share of global consumption to 9%, from 4% now. Metals usage in India is also low when compared with countries at similar levels of development. This suggests that there may be considerable scope for a ramp up in India’s deman d for metals.

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Pick of the Week – PCG Research India’s investment deficit is well known. India’s investment rate has fallen by around 6% since the highs of 2011-12, with a marked slowdown in private sector participation. Economic policy uncertainty includes election related uncertainties. And irrespective of how rosy the long term outlook is, in the shorter term, India is heavily dependent on the global commodity markets. The recent slowdown in the global growth outlook, economic divergence and associated slowdown in trade has undermined the demand for commodities. Price sensitivities to these developments have been highest among those closely associated with Chinese growth. As per UNCTAD, the general trend showed commodity prices falling in 2018, whereas energy prices increased until late in 2018 with hi gher coal consumption in Asia. Continuing trade tensions between US and China is likely to dampen the prices of metals in 2019. While these are short term i ssues, the underpenetrated market in India is growing.

View and Valuation The Indian commodity derivative markets have been witnessing various regulatory and business enablement since SEBI has taken over the reins in 2015. The commodity options contracts, which have just been launched has the potential to contribute significantly to the turnover and revenue of the Exchange, especially with the rationalization of transaction taxes at exercise, commencement of Liquidity Enhancement Scheme in Gold options and the availability of option contract in a suite of products. Options trading in commodities provides an opportunity to risk averse physical market players to manage their risks which will also immensely benefit the small and medium enterprises and the farming community. Regulatory tailwinds like Institutional participation, Indices launch ed by MCX in association with Thomson Reuters, and tie-up with Retail bank subsidiaries will boost trading volumes and depth in the long run. Globally Institutional clients account for ~50% of the total derivatives volumes and the long-term growth opportunities are immense. With concerns related to increase in competition and pricing pressure is subsiding, the market is expanding with entry of new market participants and products. Rising volumes both, in gold and several other commodities, have helped sharply increase MCX's revenues and profit in the Jun e quarter. Average daily volumes for Q1 FY20 was up 1.8% qoq while it surged ~13% on yoy basis. In the first quarter, Crude oil accounted for 41% of trading vs. 30% in Q1 FY19, while Gold at 17% as compared to 12% in Q1 FY19. We estimate 18% revenues cagr led by strong rise in volumes over FY19-21E. EBITDA is estimated to see 37% cagr led by operating leverage tailwinds. Margin is expected to surge ~11% to 42% for FY21E. Strong revenues coupled with margin expansion would ensure 15% PAT cagr over FY19-21E. PAT cagr is slow compared to EBITDA as we have taken steady Other Income and higher tax rate for the next two years. Our estimates are significantly lower than Bloomberg Estimates for FY20E while it is slightly lower for FY21E. MCX has posted strong numbers for Q1 FY20, similar kind of performance for the next two quarters would lead to beat our estimates for FY20. Regulatory tailwinds like Institutional participation, Indices and tie-up with Retail bank subsidiaries will boost trading volumes by > 10% and increase depth in the long run. Globally Institutional clients account for ~50% of the total derivatives volumes. We continue to re main constructive on the long-term growth opportunities, concerns on increase in competition and pricing pressure is gradually subsiding. The market is expanding with entry of new market participants and products. We estimate revenue/PAT CAGR of 18/15% over FY19-21E. We see value in MCX based on (1) Embedded non-linearity, (2) ADTV growth despite rising competition, (3) Market leadership and (4) Net cash of Rs 1100cr as on FY19 (~25% of Mcap). Owing to these factors, we remain positive on MCX and recommend a buy on the stock at the CMP of Rs 856 with and add on declines to Rs 802 for sequential price targets of Rs 962 and Rs 1048, valued using SoTP at 34x FY21 Core PAT + Net Cash.

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Risks & Concerns Falling prices yielding declining contract values: As the Exchange’s transaction fee is calculated on the basis of the value of commodity futures contracts traded on the Exchange, the volume and value of contracts traded on it have a direct impact on MCX’s revenues. Technology vulnerability: One of the most significant enablers for MCX to experience high inclusive growth has been technology. The successful operations of MCX’s business and operating results are dependent in part on the use and deployment of technology. However, technology is suscepti ble to obsolescence, and increasingly, to cyber-attacks from across the globe. MCX needs to be at the cutting edge of technological infrastructure and connectivity, meeting the ever-evolving demands of its stakeholders with safe and multiple choices of connectivity as per the participant needs. Thus, maintenance of such technology is the highest priority for company’s business. Macro-economic Trends: India’s commodity derivatives market is impacted by both the domestic and the global economic conditions. Thus, as a part of the Indian commodity derivatives market, the results of MCX’s operation is significantly impacted by these economic conditions. The demand and supply of commodities is driven by the growth in the economy, which in turn affects the overall volume of commodities being traded in India. Enhanced pressure from competition: SEBI has approved a proposal to permit trading of commodity derivatives and other segments of securities market on a single exchange. This has brought in competition from NSE/BSE in the equity/commodity market and a potential area of risk to MCX. Adverse regulatory and policy decisions: All aspects of MCX’s operations are subject to regulatory oversights. Changes in laws, regulations, taxation etc., or new rules, regulations or policies may necessitate MCX to allocate more resources for compliance. This may impede the Company’s ability to operate and grow its business or may affect the economic prospects for market intermediation. Some policies or regulations may also have adverse repercussions on the Exchange’s business.

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Revenues Trend

Source: Company, HDFC sec Research

254 260 300 341 418

8

2.4

15.5

13.8

22.4

0

5

10

15

20

25

100

150

200

250

300

350

400

450

FY17 FY18 FY19 FY20E FY21E

Revenues Growth

Average Daily Volumes Trend


203.28

219.23225.6

211.93

256.48

274.73

100

150

200

250

300

FY15 FY16 FY17 FY18 FY19 Q1 FY20

Rs bn

EBITDA and EBITDA Margin Trend

Source: Company, HDFC Sec Research

74 72 94 121 176

29.2

27.7

31.335.6

42

20

25

30

35

40

45

50

50

100

150

200


EBITDA EBITDA Margin

Return Ratios to improve over FY19-21E


98

11.412.3

15.4

6.55.7

7.4 7.3

8.8

0

2

4

6

8

10

12

14

16

18


RoE RoCE

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Average Daily Turnover Quarterly Trend (Rs bn)


188 220 202 238 244 247 266 270 274.7

-3.4

17.0

-7.9

17.7

2.3 1.2

7.9

1.4 1.8

-10

-5

0

5

10

15

20

100

150

200

250

300

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Rs bn growth qoq

Trading Volume Mix


30

14

12

10

10

6

5

55 3 Crude Oil

Zinc

Gold

Silver

Copper

Lead

Natural Gas

Nickel

Aluninium

Others

MCX – leader with ~92% Market Share


92

7 1

MCX NCDEX Others

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Income Statement

(Rs Cr) FY17 FY18 FY19 FY20E FY21E

Net Revenue 254 260 300 341 418

Other Income 116.9 92 94.5 99 104.9

Total Income 371 352 395 440 523

Growth (%) 8.1 2.4 15.5 13.8 22.4

Operating Expenses 180 188 206 220 242

EBITDA 74 72 94 121 176

Growth (%) -1.7 -2.9 30.7 29.3 44.6

EBITDA Margin (%) 29.2 27.7 31.3 35.6 42.0

Depreciation 18.6 16.7 15.4 16.6 18.1

EBIT 55 55 79 105 158

PBT 172 147 173 204 262

Tax 51 39 27 49 63

RPAT 121 108 146 155 200

Core PAT 39 41 66 80 120

Growth (%) -4.0 -10.4 38.6 3.4 28.7

EPS 23.8 21.3 29.5 30.5 39.3 Source: Company, HDFC Sec Research

Balance Sheet

As at March FY17 FY18 FY19 FY20E FY21E

SOURCE OF FUNDS

Share Capital 51.0 51.0 51.0 51.0 51.0

Reserves 1311 1330 1200 1218 1259

Shareholders' Funds 1362 1381 1251 1269 1310

Settlement Guarantee Fund 171 181 330 346 364

Long Term Provisions & Others 35 24 40 40 40

Total Source of Funds 1575 1602 1622 1655 1714

APPLICATION OF FUNDS

Net Block (incl. CWIP) 152 162 177 195 218

Long Term Loans & Advances 26 31 55 58 60

Investments 0 0 12 12 12

Total Non-Current Assets 178 192 244 264 291

Trade Receivables 3 6 6 8 10

Cash & Equivalents 1601 1681 1730 1793 1907

Other Current Assets 88 86 95 103 126

Total Current Assets 91 93 101 111 136

Trading Margin from Members 215 279 351 399 493

Other Current Liab & Provisions 80 85 102 114 127

Total Current Liabilities 295 364 452 513 621

Net Current Assets -204 -272 -352 -401 -484

Total Application of Funds 1575 1602 1622 1655 1714 Source: Company, HDFC Sec Research

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Cash Flow Statement


Reported PBT 172 147 173 204 262

Non-operating & EO items -117 -92 -95 -99 -105

Interest Expenses 0 0 0 0 0

Depreciation 19 17 15 17 18

Working Capital Change -56 -62 -57 -47 -80

Tax Paid -51 -39 -27 -49 -63

OPERATING CASH FLOW ( a ) -33 95 123 120 193

Capex -31 -26 -31 -34 -42

Free Cash Flow -63 68 93 86 151

Investments 0 0 0 0 0

Non-operating income 117 92 95 99 105

INVESTING CASH FLOW ( b ) 86 66 64 65 63

Debt Issuance / (Repaid) 0 0 0 0 0

FCFE -64 68 93 86 151

Dividend -89 -101 -120 -132 -153

FINANCING CASH FLOW ( c ) -89 -102 -120 -132 -153

NET CASH FLOW (a+b+c) -36 59 67 53 103 Source: Company, HDFC Sec Research

Key Ratios (%)


EBITDA Margin 29.2 27.7 31.3 35.6 42.0

EBIT Margin 21.8 21.2 26.2 30.7 37.7

APAT Margin 47.7 41.7 50.1 45.5 47.8

RoE 9.1 7.9 11.4 12.3 15.4

RoCE 6.5 5.7 7.4 7.3 8.8

Solvency Ratio

Net Debt/EBITDA (x) -13.0 -14.0 -10.0 -8.0 -5.0

Net D/E -1.0 -1.0 -1.0 -1.0 -1.0

PER SHARE DATA

EPS 23.8 21.3 29.5 30.5 39.3

CEPS 27.4 24.6 32.6 33.8 42.9

BV 268 272 246 249 258

Dividend 15 17 20 22 25

VALUATION

P/E 36 40.2 29 28.1 21.8

P/BV 3.2 3.2 3.5 3.4 3.3

EV/EBITDA 46.3 47.3 37.0 28.4 19.5

Dividend Yield (%) 1.7 2.0 2.2 2.5 2.9

Dividend Payout 63.0 79.8 68.0 72.1 64.0 Source: Company, HDFC Sec Research

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Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST

PRICE CAN FALL 15% & IF INVESTMENT

RATIONALE FRUCTFIES

PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE FRUCTFIES

PRICE CAN RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


OR MORE

IF RISKS MANIFEST PRICE CAN FALL 20% &




PRICE CAN RISE BY 35% OR MORE

RED HIGH RISK - HIGH RETURN STOCKS


OR MORE

IF RISKS MANIFEST PRICE CAN FALL 30% &




PRICE CAN RISE BY

50% OR MORE

# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers, subsequently you won’t be able to participate in the gains.

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Price Chart

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Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year Sell: Stock is expected to decline by 10% or more in the next 1 Year

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Equity Research


Disclosure:

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date: july 22, 2019€¦ · nse code mcx bloomberg mcx: in cmp jul 19, 2019 rs. 856.4 equity...

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