'Reduce' MCX on lack of new trigger: Kotak Institutional Equities

Updated: Nov 13 2013, 14:56pm hrs
MCX reported the second quarter Ebitda of Rs 26.6 crore (-69% y-o-y, -61% q-o-q), led by a 35% y-o-y decline in turnover and 25% increase in cost of doing business.

The second quarter was a perfect storm, financially(1) implementation of CTT from July 1, NSEL crisis in August, implementation of SGF guidelines in late August and additional margin requirements in September.

Reduce (Add previously) with fair value of R500 (R400 previously), valuation at 15X FY2015E core EPS estimates (12X previously). Increased FMC oversight, removal of additional margin requirements, reduced FTIL involvement in MCX functioning (FTIL directors resigned from the board) are positive but factored into estimates and valuations.

MCX stock has stabilised over the past three months with absolute returns of 63% and relative returns of 54% in the wake of NSEL crisis. Even as policy/regulatory action has provided a confidence boost to market participants, there has been material impact on financials: CTT implementation-led 40% decline in turnover, SGF contribution of ~R150 crore from the balance sheet and recurring contribution of 5% of gross revenues and additional margin-led incremental 30% decline in turnover. The impact was visible in the Q2 financials.

We cut our FY14 EPS estimates by 11% as we factor in the SGF contribution (5% of gross revenue) for 1HFY14 and higher overhead (legal) expenses.