Financial Tech a good buy, target Rs 1,370

We recommend a ‘buy’ rating on Financial Technologies as the company is a unique player on end-to-end presence in the ecosystem of stock exchanges. We set a target price of R1,370, implying a 27% upside potential.

Our target price for Financial Tech is the summation of the ‘base value’ (standalone technology and MCX), ‘base option value’ of other key entities (MCX-SX, Indian Energy Exchange (IEX), Singapore Mercantile Exchange (SMX) and National Spot Exchange (NSEL), and book value of other investments.

We apply a holding company discount of 20% to the entities where Financial Tech holds a majority stake and/or will go ahead and unlock value through sale of stake in the future.

The valuation multiples we apply to Financial Tech ‘option value’ bearing entities is on a low base of profit, with a huge opportunity to scale. Therefore, our current target price for the company is the ‘base option value’. We see a significant upside potential to this number as each of the entities considered scale up to become larger profit generating units. Based on the summation of individual units, we arrive at a value of R1,572 per share.

Three potential triggers in the near term could drive higher valuations: Clearance of the FCRA Bill — which allows trading of new products like options, indices on MCX, driving volumes and valuation for MCX and, consequently, Financial Tech stake sale in IEX (from 33% to 26%) — which would help value unlocking in the same and volumes performance at MCX-SX post launch on February

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