FTECH: Potential to create multiple MCXs

Initiating Coverage | 5 February 2013

Sector: Technology

Financial Technologies

BSE SENSEX

S&P CNX

19,751

5,987

CMP: INR1,077

Incubating success

TP: INR1,370

Buy

Potential to create multiple MCXs; Buy



Bloomberg

FTECH IN

Equity Shares (m)

46.1

M.Cap. (INR b)/(USD b) 49.6/0.9

52-Week Range (INR) 1,224/552

1,6,12 Rel. Perf. (%)

-8/22/27



FTECH is a unique play on end-to-end presence in the ecosystem of stock exchanges.

Its presence across the chain enables it to offer a distinctive value proposition.

Leading market shares of multiple FTECH's exchanges and its proven technology

credence substantiate its capability of long-term sustenance across multiple exchanges.

Every FTECH exchange bears the potential of replicating MCX's success.

We recommend Buy, with SOTP-based target price of INR1,370 (27% upside). Three

upside triggers in near-term: [1] FCRA bill, [2] IEX stake sale, and [3] MCX-SX volumes.

Financial summary (INR b)

Y/E March

2013E 2014E 2015E

Sales

3.9

4.8

5.3

EBITDA

1.8

2.5

2.8

Adj. PAT

2.1

2.2

2.5

Adj. EPS (INR) 45.9 47.1 54.3

EPS Gr. (%)

-56.9

2.5 15.4

BV/Sh.(INR)

569.3 607.0 651.9

RoE (%)

8.3

8.0

8.6

RoCE (%)

5.3

5.4

7.3

Payout (%)

17.4 17.0 14.7

Valuation

P/E (x)

23.5 22.9 19.8

P/BV (x)

1.9

1.8

1.7

EV/EBITDA (x) 22.3 15.5 13.4

Div. Yield (%)

0.7

Prices as on 4th February 2013

Unique play on end-to-end ecosystem of stock exchanges

FTECH is a unique play on end-to-end presence in the ecosystem of stock

exchanges. The company was incorporated as a provider of technology solutions

for the financial markets. It has forward integrated from being a trading

technology solutions provider to a creator and operator of financial markets

(nine exchanges) as well as complementary ecosystem ventures supporting

these markets (Warehousing, Clearing, Info vending, Payment solutions etc.).

Strong economic moat - right business, right capabilities, right strategies

An Economic Moat protects a company's profits from being attacked by a

combination of multiple business forces. Exchanges globally have been winner-

takes-all businesses, with minimal competition. Leading market share of

multiple FTECH's exchanges and proven technology credence substantiate its

capability of long term sustenance of its ventures. Forward integration from

trading platform to exchanges to complementary ecosystem ventures facilitates

a distinctive value proposition to customers, non-replicated in the market.

Shareholding pattern %

As on

Sep-12

Promoter

45.7

Dom. Inst

8.4

Foreign

24.1

Others

21.8

Jun-12 Sep-11

45.7

8.9

8.8

23.4

23.1

22.0

22.4

Potential to create multiple MCX's over a sustained period

MCX has cornered a monopolistic market share in commodity exchanges. Supply

of technology platform by its parent, FTECH gives MCX a competitive edge. FTECH

has been setting / scaling up multiple other exchanges that span across asset

classes and geographies, which can map MCX's success. Potential opportunities

at MCX-SX and SMX are even higher than that at MCX.

Stock performance (1 year)

Resolving the value enigma; Buy with an SOTP target of INR1,370

We value FTECH's businesses by dividing them into: [1] Base value, coming from

sizably scaled Technology business (INR543/share) and MCX (INR500/share

including value of warrants in MCX-SX held by MCX), and [2] Option value - from

other ventures such as MCX-SX, IEX, NSEL and SMX (applying a multiple to nascent

base of current financials). We see three potential upside triggers to the stock

in the near term: [1] Passage of FCRA bill, [2] stake sale in IEX (to bring holding

down from 33% to 26%) and [3] Volumes performance at MCX-SX post launch on

February 9th. We recommend

Buy,

with SOTP based target price of INR1,370.

5 February 2013

F inancial Technologies

Story in charts Possesses characteristics of an Economic Moat



From technology… to exchanges… to ecosystem



Businesses Regulated / Licensed by multiple Regulators



Market leader across ventures in winner-takes all

business…



…with MCX's continued dominance a proof of

sustenance…



MCX-SX - canvas even bigger than MCX…



…if NSE's example is anything to go by



From technology… to exchanges… to ecosystem

Technology

Odin

Dome

CNS

Match

FTNET

STP-Gate

FINANCIAL

TECHNOLOGIES

Exchanges

MCX

MCX-SX

IEX

NSEL

SMX

GBOT

Bourse Africa

BFX

DGCX



Businesses Regulated / Licensed by multiple Regulators

Exchange

MCX

MCX-SX

NSEL

IEX

SMX

GBOT

BFX

DGCX

Regulated / Licensed by

Forward Markets Commission (FMC)

SEBI and RBI for forex

State APMC acts

Central Electricity Regulatory

Commission (CERC)

Singapore Monetary Authority of Singapore (MAS)

Mauritius Financial Services Commission (FSC)

Bahrain Central Bank of Bahrain (CBB)

Botswana International Financial Services

Centre (IFSC)

UAE

Emirates Securities and Commodities

Authority (ESMC)

Country

India

Ecosystem

NBHC

Atom

Ticker

FTKMC



Market leader across ventures in winner-takes all business…



…with MCX's continued dominance proof of sustenance…



MCX-SX - canvas even bigger than MCX…



…if NSE's example is anything to go by

Source: Company, MOSL

5 February 2013

F inancial Technologies

Story in charts Potential to create multiple MCX's, unlock value



MCX - a huge success story...



... cheered by the markets



IEX - growth and dominance



... could help map MCX's success



Multiple other candidates (NSEL, SMX etc)...



…imply upside to even base case valuations



MCX - a huge success story...



... cheered by the markets



IEX - growth and dominance



... could help map MCX's success



Multiple other candidates (NSEL, SMX etc)...

NSEL (INR m)



…imply upside to even base case valuations

Source: Company, MOSL

5 February 2013

F inancial Technologies

Valuation summary

Entity

Valuation

methodology

Valuation

Contribution

to FTECH

valuation

(INR b)

25.0

Contribution

to FTECH

per sh.

543

Description

FTECH SA

10x FY15E PAT

25.0

MCX

20x FY15E PAT

88.6

23.0

500

Expect revenue and profits to increase with more exchanges

paying Fixed and variable AMCs going forward

Also, multiple drivers exist to grow license sales of ODIN,

which already enjoys 80% market share

Volume CAGR of 47% over FY07-12.

FCRA bill passage in the parliament will provide the next

spurt in volumes growth.

RoE’s should sustain20%+ levels.

MCX-SX contributes an additional INR3b

Currently operational only with currency futures. Grant of

permission to launch currency options, and launch of equity

cash & F&O segment from February 9th will boost volumes

on the exchange. We expect product innovation and

strategies like lower pricing in cost sensitive segments to

help grab 25% share in equities by 2015.

Has already achieved membership base of 700+

Doubling of transaction fees alongwith healthy volume

growth will drive PAT surge in FY13.

The proportion of exchange traded contracts as a % of

overall generation has been steadily increasing.

Also, Listing may be an option in bringing down the

promoters’ stake down to 26% from 33% - potential

unlocking value

Volumes surged from INR807b in FY11 to INR3,041b in FY12

Going forward, we expect PAT to come down once additional

transaction-linked variable fee sets in, and also

conservatively build 12.5% volume CAGR over FY13-15

(and 6% decline in FY13 based on 9 months of data)

Current volumes on the exchange are USD100-150m daily.

We 25% revenue CAGR over FY13-15. Our MCX target price

implies Price/Sales ratio of 12x. We value SMX on a low

base at 50% of this multiple.

MCX-SX

20x FY15E PAT

30.1

11.3

245

IEX

15x FY15E PAT

12.5

4.2

NSEL

15x FY15E PAT

4.9

106

SMX

6x FY15E Sales

2.8

Other

1x Book

Investments

Total

Holding co discount

Target Price

1.2

1,572

20%

1,370

27% upside to CMP. Buy

Source: Company, MOSL

5 February 2013

F inancial Technologies

Unique play on end-to-end presence in exchange services

Present across the chain enables distinctive value proposition



FTECH is the only company of its kind with an end-to-end presence in the ecosystem of

stock exchanges.

FTECH was incorporated as a provider of technology solutions for financial markets. Having

started as a trading technology solutions provider, it has forward integrated to creating/

operating financial markets.

It has also forayed into complementary ecosystem ventures supporting these markets -

Warehousing, Clearing, Info Vending, Payment Solutions, etc.

From technology… to exchanges… to ecosystem

Technology

Odin

Dome

CNS

Match

FTNET

STP-Gate

Exchanges

MCX

MCX-SX

IEX

NSEL

SMX

GBOT

Bourse Africa

BFX

DGCX

Source: Company, MOSL

FINANCIAL

TECHNOLOGIES

Ecosystem

NBHC

Atom

Ticeker

FTKMC

From trading platform…

Introduced ODIN, the

country's first derivatives

trading platform in 1995

Financial Technologies (India) Limited (FTECH) is the flagship company of the Financial

Technologies Group. It set out by introducing India's first derivatives trading platform,

with the launch of ODIN, which enjoys ~80% market share. It powers the Group's

exchanges with its technology, and has demonstrated ample expertise in creating

robust solutions for exchanges across asset classes and geographies.

FTECH is one of the leading software and technology providers to institutional

investors and their related counterparts. Its technology vertical is sub-divided into

four solution suites: (1) Exchange Solutions, (2) Brokerage Solutions, (3) Messaging

Solutions, and (4) Consulting Solutions.

Present across the chain; multiple revenue streams

BUSINESSES

Straight

Through

Processing

(STP)

Technology

REVENUE STREAMS

IPR

Exchange

Cloud

Domain

Knowledge

IPR based-Product Revenue

Set-up and Upgrade Income

AMC

Eco-systems

Fixed

Variable

Source: Company

5 February 2013

F inancial Technologies

…to exchanges…

From providing technology solutions to exchanges and brokerages, FTECH forward

integrated by setting up its own exchange, MCX. Multi Commodity Exchange (MCX) is

a state-of-the-art electronic commodity futures exchange, offering futures trading in

47 commodities. FTECH operates a network of 9 exchanges, connecting fast growing

economies of Africa, Middle East and South East Asia, as well as India, which have

gained significant prominence in asset classes such as commodities futures and spot,

energy and currency derivatives. It is now poised to commence trading in equities,

interest rate futures and wholesale debt markets.

Its international exchange ventures - Singapore Mercantile Exchange (SMX), Global

Board of Trade (GBOT) and Bahrain Financial Exchange (BFX) - are relatively new and

still in investment mode, growing on a low base in their respective regions. Its newest

exchange venture, Bourse Africa, based on a hub-and-spoke model, is set to commence

operations. It will be Africa's first commodities spot and multi-asset derivatives

exchange, equipped with a central counterparty (CCP) clearing house and depository

platform.

FTECH - unique company operating a network of 9 exchanges

Operates a

network of 9

exchanges

connecting fast

growing

economies of

Africa, Middle East

and South-East

Asia as well as

India

Source: Company

5 February 2013

F inancial Technologies

…to ecosystem

Operates ecosystem

ventures focused on

addressing opportunities

in areas such as clearing

and depository,

information

dissemination,

warehousing and

education

FTECH has also ventured into complementary ecosystem set-ups, supporting the

running of various exchanges. It has four ecosystem ventures, which together address

upstream and downstream opportunities in the financial market.

National Bulk Handling Corporation (NBHC)

is a national-level warehousing

company and a leading integrated services enterprise for warehousing & bulk

handling, collateral management, testing & certification, commodity care & pest

management, procurement and allied services. It has pan-India presence across

900+ locations in 19 states and 35+ quality assurance laboratories



Atom

is one of India's leading e-Commerce and m-Commerce payment service

provider, offering payment collection facilities over the internet, interactive voice

response system (IVRS) and mobile applications, using credit/debit/cash cards

and net banking. It provides services to an array of clients spanning sectors such

as government, utilities, financial services, education, travel & tourism, retail

and telecom.



TickerPlant

is a global content provider in the financial information and market

data services industry, integrating and disseminating ultra-low latency data feeds,

news and information to support investment decisions of professionals and

investors. Information services coverage includes real-time commodities, forex,

money markets and fixed income.



Financial Technologies Knowledge Management Company (FTKMC)

is a leading

provider of solutions and services in the realm of financial sector knowledge. It

offers numerous products and services in the areas of executive education,

financial literacy, financial certification, research, consultancy and advisory.



5 February 2013

F inancial Technologies

Characteristics of strong economic moat

Right business, right capabilities, right strategies



Exchanges globally have been winner-takes-all businesses, with minimal competition in

any segment.

Leading market shares of multiple FTECH's exchanges and its proven technology credence

substantiate its capability of long-term sustenance across multiple exchange ventures.

Its presence across the chain - from trading platform to exchanges to complementary

ecosystem ventures - enables it to offer a distinctive value proposition.

We believe FTECH has been able to effectively create a strong economic moat around itself.

Backdrop: What is an Economic Moat?

A moat is a deep, wide trench, usually filled with water that surrounds the rampart

of a castle or fortified place. Akin to a moat, an Economic Moat protects a company's

profits from being attacked by a combination of multiple business forces. It is a

Sustainable Competitive Advantage that helps a business to sustain superior long-

term profitability amidst various pulls and pressures. A company's profitability and

the strength of its Economic Moat are both determined by the same set of factors:

[1] industry structure, and [2] company's own strategy.

Right business

Exchanges are winner-

takes-all businesses, a

strong footing invariably

implies sustained period

of healthy profits

Some of the characteristics of FTECH's businesses1, which lend healthy competitive

advantage and sustainable profitability, are:

1. In the winner-takes-all exchange business, there are hardly any examples of more

than three industry participants within a region.

Bargaining power

vis-à-vis

customers is, therefore, high.

Technology

is the key requirement for an exchange. FTECH is the technology

supplier for all its exchanges, barring DGCX.

3. Exchanges are largely a network business. The network effect lends sustainability

to the business model and acts as an

entry barrier.

The first mover clearly holds

the edge in such a scenario.

4. Changes in environment do not necessarily impact the business, which in essence

'truly perpetual'.

5. Government policies could act as a deterrent from time to time, but as far as

exchanges outside India are concerned, FTECH has enjoyed a more liberal policy

environment to operate in.

Share of MCX, and if possible NSE over years substantiates the moat-like business characteristic

5 February 2013

F inancial Technologies

Businesses Regulated / Licensed by multiple Regulators

Exchange

MCX

MCX-SX

NSEL

IEX

SMX

GBOT

BFX

DGCX

Country

India

Singapore

Mauritius

Bahrain

Botswana

UAE

Regulated / Licensed by

Forward Markets Commission (FMC)

SEBI and RBI for forex

State APMC acts

Central Electricity Regulatory Commission (CERC)

Monetary Authority of Singapore (MAS)

Financial Services Commission (FSC)

Central Bank of Bahrain (CBB)

International Financial Services Centre (IFSC)

Emirates Securities and Commodities Authority (ESMC)

Source: Company, MOSL

Right capabilities

Technology and the

network effect - two

imperatives for any

exchange are counted

among FTECH's strongest

points

FTECH was one of the earliest to enter the trading technology domain and is far ahead

on the learning curve. The rich experience of providing trading technology solutions

and also creating multi-asset exchanges holds the company in good stead with respect

to competition. Its ventures enjoy high market shares and dedicated revenue streams.

Technological edge - parent's expertise a significant advantage:

Exchange markets

are characterized by rapid changes in technology, usage patterns and client

preferences, frequent product/service introductions, and emergence of new

industry standards/practices. FTECH is a leading developer of exchange related

software and technology. Technology for the exchange industry is difficult to

replicate, thus providing FTECH's exchanges with a competitive advantage.

Exchanges require constant technology upgrades and support, necessitated by

regulatory regime and market forces. Exchanges floated by FTECH are able to

obtain speedy and efficient technology solutions from the parent.



Future ready - proactively investing to take advantage of anticipated changes:

FTECH has been proactive towards investing significant resources to develop

strategies and ideas for new products in anticipation of proposed policy initiatives

or regulatory measures. This is evident in two instances in particular - MCX and

MCX-SX. In the former, the company has invested towards trading of options and

indices at the exchange which are subject to passage of the Forward Contract

Regulation Act (FCRA) bill. Even at MCX-SX, the strategy to gain share is oriented

towards offering innovative products than competing merely on pricing.



Right strategies

FTECH's ventures enjoy

leading market shares in

their respective

segments

FTECH is the only company of its kind with an end-to-end presence in the ecosystem

of stock exchanges. Starting off as a trading technology solutions provider, it has

forward integrated into creating/operating financial markets and complementary

ecosystem ventures supporting these markets. Its presence across the chain - from

trading platform to exchanges to complementary ecosystem ventures - enables it to

offer a distinctive value proposition. Its business model is difficult to replicate. FTECH's

strategies towards expansion of exchanges and other ventures are substantiated by

leading market share enjoyed by its ventures in their respective segments.

5 February 2013

F inancial Technologies

Market leader across ventures in winner-takes all business

Source: Company, MOSL

Innovating at all times

Given that FTECH will be required to steal share amid stiff competition in cases like

MCX-SX, and also keep competition at bay in cases like MCX, innovation has received

its due focus. MCX has been the only notable exchange which has been introducing

new products in the market based on continuous assessment of market needs.

Innovation will also be a key factor in determining how far MCX-SX can succeed in its

quest to gain share from BSE and NSE, and grow volumes in the debt market on the

same exchange. We are sanguine on the prospects of MCX-SX on this front. To

substantiate the same, MCX has many first to its credit:



Initiate evening sessions to synchronize with the trading hours of global exchanges

in London, New York and other major international markets.



Offer futures trading in steel, crude oil, and almond.



Launched MCXCOMDEX, India's first real time composite commodity futures index,

which provides our members with valuable information regarding market

movements in the key commodities, as determined by physical market size in

India, which are actively traded on our Exchange.



Introduced several other indices, including MCXAgri (agricultural commodities

index), MCXEnergy (energy commodities index) and MCXMetal (metal commodities

index).



Three rain indices, namely RAINDEXMUM (Mumbai), RAINDEXIDR (Indore), and

RAINDEXJAI (Jaipur) which track the progress of monsoon rains in their respective

geographic locations. In Launched EFP transactions for the first time in India, which

enables parties with futures positions to swap their positions in the physical

markets and vice versa.

5 February 2013

F inancial Technologies

Chairman and Group CEO, Mr Jignesh Shah's thought bytes

A long way to go for Indian

markets:

The number of

exchanges is not something to

be extremely concerned about.

Even in developed markets such

as US and UK, several exchanges

were functioning in the early stages of their growth

and India has a lot to achieve with regards to its financial

deepening.

Competition thus far hasn't been a deterrent:

The

essence of competition is about how you bring value to

the business that benefits its numerous stakeholders.

Efficient market design and market development

strategies have made it possible for us to accomplish

remarkable growth and success in commodities,

currencies and electricity despite competition from

pedigreed institutions.

New innovative products will differentiate:

We plan to

come up with products that investors will find it easy

to understand, gauge downside risk on and know when

to exit. We have plans to penetrate all the district

centers in India with more bond market products. The

countryside of India is generating huge wealth that is

unfortunately going into assets such as real estate,

whereas it should actually be the major source of

financing India's economy.

For MCX-SX, professional category and rural

entrepreneur members (10% of total) are first time

members, and a pre-condition for this membership is

that they should not be members of any exchange.

Need to increase product comprehension among

investors:

To strengthen investor interest and

participation, it is important that they comprehend

more and more products, and these be made available

through product innovation and development. From our

experience in the market development, we are keen

to focus on the need and requirements of investors

with products that are easy to understand and trade,

impart sufficient knowledge on downside risk, provide

access to trade in a larger number of towns and cities,

understanding about the balance of risk and rewards

along with information, education and awareness of

market dynamics. This will surely bring in required

changes in investors.

Bond markets - a space ripe with potential:

The

exchanges in India have overly focused in delta trading

and cash-settled products. We have a unique strategy

in place for the bond markets. The whole market for

bonds has been designed only for AAA rated companies

that may have avenues to raise capital, including banks.

But a market has to be created for companies below

AAA. There is a huge scope for retail participation in

bond segment.

Technology will provide cost advantage:

As a new

entrant, MCX-SX will bring in the latest technology with

less legacy costs, the benefits of which will be passed

on to the market participants

Retail investors' participation could be the key:

There

were more retail investors in the Indian stock markets

before derivative trading became big. Investors had

clarity of downside risk, as they knew they can hold on

and sell their shares at a later date when prices go up.

But in derivatives, the contract expires at the end of

the month and 90% of the people often lose money.

This is the reason they do not want to come to the

market.

Imperative to provide products and services relevant

today:

When NSE began in 1994, its ticket size was

different than that of BSE, which it has managed quite

ably. But what was relevant then may not be useful

now. We will adhere to what is applicable now and we

are very committed to the compliance of the highest

order in this regard.

5 February 2013

F inancial Technologies

Potential to map MCX's success across ventures...

...MCX-SX, IEX, NSEL and SMX to name a few



FTECH's subsidiary, MCX has cornered a dominating market share in the business of

commodity exchanges. It accounts for over 85% of total exchange-traded commodity

volumes in India.

To a large extent, MCX owes its competitive edge to the technology platform from FTECH,

which has been setting / scaling up multiple other exchanges that span across asset classes

and geographies. These could be potential MCXs at various points in the future, given

FTECH's proven capabilities.

The opportunity landscape at MCX-SX and SMX is even higher than at MCX.

MCX - a mega success story

Despite a long way

to go, MCX is already

reckoned to be hugely

successful - other FTECH

exchanges could

potentially follow suit

Multi Commodity Exchange of India Limited (MCX) is a state-of-the-art electronic

commodity futures exchange, offering futures trading in 47 commodities, mainly

including Gold, Silver, Copper and Crude Oil. It began operations in November 2003,

and has over 86% share (as at 31 March 2012) of the Indian commodity futures market.

In terms of contracts traded in CY11, it is the third-largest globally, second-largest in

Gold, largest in Silver, second-largest in Natural Gas, and third-largest in Crude Oil.

Volumes continue to grow at a healthy rate in a less-than-a-decade old and highly

regulated industry (CAGR of 51% over FY09-12). MCX has held on to its market

leadership position, with a share of 82-87% over FY09-9MFY13. Supply of technology

platform by its parent, FTECH, gives MCX a competitive edge that is difficult to replicate.

If and when commodity exchanges in India receive regulatory approval to trade in

new products like options, MCX will be able to quickly latch on to the opportunity,

having invested significant resources to ensure readiness for the same.

MCX is already a hugely success venture, but the potential scalability and opportunity is still significant

Financial performance over the past few years may well be replicated going forward too

5 February 2013

F inancial Technologies

Potential to incubate multiple MCXs - currently at various stages of evolution

MCX is far ahead of the evolution curve as compared to FTECH's other exchanges in

India. However, early indicators from the performance of entities like IEX, NSEL and

currency futures segment at MCX-SX suggest definitive likelihood of many of these

growing to become MCX-like cash cows. We discuss two of these ventures, where

likelihood of realizing such success could be earlier than the others: [1] MCX-SX -

where the canvas is even higher than MCX, and [2] IEX - where growth and share

continue to be robust.

MCX-SX - An even bigger canvas than MCX

MCX-SX, promoted by MCX and FTECH, was recently cleared to become a full-fledged

stock exchange. Like BSE and NSE, it can now start offering trading in equities, equity

derivatives and other asset classes. Currently, MCX-SX only offers trading in currency

futures contracts.



Will MCX-SX be able to gain share in the equities segment? - Precedent not too far:

The BSE had a legacy of 132 years in India, almost synonymous with investing in the

country. However, all this was till NSE came onto the scene in 1992. Being a relatively

new entity, NSE was nimbler and more receptive to innovation. While it was difficult

for NSE to carve a niche initially, it quickly realized the importance of IT and innovative

products to meet the growing sophistication of the financial markets. NSE has raced

ahead to rule market share charts. How NSE's share has continued to improve even

after the shift of balance in power is reflected in the turnover metrics of the two

exchanges since FY01.

NSE not only grabbed share from BSE, but went on to steadily increase it

Not only did NSE grab the

market of BSE, it has

continued to improve

upon it over the years

Source: Company, MOSL

Threat to NSE from MCX-

SX's entry is indicated by

the former's various

freebies off-late to its

members

NSE's reactive measures are an indicator of the threat it perceives from MCX-SX:

the countdown to MCX-SX's launch of equity products, NSE has [1] cut its deposit and

net worth criteria by up to 50%, [2] offset the annual membership fee of INR100k for

brokers with transaction charges, and [3] cut connectivity cost by 50%. We note that

with BSE operating at significantly lower prices, NSE did not have to resort to such

measures in the past. Even MCX did not react to lower pricing strategies adopted by

peers. This indicates the threat that NSE perceives to its market share, with the launch

of MCX-SX's equity operations.

5 February 2013

F inancial Technologies

MCX has progressively

introduced new

products on the

exchange, something

that is expected from

MCX-SX too

Product innovations within equities to help increase market share:

MCX has cited

huge scope to introduce innovative products in the equities segment, which will help

to increase market share. Exchanges in India have been dormant on this front and

MCX-SX is gearing up to capitalize on the opportunity. MCX's proactive launch of new

products on the commodities front makes us believe that MCX-SX will pursue a similar

strategy.

Other avenues (outside equities) equally attractive for MCX-SX, if not more:

While

achieving the switch in liquidity in the equities segment will be an uphill task, this is

only a portion of the gamut of products on offer by the exchange. Globally, equities

constitute only 13% of the volumes traded in various segments combined, while the

rest comes from segments like currency and bond markets.

Trading of interest rate derivatives, wholesale debt, corporate bonds is absent on

Indian exchanges, and MCX-SX will seek to capitalize on these hugely under-

penetrated segments. Also, the company's share is comparable to NSE in the currency

derivatives segment. With approval to launch currency options, MCX-SX should take

the battle to NSE on that front too. Thus, the canvas is vast for MCX-SX and the

promoters' knowhow of the exchange business bodes well for its long-term growth.

IEX - India's leading power exchange

India's leading power exchange, with 92% market share for electricity and REC volumes,

Indian Energy Exchange Limited (IEX) was established with the objective of developing

a marketplace for power trading in India. Over the last three years, average daily

turnover at IEX has more than doubled. While growth in volumes on the exchange is

a function of spot trades requirement, increasing share of trading on the exchange

has been a bigger reason for the spurt in volumes. Additionally, IEX has increased its

transaction charges from INR0.01 per unit per side to INR0.02, implying healthy surge

in profits in FY13. The volume growth expected in FY13 is ~50%.



Apart from power units, the other contributor towards revenues on the exchange is

Renewable Energy Certificates. As on 9MFY13, IEX had a market share of 80% in RECs.

RECs have typically been bought by State utility boards, but lack of availability of

funds at their end have cramped growth in the same.

Share of trading as a % of total generation has been continuously increasing

Continued increase in IEX

volumes despite

doubling of transaction

charges bodes well for

the profits on the

exchange

Source: Company, MOSL

5 February 2013

F inancial Technologies

Resolving the value enigma

Gradual unlocking as multiple entities evolve into scalabe, profitable units



We attempt to value FTECH's businesses by dividing them into: [1] established and sizably

scaled Technology business and MCX, contributing to 'base value', and [2] other ventures

such as MCX-SX, IEX, SMX-SX and NSEL contributing to 'option value'.

We value FTECH's standalone business at INR408/share and 26% stake in MCX at INR452/

share. Our base option value for MCX-SX, IEX, SMX-SX and NSEL works out to INRxx/share.

Resolving the value enigma

Outside of Technology

and MCX, most

businesses currently

operate on a low base

with huge potential

to scale

Two of FTECH's multiple businesses - its standalone technology business and MCX -

are relatively mature, have attained significant size and account for most of its overall

profits. We term our valuation of these two key value generators as

'base valuation'

of the company. On this base, we build the valuation of other key entities (MCX-SX,

IEX, SMX and NSEL. We term the contribution from these as

'option valuation'.

These

entities are at early stages of their evolution, posing challenges in arriving at a specific

value. We attempt to value these entities using comparable relative valuation

multiples on their current low base (base option value).

Our target price for FTECH is the summation of 'base valuation' (standalone Technology

and MCX), 'base option value' of other key entities (MCX-SX, IEX, SMX and NSEL), and

book value of other investments.

We value FTECH's businesses by applying comparable multiples at current low base

Base Value



Standalone Technology



MCX

Valuations

applying multiples

to current low base

of metrics

Option Value



MCX-SX



IEX



SMX



NSEL

Base Option Value

Option Value at Full

Potential

Overall Base Value

Overall Potential

Value

Source: Company, MOSL

5 February 2013

F inancial Technologies

FTECH standalone business (INR543/share)

Increasing number of operational exchanges to drive growth

FTECH's standalone business derives revenues mainly from four sources: [1]

technology license sales, [2] share of transaction fees from exchanges, [3] fixed annual

maintenance charges from operational exchanges, and [4] upgradation fees and

exchange set-up fees. While set-up fees are non-recurring, with the number of

operational exchanges increasing to 9 by the end of FY14, upgradation fees will likely

become a recurring revenue stream. This is because every exchange undertakes an

upgrade once in about three years.

Profits in the

Standalone business

should grow on the back

of transaction-linked fees

from more exchanges

than just MCX

In FY12, FTECH's operating revenues were INR4,255m, of which sale of technology

products contributed INR808m, while the remaining were split between (a) fixed and

variable fees from exchanges, and (b) set-up and upgradation fees. We expect healthy

growth in FTECH's revenues and profits due to the following:

1. Going forward, the fixed and variable fees from exchanges are likely to increase

significantly. Fixed fees from MCX has been increased to INR240m per annum

from INR120m. We believe that other exchanges would be paying fixed fees in a

similar range.

2. Additionally, variable fees (as a % of transaction fees) is charged to an exchange

only after it reaches stipulated volume threshold. MCX was the only exchange

paying this fees till now; MCX-SX and IEX are expected to start contributing variable

fees from FY14. Also, these exchanges would be charged a higher proportion of

their transaction revenues and not 12.5%, which is applicable only to MCX.

We model revenue CAGR of 17% over FY13-15, conservatively building in lower set-

up and technology upgrade fees and flattish revenues from license sales, going

forward. Our FY15E PAT estimates stands at INR2.5b.

Valuation:

We value FTECH standalone business at 10x FY15E EPS, a multiple similar to

mid-tier technology companies, on: [1] visibility of revenue growth from the channels

mentioned above, [2] healthy annuity revenue streams over large number of years,

and [3] impressive profitability (22-28% EBITDA margin during FY13-15). Our valuation

of INR25b contributes INR543/share to FTECH.

Growing ODIN licenses

Higher FY12 profit on account of stake sale in exchanges

(INR m)

Source: Company, MOSL

5 February 2013

F inancial Technologies

MCX (INR500/share of FTECH)

Expect healthy profit generation to continue; FCRA trigger could compund performance

Healthy volume growth

trajectory at MCX could

return with the passage

of FCRA bill

MCX's volumes have grown at a CAGR of 47% over FY07-12. With the industry being

nascent and significant growth potential from multiple triggers, we expect sustained

double-digit volume growth over the medium-to-long term, notwithstanding the

impact from phases of low volatility. We expect volume CAGR of 15% and PAT CAGR of

10% over FY12-15. Also, RoE should sustain at high 20's. The company's decision to

maintain its payout ratio at ~50% too is a key valuation positive, and will support high

multiples.

We value the standalone commodity exchange business at 20x FY14E earnings, in line

with the average multiple for global peers in emerging markets, despite MCX's better

competitive positioning and higher growth potential. This translates into a value of

INR77b for the standalone commodity exchange business. We value MCX-SX at INR30b,

which discounts our FY15E PAT by 20x (transactions in FY10 had valued MCX-SX at

INR45b). MCX's share in MCX-SX (including warrants) contributes an additional

INR11.3b to its valuation. MCX contributes INR500/share to FTECH's valuation.

Expect triggers like FCRA Bill and a nascent industry to help sustain revenue and profit growth at MCX

Source: Company, MOSL

Volume growth should pick up again after a low-volatility FY13

Source: Company, MOSL

5 February 2013

F inancial Technologies

MCX-SX (INR245/share of FTECH)

Even bigger canvas than MCX suggests attractive scalability potential

We assume 25% market

share for MCX-SX by FY15,

and membership base to

exceed 1,500

MCX-SX is currently live with currency futures, and is expected to go live soon in the

following segments: (1) equity cash, (2) equity derivatives, (3) bond derivatives, and

(4) currency options.

Given the membership base of 700+ members already and the parent's prowess in

product innovation, we build increase in market share to ~25% through FY15. Also,

lower costing in the price-sensitive options segment should help the company

generate some volumes on the exchange. MCX has over 2,200 members, and MCX-SX

too should increase its membership base over time. We expect MCX-SX's membership

base to exceed 1,500 by FY15.

We expect revenue to exceed INR3b by FY15, without building any numbers in the

bond derivatives segment, and PAT to reach INR1b. We value MCX-SX at 20x FY15E

earnings - a contribution of INR11.3b to FTECH's valuation based on its holding through

direct equity and warrants (INR245/share). We note that the transactions that happened

in MCX-SX before it was even granted the permission to run the exchange, valued it

~50% higher at INR45b, lending reasonable confidence to our estimates.

Membership additions should continue at MCX-SX; MCX has over 2,200 members

700

Expect MCX-SX's revenue and PAT to surge, going forward (INR m)

Source: Company, MOSL

5 February 2013

F inancial Technologies

IEX (INR91/share of FTECH)

Expect profitability to zoom on transaction price increase

Stake reduction to

comply with regulations

could drive value

unlocking from IEX

IEX increased its transaction charges from INR0.01/unit per side to INR0.02/unit per

side. Volume growth too, is likely to grow at ~50% in FY13, implying healthy surge in

profits this year. Both FTECH and PFS will be required to bring their stake down from

33% to 26%. One of the options to achieve this could be through a listing of IEX. This

should help potential unlocking of value from the enitity.

EBITDA margin shot up from 39% in FY10 to 73% in FY12. While doubling of transaction

charges will further boost margins, sharing of variable fees expected to kick in from

FY14 will keep expansion under check. We model PAT of INR833m in FY15, and value

IEX at 15x FY15E PAT, given: [1] the outlook of volume growth, [2] healthy margins

even after transaction fee-linked variable pay, and [3] dominating market share. 33%

stake in IEX contributes INR4.2b to FTECH's valuation (INR91/share).

Management expects volume growth at IEX to remain healthy; we model 15% CAGR over FY13-15

Our PAT estimate is lower going forward as we model variable fee sharing with FTECH (15%)

(INR m)

Source: Company, MOSL

5 February 2013

F inancial Technologies

SMX (INR61/share of FTECH)

Continues to be in investment mode

SMX continues to be in

investment mode.

Breakeven will be a

function of further pick

up in volumes

Off-take in volumes at SMX was slow to start with, however the same has picked up

gradually over time. Current volumes on the exchange are USD100-200m daily. The

company generated revenues worth INR299m in FY12 (including SMX Clearing

Corporation PTE Ltd), and had a loss rate of ~INR1.2b, implying that the exchange still

remains in investment mode. However, as volumes ramp up going forward, expect

the loss rate to come down. We reckon that for the exchange to breakeven, it would

require a daily average volume rate of USD1b+.

We factor in 25% revenue CAGR over FY13-15, and expect revenue at INR400m in

FY15E. Median Price/Sales for the industry is ~5x, while that in developing markets is

~9x. We value SMX at 6x FY15E revenues (50% discount to Price/Sales multiple implies

in our target valuation for MCX) to arrive at a value of INR2.4b, all of which is attributed

to FTECH, given 100% ownership of the exchange. SMX contributes INR61/share to

FTECH.

SMX continues to be in investment mode; breakeven will require higher volumes (INR m)

Source: Company, MOSL

NSEL (INR106/share of FTECH)

Yet another growing, profitable, monopolistic market

Launch of e-contracts are

driving healthy volumes

at the exchange

National Spot Exchange (NSEL) has seen its volumes surging from INR807b in FY11 to

INR3,041b in FY12. The company reported a PAT of INR256m in FY12, ~10x its FY11 PAT.

We model volume growth CAGR of 12.5% over FY13-15E. We arrive at a PAT of INR328m

for FY15. We value NSEL at a 25% discount to MCX, as variable transaction fees in the

future years curb the profitability at the exchange (41% EBITDA margin in FY12). The

resulting valuation of NSEL is INR4.9b, contributing INR106/share to FTECH.

We believe that scope for growth at NSEL is significantly higher given that: [1] the

exchange is still relatively nascent and volumes are continuing to ramp up, and [2]

the introduction of e-contracts have avoided the hassle of physical delivery, which

has been a significant volume driver. 35-40% volumes on the exchange are currently

from e-contracts.

5 February 2013

F inancial Technologies

For NSEL, we model volume CAGR of 12.5% over FY13-15, lower than that at MCX

Our expectation of lower PAT is on account of variable fees to FTECH (15% assumed)

(INR m)

Source: Company, MOSL

Other investments (INR26/share of FTECH)

Valued at book

FTECH has invested in a number of other ventures, which are still very small currently.

We apply to them a blanket valuation of 1x the investments made in these ventures.

These investments add up to INR1.2b, contributing INR26/share to FTECH's valuation.

Other investments include:



National Bulk Handling Corporation (NBHC)



Atom



Bahrain Financial Exchange (BFX)



Bourse Africa (BA)



Dubai Gold Commodities Exchange (DGCX)



Ticker Plant.

5 February 2013

F inancial Technologies

Buy with an SOTP based target price of INR1,370

Target price based on 'Base option value'; holding company discount of 27%



Our target price for FTECH is the summation of the 'base value' (standalone Technology

and MCX), 'base option value' of other key entities (MCX-SX, IEX, SMX and NSEL), and book

value of other investments.

We apply a holding company discount of 20%. Our target price of INR1,370 implies an

upside of 27%. Buy.

Three upside triggers in near-term: [1] FCRA bill, [2] IEX stake sale, and [3] MCX-SX volumes.

The valuation multiples we apply to FTECH's 'option value' bearing entities is on a low

base of profit, with huge opportunity to scale. Therefore, our current target price for

the company is 'Base option value'. We see a significant upside potential to this

number as each of the entities considered (and those left to be valued at investment

cost for now) scale up to become larger profit generating units. Base on the summation

of individual units, we arrive at a value of INR1,572 per share.

We initiate coverage on

FTECH with a

Buy

rating

We apply a holding company discount of 20% to the entities where FTECH is holding a

majority stake and /or will go ahead and unlock value through sale of stake in the

future. After factoring in holding company discount, our target price for FTECH is

INR1,370, which implies 27% upside to our valuation. We initiate coverage on FTECH

with a

Buy

rating.

SOTP valuation

Entity

FTECH

holding

(%)

100

Valuation

methodology

10x FY15E PAT

20x FY15E PAT

15x FY15E PAT

6x FY15E Sales

1x Book value

Valuation

(INR b)

25.0

88.6

30.1

12.5

4.9

2.8

1.2

Valuation

contribution

to FTECH (INR b)

25.0

23.0

11.3

4.2

4.9

2.8

1.2

72.4

Contribution

to FTECH

per share

FTECH SA

MCX (including share of MCX-SX)

FTECH's share in MCX SX including warrants

IEX

NSEL

SMX

Other investments

Total

Holding company discount (ex-FTECH SA, %)

Target Price (INR)

Upside (%)

543

500

245

106

1,572

1,370

Source: Company, MOSL

We see three potential triggers in the near term that could driver higher valuations in

the stock:



Passage of FCRA bill - which allows trading of new products like options, indices

on MCX, driving volumes and valuation for MCX, and consequently, FTECH,



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 9th, the valuation of

which will get embedded in FTECH's price

5 February 2013

F inancial Technologies

SOTP based valuation of INR1,370 - 27% upside

Stock Performance

Source: Company, MOSL

Key risks

Regulatory paralysis could impact growth

In the current regulatory environment, foreign institutional investors, banks and

mutual funds cannot trade on commodity exchanges. Also, trading in options on

commodity futures is prohibited in India. While the passage of the FCRA Bill could

boost MCX's volumes and provide a sentimental fillip to the stock, there is a risk that

the amendments may not be enforced in a timely manner.

Longer than expected time for ramp-up in volumes at MCX-SX

We model ~25% share for MCX-SX in the equities segment by FY15. Also, both MCX

and FTECH need to sell their warrants in MCX-SX, for which they have a three year

window. If the volumes in MCX-SX ramp up slower than expected, it will have a bearing

on both FTECH's and MCX's valuations.

End of lock-in period of MCX shares could impact the price

MCX completes one year since listing in a month's time, and the promoters would be

allowed to pare with some more of their stake if they wish to. In the event that

happens, it could create some selling pressure on the stock, also impacting FTECH in

the process.

5 February 2013

F inancial Technologies

Financial summary: Key ventures

FY11

MCX

Volume (INR t)

Growth (%)

Revenue

Growth (%)

EBITDA

Growth (%)

EBITDA %

PAT

Growth (%)

PAT %

MCX SX (INR m)

Revenue

Growth (%)

EBIT

Growth (%)

EBITDA %

PAT

Growth (%)

PAT %

IEX (INR m)

Volume (million MWh)

Growth (%)

Revenue

Growth (%)

EBITDA

Growth (%)

EBITDA %

PAT

Growth (%)

PAT %

NSEL (INR m)

Volume (INR b)

Growth (%)

Revenue

Growth (%)

EBITDA

Growth (%)

EBITDA %

PAT

Growth (%)

PAT %

98.4

53.9

3,689

28.4

1,918

35.4

52.0

1,728

-21.7

46.8

FY12

156.0

58.5

5,262

42.6

3,347

74.5

63.6

2,862

65.6

54.4

FY13E

152.9

-2.0

5,069

-3.7

3,003

-10.3

59.3

2,714

-5.2

53.5

2,951

1,652

56.0

1,391

47.1

11.8

91.1

411

86.0

263

202.3

64.0

188

394.7

45.7

807

2,269.0

415

97.6

113

27.2

6.3

13.8

16.9

709

72.5

517

96.6

72.9

340

80.9

48.0

3,041

277.0

944

127.5

388

243.4

41.1

256

884.6

27.1

20.8

50.6

1,247

75.8

997

92.8

79.9

670

97.0

53.7

2,855

-6.1

886

-6.1

330

-14.9

37.3

203

-20.6

22.9

FY14E

191.1

25.0

6,029

19.0

3,624

20.7

60.1

3,159

16.4

52.4

2,885

-2.2

1,440

-12.8

49.9

1,319

-5.2

45.7

26.0

25.0

1,558

25.0

1,258

26.3

80.7

682

1.9

43.8

FY15E

238.8

25.0

7,350

21.9

4,546

25.5

61.9

3,864

22.3

52.6

3,278

13.6

1,708

18.6

52.1

1,507

14.3

46.0

31.2

20.0

1,870

20.0

1,520

20.8

81.3

833

22.1

44.5

3,283

3,612

15.0

10.0

1,019

1,121

15.0

10.0

435

508

31.8

16.7

42.7

45.3

277

328

36.2

18.4

27.2

29.2

Source: Company, MOSL

5 February 2013

F inancial Technologies

Annexure: Progress within the end-to-end value chain

FTECH has several firsts to its credit

MCX - India's first listed exchange

Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic commodity

futures exchange. The demutualized exchange set up by FTECH has permanent

recognition from the Government of India to facilitate nationwide online trading,

clearing and settlement of commodities futures transactions. It operates within the

regulatory framework of the Forward Contracts Regulation Act, 1952 (FCRA, 1952).

MCX had 86% market share in FY12. Its average daily turnover in FY12 was INR503b, up

57%.

MCX offers trading in over 40 futures contracts from various market segments such as

bullion, energy, ferrous and non-ferrous metals, oils and oil seeds, cereals, pulses,

plantations, spices and fibers.

On 9 March 2012, MCX became India's first listed exchange post its initial public offering

(IPO).

MCX: Operational Matrix

FY09

Number of members (end of year)

Number of TWS* and TWS under CTCL

*: Trader Workstation

2,037

82,703

FY10

2,070

117,124

FY11

FY12

2,119

2,170

194,400

346,610

Source: Company, MOSL

Annual turnover at MCX (INR b)

Source: Company, MOSL

5 February 2013

F inancial Technologies

NSEL - India's number-1 commodity spot exchange

National Spot Exchange (NSEL) is India's number-1 commodity spot exchange,

commanding over 99% share in the electronic spot market segment. It falls under the

regulatory purview of the Forward Markets Commission (FMC). NSEL had over 787

registered members as at 31 December 2012.

Products and services

Operational in 50 commodities with 127 delivery centers.



Added zinc, red chilly, cardamom, crude soybean oil, raw wool, soybean de-oiled

cake (DOC), wool top, mustard oil, refined soybean oil, and refined sunflower oil

in FY12.



Introduced India's first commodity investment product in dematerialized form

called e-Series. These can be bought, sold and held in dematerialized form with

the option of taking physical delivery at various locations across the country. In e-

Series, e-Nickel was introduced in FY12. Other products in this category are e-

Gold, e-Silver, e-Copper, e-Zinc, e-Lead, e-Nickel and e-Platinum.



Key milestones in FY12

Recorded 277% increase in turnover, which touched INR3,040b in FY12.



Empanelled 174 depository participants (DPs) to provide pan-India demat services

to retail investors for e-Series products.

Launched 'e-Nickel' under 'e-Series'.



NSEL: Operational Matrix

FY10

Highest Turnover (INR b)

Number of members (end of year)

Products / commodities offered

4.5

320

FY11

18.4

516

FY12

27.0

711

NSEL average daily turnover

Monthly turnover at NSEL

Source: Company, MOSL

5 February 2013

F inancial Technologies

IEX - India's leading power exchange

India Energy Exchange (IEX) is India's leading power exchange, with 92% market

share for electricity and REC volumes. IEX was established with the objective of

developing a marketplace for power trading in India. As a transparent and efficient

platform for trading in Electricity and Renewable Energy Certificates, it brings down

the demand-supply gap between buyers and sellers of power. IEX emerged as India's

preferred trading platform, with nationwide reach, covering 90+ members and over

1,650+ clients (136 private power generators and over 1,450 direct consumers)

registered as at 31 December 2012.

Products and services

Electricity



Spot market



Intra-day / For the same day (last 6 hours) / Continuous trading



Day-ahead market / Hourly for next day / Double-sided closed auction



Day-ahead contingency market / Hourly for next day / Continuous trading



Forward market



Daily / For rolling seven days (starting after four days) / Continuous trading



Weekly / For next two weeks / Double-sided open auction

Renewable energy certificates (REC)



Solar REC



Non-solar REC

Energy efficiency certificates

IEX: Operational Matrix

FY10

Highest Turnover (Mwh)

31,249

Number of members (end of year)

No of products offered

FY11

59,976

FY12

58,324

IEX average daily volumes (Mwh)

Source: Company, MOSL

5 February 2013

F inancial Technologies

SMX - first pan-Asian multi-product exchange

Singapore Mercantile Exchange (SMX) is the first pan-Asian multi-product commodity

and currency derivatives exchange. SMX offers a comprehensive platform for trading

a diversified basket of commodities including futures and options contracts on

precious metals, base metals, agricultural commodities, energy, currencies and

commodity indices. SMX has launched a single and reliable platform for both

international and regional entities to trade a diverse range of multi-asset class

products. Through cutting-edge electronic systems for trading futures and options,

SMX is synchronizing derivatives and physical trading in commodities within the Asian

time zone while continuously listing new products for more effective risk

management during Asian trading hours.

Products and services

SMX offers a diversified basket of products including futures and options contracts on

the following:



Precious metals:

Gold, silver



Base metals:

Copper



Energy:

WTI, Brent crude



Currency pairs:

EUR/USD, USD/JPY, AUD/USD, GBP/USD, EUR/USD



Indices:

Iron ore (MBIO) index futures



Agri products:

Black pepper

Average daily turnover at SMX (USD m)

Source: Company, MOSL

5 February 2013

F inancial Technologies

BFX - a pioneering international financial exchange

Bahrain Financial Exchange (BFX) is an international financial exchange based in the

Kingdom of Bahrain and internationally accessible to trade cash, derivatives, structured

products and Shariah-compliant financial instruments. BFX provides clearing,

settlement, depository and risk management activities through its clearing

corporation, the BFX Clearing & Depository Corporation (BCDC), which provides

settlement guarantees for all transactions executed on the exchange platform,

eliminating counterparty risk and providing a high degree of security and confidence

to market participants.

BFX launched its conventional trading segment in November 2011, comprising of

derivatives products across asset classes such as commodities, energy, as well as

currency. It will be introducing cash and derivatives products across other asset classes

including equities, fixed income, exchange-traded funds, and structured products.

BFX launched its Islamic finance division with the establishment of Bait Al Bursa in

February 2011, marking the creation of the region's first exchange-operated platform

dedicated to Islamic finance products. e-Tayseer is the first Islamic product to be

offered by Bait Al Bursa dedicated to Murabaha liquidity management transactions.

BFX completed the first full year of trading in derivatives, with a cumulative volume

of USD35b+. The average daily trading turnover increased from USD1.38m in November

2011 to USD226m in 3QFY13. The average daily trading volume increased to 25,066

contracts in 3QFY13.

Products and services

The exchange offers two separate platforms (conventional and Shariah compliant)

to meet participants' needs to trade on one or both of these markets.



The trading platform gives market participants the ability to trade in multiple

asset classes on one market. They will be able to trade in cash, derivatives or

Shariah-compliant financial instruments.



BFX futures on USD v/s INR (USD-INR), gold, EUR v/s USD (EUR-USD) and natural

gas are available for trading, with other products including options contracts in

the pipeline.



Average daily trading turnover and volumes at BFX

Source: Company, MOSL

5 February 2013

F inancial Technologies

GBOT - global multi-asset class exchange

Global Board of Trade (GBOT) is a global multi-asset class exchange based in Mauritius,

licensed and regulated by the Financial Services Commission, Mauritius. GBOT is

attracting the international trading and investing community into the African markets

through the development of 'Africa-centric' multi-asset products and creation of a

trading and risk mitigation avenue. GBOT will provide content and substance for global

firms operating in investment banking, broking, capital market research, etc, to set

up their business in Mauritius and Africa.

Products and services

Commodity futures: Gold, silver and WTI



Currency futures: EUR/USD, GBP/USD, JPY/USD, ZAR/USD, USD/MUR



Equities, equity derivatives, CFDs in single stocks, indices, commodities and

currencies



Transaction volumes and value (USD m)

Source: Company, MOSL

Bourse Africa

Bourse Africa is a licensed spot and derivatives demutualised exchange, which will

offer multi-asset class trading to serve markets worldwide from Africa. It will provide

price discovery, and facilitate trade, financing, risk management and investment

transactions between participants from across African markets, and between African

and international participants.

Bourse Africa will operate on a hub and spoke model, a network of linked exchanges

with Botswana as the technology and regulatory hub. The hub exchange in Botswana

is licensed as a self-regulatory organization by the country's Non Bank Financial

Institutions Regulatory Authority and accredited under the Botswana International

Financial Services Center.

Products and services

Bourse Africa will offer both derivative and spot contracts, and introduce options and

index trading later. Segments will include agriculture, metals, minerals, energy and

currencies. It will diversify into other asset classes over time. The suite of derivative

products will cover pan-African commodities, with an established international profile

5 February 2013

F inancial Technologies

(including cocoa, cotton, crude oil, gold and maize), as well as futures on currency

pairs between African currencies, and between African and hard currencies. The spot

platform will focus on the unique commodities produced and traded in different

African countries to support the domestic trade and the export/import trade.

Value proposition



An emerging geography almost completely untapped at present:



53 countries, annual growth of 4-5%, emerging middle class, USD320b annual

commodity base, rapidly integrating with global markets



No organized commodity futures exchange and no central counterparty

clearing house (CCP) outside South Africa - a significantly underdeveloped

exchange, brokerage and investment space

Combined spot and derivative platforms

Optimal hedging location

Sound legal jurisdiction and regulatory framework of Botswana

A CCP backed by Settlement Guarantee Fund to guarantee trades and fulfill all

obligations arising there-from

Integrated ecosystem elements (for example, warehouse receipts system (WRS),

market information system (MIS), broker technology solutions, capacity

management building academy)

5 February 2013

F inancial Technologies

Ecosystem Ventures

FTECH operates ecosystem ventures that complement its exchanges by addressing

upstream and downstream opportunities in the areas of clearing and depository,

information dissemination, warehousing and collateral management, payments

processing and financial market education.

NBHC

National Bulk Handling Corporation (NBHC) is a national-level ISO 22000:2005 certified

warehousing company and a leading integrated services enterprise for warehousing

& bulk handling, collateral management, testing & certification, commodity care &

pest management, procurement and allied services. It has pan-India presence across

900+ locations in 19 states and 35+ quality assurance laboratories.

It has expertise in over 160 commodities and is associated with 37 banks and financial

institutions. It facilitated procurement of food grains under the government's

minimum support price (MSP) program, functioning on behalf of Food Corporation of

India (FCI).

Products and services



Storage and bulk handling services

Collateral management services (NBHC Cecure)

Commercial and commodity pest management services (NBHC CommGuard)

Quality testing, grading, inspection, and certification services (NBHC ProComm)

Trade facilitation services

Warehouse audit and accreditation & commodity valuation services (NBHC

Mandate)

Procurement services

Information services

NBHC: Operational matrix

FY11

Warehousing

Storage capacity (mn MT)

Storage space (mn sq ft)

Storage Facilities

Quality Assurance and Pest Management

Functional QA Laboratories

Commodities Tested

Certificates issued

Collateral management

Banks Associated

Commodities funded

Cumulative funding facilitated (INR b)

2.2

578

150+

75,000+

150+

184+

FY12

2.24

14.33

586

35+

160+

60,000+

160+

248+

Source: Company, MOSL

5 February 2013

F inancial Technologies

Atom Technologies

Atom is one of India's leading e-Commerce and m-Commerce payment service

provider, offering payment collection facilities over the internet, interactive voice

response system (IVRS) and mobile applications, using credit/debit/cash cards and

net banking. It provides services to an array of clients spanning sectors such as

government, utilities, financial services, education, travel & tourism, retail and

telecom. Atom has designed an internet-based payment processing platform for

brokers and intermediaries in financial markets, as well as for merchants enabling

them to accept payments over the Internet.

Its processes are in compliance with Reserve Bank of India (RBI) guidelines as well as

with card associations such as Visa, MasterCard and Amex. It has tie-ups with over

1,000 merchants, more than 31 banks and three major telecom companies for all-

India operations.

Products and services

m-Commerce:

Mobile/telephone-based services providing payment solutions

through IVR, mobile banking and mobile applications.



e-Commerce:

Web-based payment services providing payment solutions through

internet payment gateways or net banking.



Mobile banking:

Provides mobile banking solutions for banks.



Processed transaction volumes and value

Source: Company, MOSL

TickerPlant

TickerPlant is a leading global content provider in the financial information and market

data services industry, integrating and disseminating ultra-low latency data feeds,

news and information to support investment decisions of professionals and investors.

Information services coverage includes real-time commodities, forex, money markets

and fixed income. It disseminates information through a variety of delivery channels,

including desktop-based applications, browser-based applications and mobile

applications.

5 February 2013

F inancial Technologies

Products and services

MarketView Terminal is an integrated cross asset, market data, news and analytics

platform that offers real-time streaming information on domestic and international

exchanges and extensive coverage of equities, derivatives, commodities,

currencies, debt, money markets and mutual funds.



MarketView Terminal offers fast, reliable and comprehensive market data and

news updates. Its real-time market data platform delivers ultra low latency, tick-

by-tick data and features completely customizable screens, advanced charting,

comprehensive and advanced technical analysis, and economic data.



MarketView Mobile provides real-time streaming quotes of equities and

commodities derivatives and forex on mobile phone and enables real-time

connectivity to equities, commodity and currency markets to market participants

and investors.



TickerPlant's content solution for web module delivers information including

market statistics, corporate filings, initial public offerings, mutual funds, financial

tools, etc, on a single platform.



FTKMC

Financial Technologies Knowledge Management Company (FTKMC) is a provider of

solutions and services in the realm of financial sector knowledge. It offers numerous

products and services in the areas of executive education, financial literacy, financial

certification, research, consultancy and advisory. FTKMC has successfully conducted

nationwide training programmes as also extensive content development for financial

markets. It caters to the following, domestically as well as internationally:



Policy makers and regulatory authorities on subjects such as growing importance

of financial markets in the economy, and aspects of governance and management.



Financial institutions on market development strategies, resource mobilization

and risk management.



Corporates and other business entities on the scope of harnessing and accessing

financial markets and issuing securities and other instruments.



Intermediaries on the skill-sets and expertise required to operate in multi-asset-

class markets, including trading and settlement.



Students to prepare them with knowledge and know-how for successful careers

in financial markets.



Investors to empower them with proper understanding and appreciation of the

opportunities in the financial markets and risk and rewards associated with

financial investments.

5 February 2013

F inancial Technologies

Financials and Valuation

Income Statement

Y/E March

Sales

Change (%)

Operating expenses

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adjusted PAT

Change (%)

2010

3,070

-8.2

1,905

1,165

38.0

3,412

4,518

1,107

24.5

3,411

-10.5

2011

3,577

16.5

2,271

1,306

36.5

111

1,421

2,609

229

8.8

2,380

-30.2

2012

4,255

19.0

2,172

2,083

49.0

173

304

3,689

5,295

386

7.3

4,909

106.3

2013E

3,909

-8.1

2,103

1,806

46.2

208

658

1,517

2,457

342

13.9

2,115

-56.9

(INR Million)

2014E

4,825

23.4

2,306

2,519

52.2

228

591

1,191

2,891

723

25.0

2,168

2.5

2015E

5,334

10.6

2,534

2,800

52.5

251

506

1,295

3,337

834

25.0

2,503

15.4

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Deferred Tax Liabilities

Other LT Liabilities

Loans

Capital Employed

Gross Block

Less : Depreciation

Net Block

CWIP

Net Fixed Asets

Non-current investments

Other non-current assets

Curr. Assets

Debtors

Cash & Bank Balance

Loans & Advances/others

Current investments

Current Liab. & Prov

Current Liabilities

Provisions

Net Current Assets

Application of Funds

E: MOSL Estimates

2010

20,325

20,417

4,137

24,642

744

205

539

2,200

2,739

20,019

4,356

821

1,528

1,444

563

2,472

1,307

1,165

1,884

24,642

2011

20,512

20,605

120

20,796

4,425

152

4,273

202

4,071

10,971

1,879

10,690

319

687

1,362

8,323

6,815

4,887

1,928

3,875

20,796

2012

24,456

24,548

137

147

5,627

30,460

4,978

266

4,712

4,705

8,220

2,664

16,979

363

3,990

3,465

9,161

2,107

1,953

154

14,871

30,460

2013E

26,139

26,232

137

147

5,627

32,143

5,729

473

5,255

5,205

8,220

2,664

17,661

353

5,732

2,416

9,161

1,607

1,489

118

16,055

32,143

(INR Million)

2014E

27,876

27,968

137

147

5,627

33,880

6,457

702

5,755

5,705

8,220

2,664

19,274

436

7,025

2,653

9,161

1,983

1,838

145

17,292

33,880

2015E

29,948

30,040

137

147

5,627

35,952

7,208

953

6,255

6,205

8,220

2,664

21,055

482

8,508

2,904

9,161

2,192

2,032

160

18,863

35,952

5 February 2013

F inancial Technologies

Financials and Valuation

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout % (excl.div.taxes)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

EV/Sales

Price/Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios

Debtors (Days)

Fixed Asset Turnover (x)

Leverage Ratio (x)

Debt/Equity Ratio(x)

0.2

0.1

0.2

9.1

1.9

1.7

1.0

18.2

7.0

11.6

6.7

21.7

6.0

8.3

5.3

8.0

5.4

8.6

7.3

10.1

9.8

20.2

9.9

2.0

0.7

23.5

21.4

22.3

10.3

1.9

0.7

22.9

20.7

15.5

8.1

1.8

0.7

19.8

18.0

13.4

7.0

1.7

0.7

2010

74.0

443

8.0

10.8

2011

51.6

447

8.0

15.5

2012

106.5

110

533

8.0

7.5

2013E

45.9

569

8.0

17.4

2014E

47.1

607

8.0

17.0

2015E

54.3

652

8.0

14.7

Cach Flow Statement

Y/E March

CF from Operations

Cash for Working Capital

Net Operating CF

Net Purchase of FA

Net Purchase of Invest.

Net Cash from Invest.

Proceeds from Equity

Proceeds from LTB/STB

Dividend Payments

Cash Flow from Fin.

Net Cash Flow

Opening Cash Bal.

Add: Net Cash

Closing Cash Bal.

E: MOSL Estimates

2010

3,424

-127

3,297

396

-5,574

-5,179

-94

-474

-430

-998

-2,880

4,408

-2,880

1,528

2011

2,057

-418

1,639

-2,127

-2,051

-429

-841

1,528

-841

687

2012

2,973

1,014

3,987

-390

2,546

2,156

-2,412

-428

-2,840

3,303

687

3,303

3,990

2013E

2,115

558

2,673

-500

-431

1,741

3,990

1,741

5,732

2014E

2,168

2,224

-500

-431

1,293

5,732

1,293

7,025

(INR Million)

2015E

2,503

-88

2,415

-500

-431

1,483

7,025

1,483

8,508

5 February 2013

F inancial Technologies

N O T E S

5 February 2013

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Financial Technologies

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