 "FT stock to stay under pressure")
Consequently, FTIL will have to reduce its stake from the existing 26 per cent to two per cent of the paid-up capital of MCX. Earlier, after the massive payments crisis hit its wholly-owned subsidiary, National Spot Exchange (NSEL), the Street had lowered its expectations, as NSEL alone contributed 62.5 per cent of FTIL's consolidated profits. If its stake in MCX is also reduced, this will collectively have a much larger impact on the earnings and valuation of the company.
NSEL contributed Rs 267 crore (36 per cent) to FT's consolidated revenue of Rs 740 crore in FY13. And, as 62.5 per cent of FT's adjusted profits of Rs 205 crore came from NSEL, profits to that extent have also been wiped out. If it divests the stake in MCX, the financials will be further impacted, to the extent of dividend income, of around Rs 50 crore annually. On removing the profits from NSEL and dividend income from MCX, its consolidated profit would have been Rs 27 crore in FY13, not the Rs 205 crore mentioned earlier.
The situation would have been even worse if it had not divested stake in its Singapore entities, which were making Rs 100 crore of annual loss.
What, then are investors in FT left with? At the current market price of MCX at Rs 468.9 a share, the 24 per cent stake sale could fetch Rs 554 crore to FTIL, almost 65 per cent of its market capitalisation. However, the Street considers such a stake sale might not happen at the current ruling prices, considering the size of the offering and current valuations of MCX. At the current price, MCX is offering a dividend yield of almost 5.3 per cent and is currently trading at a very low price to earnings multiple, of nine times.
After MCX, FT will be valued for its core technologies business and its 33 per cent stake in Indian Energy Exchange (IEX). The company's standalone technologies business is valued at Rs 1,000 crore or about eight times its expected net profit of Rs 120 crore for the current financial year. The value of its 33 per cent stake in IEX is estimated to be Rs 300 crore, based on 10 times its expected net profit of Rs 90 crore for FY14.
The market is keen to see how and where the proceeds from the sale of stake in MCX are deployed. The Street fears that if the funds are used for the unaccounted liability arising due to the NSEL crisis, it would erode the valuations of FTIL. A consortium led by Universal Commodity Exchange has shown interest in buying the FTIL stake in MCX.
“The matter is sub judice. Hence, we will not be able to comment on your query,” said an FTIL spokesperson, when asked about the stake sale implication on the financials. In fact, FTIL has challenged FMC’s “not fit and proper” order at the high court here; a hearing is scheduled on January 16.
Even so, analysts believe sale of the MCX stake would be detrimental for FTIL. It controls 75 per cent of the equity and commodities trading terminals in India and has been facing a huge crisis of confidence since July 2013, when NSEL defaulted on payments to investors to the tune of Rs 5,600 crore. FMC ordered closure of the exchange, following protests by investors.
This followed enquiries by several agencies — forensic auditor Grant Thornton, the Union ministry of corporate affairs, the economic offences wing of the city police, the enforcement directorate. Their common finding was the NSEL board was not informed about the decisions made by its managing director and chief executive. This included financial decisions and financing to borrowers without adequate collateral.