MCX IPO: Higher Subscription Leads To Lower Allotment

With the kind of response that has been received from retail and institutional investors, the Multi Commodity Exchange (MCX) has decided to bring the IPO at the upper price of the band (Rs 860 to Rs 1032) at Rs 1032 a share, to raise about Rs 663 crore through the IPO.

The IPO was oversubscribed 54 times, with the retail portion being oversubscribed 24.14 times. The Qualified Institutional Buyers (QIBs) and Non-Institutional Investors portions were also oversubscribed 49.12 and 150.35 times respectively.  With retail investors allowed to apply for a maximum of 192 shares and with a 24 times subscription, they will get allotment of only eight to ten shares. For the rest of the applicants it will be less than ten shares, which raises question on the actual return from the investment, as there are other costs attached with it. Investors who have applied with the intention of making listing gains will not receive much benefit due to low allotment, despite the premium quoting high in the grey market.

We believe that the IPO will give decent returns on the first day of the listing. Thereafter, we advise caution, as clarity on the future sustainability of its business model is awaited.

At a price of Rs 1032 and at an annualised EPS of Rs 57.77, it is trading at PE of 17.9x and will be the first exchange of its kind to get listed in India. When we compared it with the NASDAQ-listed Chicago Mercantile Exchange (CME), trading at a PE multiple of 16.52x.which is a much more matured player operating in a similar business area, the shares of MCX seem expensive, 

Earlier, in our analysis of the IPO, we had highlighted a few points where we asked investors to remain cautious over the long-term sustainability of its business model. Link: MCX IPO: If Novelty Excites, Go For It! Or Else, Avoid!