Private equity-backed commodity bourse company Multi Commodity Exchange of India (MCX) has set the price band for its maiden issue that will see half a dozen financial investors in the company part-exit, with some generating superlative returns of over 100x and some might just recover their original investment value, according to a VCCircle analysis.

The public issue is being eagerly watched as it is one of the biggest issues to hit the Indian bourses in a while and the first this year. It is also important as MCX is the largest commodity bourse by turnover and the issue will make it the first bourse to list in India.

Analysts say that this issue will test the market for more primary issues.

MCX has set a price band of Rs 860-Rs 1,032 a share for its initial public offer under which its existing investors, including its main promoter Financial Technologies India Ltd, are offering 6.4 million shares for sale. The issue will be worth Rs 550-660 crore. However, the company will not get any money from the issue.

For the nine months ended December 31, 2011 MCX had total income of Rs 474 crore and net profit of Rs 220 crore. Given that the company is looking at a valuation of over Rs 5,200 crore(~$1.05 billion) at the upper end of the price band, it is seeking a PE multiple of around 18 times its trailing net profit on an annualised basis.

The total value of commodity futures contracts traded on MCX's exchange in the nine months ended December 31, 2011 stood at Rs 11,980,689 crore. According to data maintained by the FMC, this represented 87.3 per cent of the Indian commodity futures industry in terms of the value of commodity futures contracts traded during the period.

MCX is hoping to be second time lucky after a failed attempt to go public three years ago when markets crashed in early 2008. The issue will open next week on Wednesday and will close on February 24.

Financial Technologies (India) Ltd, State Bank of India (Equity), GLG Financials Fund, Alexandra Mauritius Ltd, Corporation Bank, ICICI Lombard General Insurance Company and Bank of Baroda are the selling shareholders. Together, they own 44.11 per cent stake in the company. Financial Technologies will reduce its holding to 26 per cent to meet the shareholding norms for commodity bourses while others will sell a part of their holdings each.

In this IPO, 2.6 million shares are offered by Financial Technologies, 2.1 million shares are offered by SBI (Equity), 0.78 million by GLG, 0.39 million by Alexandra, 0.24 million by Corporation Bank, 0.14 by ICICI Lombard and 0.1 by Bank of Baroda.

The biggest gainers will be the three banks. SBI (Equity), Bank of Baroda and Corporation Bank had originally bought the shares at par face value of Rs 10 and after accounting for bonus shares, it translates into an average acquisition cost of Rs 8 a share. At the upper end of the price bracket, these three banks will encash 129x returns over an investment horizon of around eight years.

In contrast, other investors will just make some marginal gain in their part exits, according to a VCCircle analysis. For instance, the average cost of acquisition for Alexandra and GLG works out to be around Rs 924 and they will make around 12 per cent return on their four-year-old investment.

ICICI Lombard will fare better, though. Its cost of acquisition is pegged at Rs 840 a share and it will pocket 22 per cent returns on its part exit.

Other shareholders of MCX include Passport Capital, Euronext, Merrill Lynch, IFCI, NABARD, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, ICICI Venture, Kotak Private Equity among others.

Kotak PE and New Vernon would also be sitting on unrealised gains of around 12 per cent on their investment while ICICI Venture would count 22 per cent as unrealised gains on its books on MCX investment. Bennett Coleman & Company (along with Brand Equity Treaties Ltd) would be sitting on a little over 2x unrealised gains.

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