>FINANCIAL TECHNOLOGIES (IDFC SSKI)

Billion dollar 'baby'!

Vision, execution and ability to reinvest capital have impelled the evolution of Financial Technologies (FTIL) from India’s leading exchange solutions provider to Asia’s largest exchange conglomerate. The ‘only’ gateway to the potential US$10trn Indian exchanges space, FTIL has captured 87% of the commodity markets through MCX and given taut competition to equity incumbent NSE in currencies through MCX-SX (49% share). Besides pioneering niche models in power and spot, five international exchanges have been set up in potentially under-penetrated regions. FTIL is now ready to take the battle to NSE and BSE’s turf in equity trading (NSE+BSE profits at Rs11bn). While aggression and growth are second nature to FTIL, ability to re-deploy capital (32% divested in MCX at a valuation US$1.1bn; 18% divested in MCX-SX at US$284m) in value creating businesses imparts conviction to its growth longevity. We like the ‘urgency’ in FTIL’s business trajectory and initiate coverage with an Outperformer.

An annuity play in the US$10trn opportunity space: The transition from a license sale business to an annuity model marks the scale up of FTIL. India’s leading exchange solutions provider (350,000 licenses sold; 85% share), FTIL has extended the strong domain expertise to the ‘fundamentally-perfect’ exchanges business and created MCX with 87% share of Indian commodity space.

Risk appetite, execution, monetization and growth: The ‘urgency’ to replicate the success of MCX has steered FTIL to become Asia’s largest exchange conglomeratewith 10 exchanges across segments/ geographies as also six eco-ventures. We like the execution success in its core technology products business, MCX, NBHC (warehousing) as also MCX-SX (currency derivatives). Ability to monetize is evident from partial divestiture in DGCX and capability to fund growth is reflected in the recent value unlock in MCX-SX.

The way to value – SoTP; target price of Rs2,000: FTIL is a compelling business proposition, a gateway to participate in a model with strong technology domain, annuity in a high-growth environment, spanning various geographies (Singapore, Bahrain, Africa, Mauritius and India) as also segments (commodities, equities, currencies, power, spot, etc). We initiate coverage on FTIL with Outperformer and SoTP-based target price of Rs2,000 – 40% upside from the current levels.

To see full report: FINANCIAL TECHNOLOGIES