>FINANCIAL TECHNOLOGIES: 1QFY11 Results Update

Financial Technologies' (FT) standalone revenue (Rs0.74b v/s our estimate of Rs0.82b) and EBITDA margin (39.1% v/s our estimate of 48.7%) for 1QFY11 were below expectations, though PAT (at Rs0.45b) was in-line on lower than anticipated taxation on higher export revenues. Standalone business corresponds to FT's technology business.

■ FT's standalone revenue for the quarter was Rs0.74b (up 25.8% YoY, down 11.9% QoQ), EBITDA margin was 39.1% (down 620bp QoQ) and PAT was Rs0.45b (up 120% YoY and 3% QoQ) on lower effective tax rate of 4.5%.

■ MCX and MCX-SX continue their market leadership status, with 87% and 56% shares in the commodity and currency exchange segments, respectively.

■ The high court has directed SEBI to decide on allowance of equity and interest rate derivatives trading at MCX-SX by September 2010, reducing the scope of further delays in decision making by SEBI.

■ FMC (Forward Market Commission) has waived the requirement of selling 10% of MCX stake to government companies as a precondition for IPO, paving the way for MCX IPO filing post clarity on the SEBI MCX-SX tussle.

■ FT expects three of its exchanges to go live as scheduled - SMX (Singapore Mercantile Exchange) in August 2010, GBOT (Mauritius) in September 2010 and BFX (Bahrain) by October 2010.

We remain positive on the stock from a longer-term perspective and maintain Buy with an SOTP-based target price of Rs1,606. We value the technology business at 13x FY12E earnings (Rs523/share), MCX at 18x FY12E earnings (Rs313/ share), MCX-SX at 30% discount to the last strategic sale transaction (Rs333/share), NBHC at 13x FY12E earnings (Rs60/share), and group investments at 1.5x invested capital (Rs377/share). However, we believe near-term triggers are contingent on [1] decision on transaction fee introduction in currency exchange segment at MCX-SX, [2] SEBI allowance of new instruments (equity, interest rate derivatives) in MCX-SX, and [3] success of impending new exchange launches.

To read the full report: FINANCIAL TECHNOLOGIES