Financial Tech offloads 4% stake in MCX; share price hits the roof

Rajalakshmi Nirmal BL Research Bureau | Updated on July 16, 2014 Published on July 16, 2014

The stock of Jignesh Shah-promoted Financial Technologies (FT) is up 9.5 per cent today. Investors are turning optimistic about the stock with SAT (Securities Appellate Tribunal) last week dismissing FT’s plea against a SEBI order declaring it unfit to hold stakes in equity bourses. The company now has no option but to exit from equity bourses and keep to its standalone business.

The SEBI’s original order was issued in March when it gave FT three months time to divest its holdings in MCX-SX and NSE. Now, SAT has given FT another four weeks time to divest its holdings in equity bourses.

The SAT, experts say, has taken the stand of the Forward Market Commission. The commodity’s market regulator had in December last year declared FT and its promoter Jignesh Shah unfit to run any exchange.

In the last six months since FMC’s order, there have been rumours of many big names, including the Kotak Group and Reliance Capital, bidding for FT’s stake in MCX. But, FT has still not completed divesting its stake in MCX. Last week, it had sold 2 per cent of the required 24 per cent of its stake in MCX to Rakesh Jhunjhunwala.

From here the process will be quicker, feel experts. The FMC has barred MCX from issuing any new contracts if FT does not reduce its stake to 2 per cent from the current 24 per cent by August. As this will be very detrimental to MCX’s business, a swift action is likely.

Stands alone

The market appears to be positive about the prospects of FT’s standalone business. The company’s standalone revenues have reported a compounded annual growth of 15 per cent between 2010-11 and 2012-13.

The business has been to sell front and back office solutions to stock exchanges and brokers and collects fee for their annual maintenance. The license fee collected on new application being sold ever year is also a chunk of revenues. With the stock markets now reviving and brokerages also looking to expand the count of branches, the prospects may improve for FT’s business.

2013-14 however was a bad year. FT’s sales is reported to have dropped by 26 per cent. It made a loss at the bottom line on provisions for loans and advances that may not be recoverable and diminution in the value of some long-term investments overseas.

What is also cheering investors of FT is that all the divestment the company is doing now will bring in a good amount of cash. FT still has to divest 22 per cent stake in MCX. Valuing this at the price (₹664 a share) at which shares were sold to Rakesh Jhunjhunwala, the company is to get ₹745 crore when it finishes divesting the holding in MCX.

FT holds 2.71 crore shares in MCX-SX and 10,000 shares in National Stock Exchange and is required to dispose off these in the next four weeks.

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Published on July 16, 2014
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