FTIL is currently going down like a pack of cards.In the last 5-6 days, it is continously sliding 2-3% daily. I have started accumulating @ 1150 and think its a good buy at current levels of 1040.
The company is engaged primarily in providing technology solutions in financial markets in the form of ODIN trading cum RMS software. Besides this, it is actively creating and operating exchanges in developing markets for facilitating trade in commodities, energy and currency derivatives. From time to time, the company sells stake in these exchanges to monetise value.
The company's primary software division makes on a average, a profit to the tune of 75-80 crores. The good points about the software are its stickiness and strong market share. The bad part is the stickiness again if a broker switches to another software. Valuing that division at 15x profits, gives us a value of 1200cr. for the ODIN business or around Rs. 260/share.
Besides this, the value of core investments (MCX, DGCX, IEX and NSE) is 3800cr on a very conservative scale using past share sale values. Since all the four above mentioned exchanges are doing well, I don't see a point of value diminution. I have excluded MCX-SX shares due to controversy going on which I will highlight. Similarly, I have also excluded investments in many other small subsidiaries which are not mature enough (National Spot Exchange, GBOT (Mauritius), SMX (Singapore) which are up and running besides other ventures). This practice also provides me with a wee bit of Margin of Safety. This gives us a per share value of Rs. 824.
The company also holds substantial amount of cash and liquid investments. We can also adjust the ZCCB it has issued and is buying back. This is to the tune of Rs. 130/share.
The SOTP gives us a valuation of Rs. 1,214. Already basing earnings on a conservative basis, I take a 10% Margin of Safety on my valuation and find Rs. 1,090 to be a good buy price.
The good part about the business is that the primary technology business is a high margin business where the company has a fair amount of muscle. With greater financial inclusivity coming in India, there is still immense scope in this aspect. The exchange incubation cum operation business could be a great cash flow generator if 3 or 4 other exchanges pay off. Here also I am hopeful that greater financial inclusiveness in developing countries allows room for multiple exchanges. On this front, if many exchanges do come up FTIL will be selling software to some of them definitely. I personally admire the promoters and am willing to put my faith on them. The most important aspect is the amount of Free Cash Flow that can be possibly generated in the future from both these areas.
The main negative are the overt motives of SEBI-NSE combine to not let MCX-SX function. With Mr. Bhave packed off if Feb, I hope for better days ahead. Also, if all the new ventures become duds or competition results in bad economics, then there is gloom, boom and doom. Also, institutional stake is high in the stock at around 32%. But it has always been the case so I don't expect that to come down quickly.
Conclusion
One could buy this stock in a portfolio in small quantity on dips at the current levels. There could be exciting times ahead.
No comments:
Post a Comment