Financial Technologies: Sentiments unlikely to revive anytime soon

Even as valuations look attractive, experts believe investors should await clarity

Two days after the payment crisis episode at the National Spot Exchange Limited (NSEL), there is no stopping the fall in share price of Financial Technologies (FT). Post Thursday’s fall of 65 per cent, the FT stock plummeted 21 per cent on Friday, which clearly shows how weak the investor sentiments are.

“More than the fundamentals and valuations which are attractive at current price there is loss of confidence, and that has resulted in huge selling (in the counter),” said an analyst, who tracks the company with the leading broking house.

From the perspective of financials and future prospects, too, the impact for FT could be significant if the problems are not resolved soon. Financial Technologies holds 99.9 per cent stake in NSEL, a national spot exchange for commodity trading. While FT reported revenues of about Rs 740 crore in FY13, a large part of it came from NSEL (Rs 267 crore). Notably, its contribution to FT’s profits is also high. At Rs 127 crore in FY13, NSEL accounted for 62.5 per cent of FT’s consolidated adjusted net profit (excluding extraordinary items) of Rs 204.97 crore.

However, there is one section of investors who are valuing FT by excluding NSEL. They argue that on a standalone basis (excluding contribution of subsidiaries like NSEL) and excluding the other income, FT’s profit would stand at Rs 150 crore in FY13. Additionally, if one hypothetically excludes the revenues that FT earns from MCX (due to slowdown in commodity segment post imposition of CTT) and NSEL, the company should still manage to report a profit of Rs 100-120 crore. Even if the market ascribes 5-10 times value to this profit, the market cap should work out to Rs 500-1,000 crore, compared to Rs 696 crore currently.

But it might not be appropriate to value on the basis of the private equity alone, given the Rs 800 crore net cash and cash equivalent in the books and several other investments like stake in MCX, Energy Exchange, MCX-SX and DGCX Dubai, among others.

Post the fall in MCX shares (20 per cent each in the last two days), the value of FT’s stake in MCX works out to Rs 500 crore. Its stake (33 per cent) in Energy Exchange is worth about Rs 300 crore. And, FT has stake in other exchanges as well. If one sums up these known investments, the total value works out to Rs 1,600 crore. Even after assuming an aggressive holding company discount of says 40 per cent (on MCX holding), FT’s value works out to Rs 1,280 crore.

On the other hand, FT has a large portfolio of exchanges and services, which might not get materially impacted because of this development. Though its core business (which provides technological support like software development, maintenance fees, etc to brokers and exchanges) seen flat growth recently, it remains on stable ground.

For investors though, the advice is to wait for clarity on implications for the companies, as overall market sentiment  is weak. Any recovery in share prices is unlikely to come in a hurry.