Multi Commodity Exchange of India - Lower turnover impacted operating performance - ICICI Securities

MCX reported 1% and 8% YoY growth YoY in its 9MFY21 ADTV (commodity futures) and EBITDA respectively. While FY21-TD has been volatile in terms of ADTV (Rs156bn in Apr'20, Rs432bn in Aug'20, Rs318bn in Jan'21), the aggregate earnings impact has been largely neutral. With limited traction in options/indices thus far, ADTV will continue to be the principal earnings determinant. However, the business model remains robust with structural monopoly, high operating leverage, and possible optionalities. Maintain HOLD.

- 9MFY21 EBITDA grew 8% YoY: In 9MFY21, MCX's total commodity futures turnover remained flat and revenues grew 5% YoY. Total operating costs declined 1% YoY - of which employee / technology costs grew +3% / (-)4% YoY and other expenses (-)3% YoY. This resulted in 8% YoY EBITDA growth with EBITDA margin at 48%. Other income grew 12% YoY and utilisation of MAT credit in Q3FY21 led to a lower effective tax rate of 14% in 9MFY21 leading to PAT growth of 9% YoY.

- Factoring-in Rs360bn/Rs400bn ADTV in FY22E/FY23E: MCX has reported an ADTV (FY21-TD) of Rs312bn (commodity futures), which is still 4% down from FY20 levels. In Q3FY20, it reported an ADTV of Rs318bn, down 16% QoQ. We expect ADTV to remain a tad lower at ~Rs321bn in FY21 vs the Rs324bn of FY20. We expect an ADTV growth of 12% / 11% in FY22E / FY23E, which will result in revenue and PAT growth of 15% / 12.5% and 18% / 14% respectively. We expect EBITDA margin to improve from 47% in FY21E (Q3FY21 and 9MFY21 EBITDA margin was 48%) to 52.4% / 54.2% in FY22E / FY23E due to operating leverage benefits.

- Options and index futures volumes yet to pick up: 9MFY21 options ADTV came in at Rs8.6bn, down 2% YoY. MCX had launched trading in index futures of bullion andn Aug'20 and Oct'20 respectively. Data up to 20th Jan'20 shows that bullion index ADTV has been at Rs2.8bn while that of the metal index Rs0.55bn.

- Major risks: 1) Possible impact on intraday futures volumes as upfront margin requirement is scaled up from 25% currently to 50% / 75% / 100% of the requisite margin from Mar'21 / Jun'21 / Sep'21 respectively; 2) regulatory fillip to competition in the exchange business as mooted in the draft paper released by SEBI on 6th Jan'21

- Maintain HOLD with a revised target price of Rs1,746 (earlier: Rs1,692): We value MCX at 35x FY23E core EPS of Rs43 and add distributable cash and investments (Rs227/share) to arrive at our target price of Rs1,746. Our core earnings estimates include operating income and investment returns from restricted cash.

Shares of MULTI COMMODITY EXCHANGE OF INDIA LTD. was last trading in BSE at Rs.1673.4 as compared to the previous close of Rs. 1680.3. The total number of shares traded during the day was 19704 in over 1747 trades.

The stock hit an intraday high of Rs. 1692 and intraday low of 1663. The net turnover during the day was Rs. 33042496.

Source : Equity Bulls

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