Maintain ADD on Multi Commodity Exchange - Taking a pause; recovery awaited - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

MCX delivered a weak revenue (-15.7% QoQ) and margin performance but was in line with our expectations. Trading volume was down 17.5% QoQ due to a decline in bullion volume (-31.8% QoQ), the high-margin requirement for a crude contract, seasonality, and lower volatility. Bullion's volume almost doubled in 9M (+97% YoY) but has paused in the quarter. Crude (~25% of volume) is picking up but a higher margin requirement (~50%) makes it less attractive for traders. Tailwinds like institutional participation, index derivative, and increasing retail penetration will boost volumes in the long run but the pick-up is slower than expected. We lower our EPS estimate for FY21/22E by -5.9/-6.0% to factor in the volume drop. The stock is already trading at a premium valuation of ~33x P/E FY22E core PAT; further re-rating will take place with a volume up-tick. We assign 30x P/E to Dec-22E core PAT and add net cash (ex-SGF) to arrive at a target price of Rs 1,770. Maintain ADD.

3QFY21 highlights: MCX revenue was down 15.7 QoQ but up 13.0% YoY to Rs 1.01bn, in line with expectation of Rs 1.01bn. Traded volume was down 17.5/+3.3% QoQ/YoY to Rs 20.71trn. Total ADTV was down 16.2/+3.3% QoQ/YoY to Rs 319bn. The bulk of the decline in 3Q was due to Bullion (- 31.8% QoQ) and Metals (-3.5% QoQ). EBITDA margin stood at 48.2%, down 658bps QoQ, slightly lower than our estimate of 48.8%.

We estimate 15% ADTV CAGR over FY20-23E would result in a +17/+28% revenue/EBITDA CAGR over FY20-23E. The change in technology vendor will further reduce cost and pose an upside risk to FY23E margin estimate.

Shares of MULTI COMMODITY EXCHANGE OF INDIA LTD. was last trading in BSE at Rs.1663.5 as compared to the previous close of Rs. 1673.4. The total number of shares traded during the day was 4378 in over 373 trades.

The stock hit an intraday high of Rs. 1684.2 and intraday low of 1649.75. The net turnover during the day was Rs. 7274629.

Source : Equity Bulls

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