Maintain ADD on Multi Commodity Exchange - Setting the stage for growth - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Mohit Motwani, Institutional Research Analyst, HDFC Securities

MCX delivered a weak quarter due to volume decline for the second consecutive quarter, primarily because of a change in margin regulations. Trading volume was down 4% QoQ due to bullion falling (-11% QoQ), but crude and metals volumes were stable. The trading volume will recover with (1) increase in Algo trading (currently at ~40%), (2) pick-up in crude volume (4Q volume ~50% of peak level), (3) increase in volatility of global commodities, (4) institutional participation, (5) increasing popularity of Index futures contract (cash-settled) and (6) higher retail participation (UCC is up 77% YoY). The company has also started to charge for Index contracts effective April-21. The new trading platform will become live in 2QFY23 and result in cost savings. We increase our EPS estimate for FY22/23E by +1.6/5.4%. We assign 30x P/E to FY23E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 1,780. Maintain ADD.

4QFY21 highlights: MCX revenue declined 3.9/13.6 QoQ/YoY to INR 0.97bn, in line with the expectation of INR 0.96bn. Traded volume was down 4.2/17.9% QoQ/YoY to INR 19.84tn. Total ADTV was down 1.2/14.0% QoQ/YoY to INR 315bn. The decline in 4Q was due to bullion falling (-8.5% QoQ), but was offset by rise in energy/metals (+5.7/6.4% QoQ). EBITDA margin stood at 45.6%, down 262bps QoQ, due to higher provisions of INR 40mn related to CSR. The new trading platform will result in annual savings of ~INR 250-300mn.

Outlook: We estimate 18% ADTV CAGR over FY21-23E, resulting in a+18/+33% revenue/EBITDA CAGR over FY21-23E. The change in technology vendor in Oct-22 will lead to annual margin expansion of ~500bps.

Shares of MULTI COMMODITY EXCHANGE OF INDIA LTD. was last trading in BSE at Rs.1543.6 as compared to the previous close of Rs. 1586.7. The total number of shares traded during the day was 15647 in over 2208 trades.

The stock hit an intraday high of Rs. 1600 and intraday low of 1537.75. The net turnover during the day was Rs. 24554532.

Source : Equity Bulls

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