Maintain ADD on Multi Commodity Exchange - Recovery expected - HDFC Securities

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

We maintain ADD on MCX, following a lower-than-expected revenue and margin performance. ADTV declined (-12% QoQ) sequentially for the third consecutive quarter due to an increase in upfront margin requirements (phase-3 at 75%, phase-4 applicable from Sep-21). Trading volume was down 10.6% QoQ due to continued weakness in bullion (-21% QoQ), while energy and metal volumes were stable QoQ. The volume impact due to regulatory changes was only ~3% in phase-3 vs. ~20% in phases 1 and 2. We believe volumes would recover with (1) increase in algo trading; (2) pick-up in crude volume (reduction in margin); (3) implementation of cross margin benefits; (4) higher institutional participation; (5) popularity of index futures contract (cash-settled); and (6) traction in the options contract. The company will start charging for options contracts effective Oct-21. The margin declined due to the revenue impact and increase in employee expenses. The shift to the new trading platform (effective Q3FY23) will result in cost savings, leading to a ~260bps margin tailwind in FY23E. We moderate our EPS estimate for FY22/23E by -3.3/1.8% to adjust for lower volume. We assign 30x P/E to June-23E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 1,745.

Q1FY22 highlights: MCX revenue stood at INR 0.88bn (-9.7/+20% QoQ/YoY), below our expectation of INR 0.90bn. The total traded value was at INR 17.73tn (-10.6/+25.7% QoQ/YoY) and ADTV stood at INR 277bn (-12.0/+19.8% QoQ/YoY). Bullion/energy/metals/agri ADTV was down 22.1/2.2/2.4/2.9% QoQ respectively. EBITDA margin stood at 42.1%, down 358bps QoQ, on account of lower revenue and higher employee expenses (+17.5% QoQ). Active UCC was up 16/79% QoQ/YoY, indicating higher retail participation. Options pricing will be INR 500/mn on premium, ~35% of futures pricing, based on notional volume.

Outlook: We estimate a 14% ADTV CAGR over FY21-24E, resulting in +17/+30% revenue/EBITDA CAGRs over FY21-24E. The change in technology vendor in Oct-22 will lead to a margin benefit of ~500bps over FY23-24E.

Shares of MULTI COMMODITY EXCHANGE OF INDIA LTD. was last trading in BSE at Rs. 1634.3 as compared to the previous close of Rs. 1675.2. The total number of shares traded during the day was 23616 in over 3182 trades.

The stock hit an intraday high of Rs. 1686.95 and intraday low of 1611.5. The net turnover during the day was Rs. 38597971.

Source : Equity Bulls

Keywords