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Multi Commodity Exchange (MCX)

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Multi Commodity Exchange (MCX) Multi Commodity Exchange (MCX) CMP: | 1587 Target: | 2000 (26%) Target Period: 12 months BUY May 25, 2021 Market leadership, new products to drive earnings MCX reported a moderation in average daily turnover (ADTO) attributable to upfront margin requirement impacting volume. Operational performance remained healthy led by steady revenue and controlled opex. Volatility in other income and tax advantage in base year led to decline in earnings. Particulars ADTO in commodity futures on the exchange declined 13% to | 31823 crore Particulars Amount Update in Q4FY21, due to increase in regulatory requirement of upfront margin Market Capitalisation | 8091 crore partially offset by higher gold priced compared to last year. Markets share Equity Capital | 51 crore in commodity futures space has remained strong at 96.04% in FY21. Networth | 1418 crore Result Number of unique customers increased from 51.5 lakh in Q3FY21 to 60.2 lakh in Q4FY21 while authorised person count was at 52777. Face Value | 10 52 week high/low 1875/1112 Decline in ADTO (13% YoY) was partially offset by healthy realisation FII 36.2% keeping moderation in operational revenue at ~8% YoY to | 97 crore. Tight DII 41.2% control on cost led EBIDTA at | 44.2 crore, up 8.7% YoY, though sequentially declined 9.1%. Subsequently, EBITDA margin increased ~700 bps YoY to 445.6%. However, lower other income at | 11.5 crore in Q4FY21 (led by G- Key Highlights sec yield in narrow range) vs. | 29.7 crore in Q4FY20 and utilisation of MAT Growth in ADTO moderated 13% credit in last year led earnings decline to | 38.5 crore; down ~41% YoY. YoY to | 31823 crore in Q4FY21 Core PBT (PBT excluding other income) has increased 8.8% YoY. Operational performance remained ADTO to show gradual rise post near term hiccup steady; earnings volatility driven by Implementation of second phase of regulatory requirement of upfront volatile other income margin is seen having impacted volumes. However, a gradual pick-up is Value stock at ~40x core earnings. seen in volumes in subsequent months as system stabilises. Further, scaling Maintain BUY with target price up of margin requirement is expected to keep ADTO volatile in the near unchanged of | 2000 term, post which the same is expected to stabilise. Gradual improvement in crude price coupled with reduction in margin requirement from 130% Key Highlights (levied post crude prices got negative) to 50% is seen boosting volumes, Scaling up of upfront margin though further reduction is required to bring in substantial flows. Pick-up in requirement could impact turnover options & index futures (ICOMDEX Bullion, ICOMDEX base metal indices) Retail Equity Research Equity Retail are expected to add to volume growth and revenue ahead. Also, Slower pick-up in recently launched – engagement of new partnership and technology is expected to propel options may remain a drag on participation including retail clients. incremental growth Valuation & Outlook Research Analyst Continued volatility in commodities amid fast changing scenario is seen Kajal Gandhi driving volumes and thereby earnings, though regulatory regime may lead [email protected] to near term hiccups. We remain positive on MCX owing to: 1) continued Securities ICICI market leadership, 2) rebound in prices of non-precious metals, 3) gradual Vishal Narnolia [email protected] pick up in index-based products, 4) continued addition of participants. The exchange has started to charge on index future (that was free until now), which will add to revenue trajectory. We expect ADTO to gradually Sameer Sawant [email protected] accelerate to ~| 105 lakh crore by FY23E. Hence, revenue, earnings are expected to grow at ~12%, 13% CAGR in FY21-23E to | 488 crore, 291 crore, respectively. We maintain our TP at | 2000, valuing MCX at ~40x FY23E core earnings, adding net cash after deducting SGF. Maintain BUY. Key Financial Summary s (| crore) FY19 FY20 FY21 FY22E FY23E CAGR (FY21-23E) Net Sales 300.0 374.2 390.6 437.3 488.4 11.8% EBITDA 94.9 154.7 185.1 211.2 240.6 14.0% EPS (|) 33.0 46.4 44.2 50.2 57.2 13.8% Annual Volume Traded (in lakh crore) 67.7 86.9 82.6 93.7 104.6 RoE (%) 13.5 17.4 15.9 17.0 18.1 RoA (%) 8.1 8.7 9.0 9.5 10.0 Source: Company, ICICI Direct Research Company Update | MCX ICICI Direct Research Story in Charts Exhibit 1: Moderation in ADTO owing to upfront margin Exhibit 2: Gradual increase in turnover ahead 45000 12000000 38144 10460642 40000 36626 34526 10000000 8,689,517 9,366,591 32181 35000 30584 31823 8,256,882 27473 30000 8000000 6,772,373 | crore 25000 23129 | crore 6000000 5,393,350 20000 15000 4000000 10000 2000000 5000 0 0 FY18 FY19 FY20 FY21 FY22E FY23E Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research Exhibit 3: MCX market share remains buoyant Exhibit 4: Major commodities turnover in Q4FY21 3.82% 0.14% 9% 20% 26% 14% 1% 30% 96.04% Crude Oil Gold Silver MCX NCDEX Others Agri-commodities Natural Gas Base Metals Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research ICICI Securities | Retail Research 2 Company Update | MCX ICICI Direct Research Exhibit 5: Opex break-up Exhibit 6: Operating efficiency to remain steady 300 100% 90% 250 80% 72.9% 68.4% 70.8 70% 200 69.3% 58.7% 73.2 69.4 52.6% 51.7% 51.3 66.7 60% 50.7% 54.0 150 72.6 50% | crore | 89.3 81.9 69.0 75.5 40% 100 66.0 63.6 42.6 30% 50 87.7 20% 64.4 68.2 71.9 77.3 75.2 81.2 10% 0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E 0% FY17 FY18 FY19 FY20 FY21 FY22E FY23E Employee Cost Software Others opex/revenue Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research Exhibit 7: Quarterly realisation trend (calculated) 700% 600% 5.03 4.71 4.67 500% 4.63 4.15 400% 4.33 300% 200% 100% 0% Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Realisation per | lakh Source: Company, ICICI Direct Research Exhibit 8: Shareholding Pattern in % Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21 Promoter 0.00 0.00 0.00 0.00 0.00 0.00 DII 35.98 39.71 41.45 41.35 39.22 41.20 FII 33.56 32.18 36.06 36.63 37.06 36.20 Others 30.5 28.1 22.5 22.0 23.7 22.6 Source: Company, ICICI Direct Research Exhibit 8: Price Performance 2000 18000 1800 16000 1600 14000 1400 12000 1200 10000 1000 800 8000 600 6000 400 4000 200 2000 0 0 Nov-18 Nov-19 Nov-20 May-18 May-19 May-20 May-21 MCX Nifty Index Source: Company, ICICI Direct Research ICICI Securities | Retail Research 3 Company Update | MCX ICICI Direct Research Financial Summary Exhibit 23: Profit & Loss Statement (| crore) FY19 FY20 FY21 FY22E FY23E Net Sales 300.0 374.2 390.6 437.3 488.4 Operating Exp 133.2 142.2 130.3 144.9 160.2 Software 81.9 69.0 63.6 75.5 89.3 Employee Cost 71.9 77.3 75.2 81.2 87.7 Total Expenses 205.1 219.5 205.4 226.1 247.8 EBIDTA 94.9 154.7 185.1 211.2 240.6 Depreciation 15.4 18.1 22.1 23.4 23.4 Other Income 96.0 129.0 103.8 127.6 135.3 Interest - 0.2 0.2 0.2 0.2 PBT 175.5 265.5 266.9 315.5 352.4 Tax 7.1 28.9 41.5 59.5 60.5 PAT 168.4 236.6 225.3 256.0 291.9 Source: Company, ICICI Direct Research Exhibit 24: Balance Sheet (Year-end March) FY19 FY20 FY21 FY22E FY23E Sources of Funds Share Capital 51.0 51.0 51.0 51.0 51.0 Reserves and Surplus 1199.9 1308.4 1367.2 1456.8 1559.0 Total Shareholder's Fund 1250.9 1359.4 1418.2 1507.8 1610.0 Non Current Liabilities 41.4 54.6 57.6 60.5 63.5 Current Liabilities 453.3 910.9 557.5 613.2 674.5 Settlement Gurantee Fund 329.8 409.8 469.2 516.2 567.8 Total 2075.5 2734.6 2502.5 2697.7 2915.8 Application of funds Fixed Assets 141.4 141.3 139.5 150.7 162.7 Investments 1202.0 1640.9 1720.2 1823.4 1932.8 Loans & Advances 0.2 0.2 0.1 0.1 0.1 Cash and equivalents 534.6 759.3 426.1 493.9 576.7 Other Assets 197.3 193.0 216.7 229.7 243.4 Total 2075.5 2734.6 2502.5 2697.7 2915.8 Source: Company, ICICI Direct Research ICICI Securities | Retail Research 4 Company Update | MCX ICICI Direct Research Exhibit 25: Key Ratios FY19 FY20 FY21 FY22E FY23E No. of Equity shares 5.1 5.1 5.1 5.1 5.1 EPS (|) 33.0 46.4 44.2 50.2 57.2 BV (|) 245.3 266.5 278.1 295.7 315.7 P/E (x) 48.1 34.2 35.9 31.6 27.7 P/BV (x) 6.5 6.0 5.7 5.4 5.0 OPM % 31.6 41.3 47.4 48.3 49.3 PAT % 56.1 63.2 57.7 58.5 59.8 RoE % 13.5 17.4 15.9 17.0 18.1 RoA % 8.1 8.7 9.0 9.5 10.0 Annual Volume Traded (in lakh 67.7 86.9 82.6 93.7 104.6 crore) ADTO 25648 32424 31757 36025 40233 Source: Company, ICICI Direct Research ICICI Securities | Retail Research 5 Company Update | MCX ICICI Direct Research RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations.
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