Private Client Research

Rating

Buy

Sector

Finance - Stock Broking

Company

Multi Commodity Exchange Of India Ltd

Finance - Stock Broking

March 25, 2020

Sensex: 28535.78

CNX Nifty: 8317.85

NSE: MCX

BSE: 534091

Reco Price

Rs. 853

Price Target (1 Year)

Rs. 1025

Upside

20.16%

Date

March 25, 2020

Sensex

28535.78

CNX Nifty

8317.85

Exchange

Code

NSE

MCX

BSE

534091

Stock Data

CMP (Rs)

937.70

Face value (Rs)

52 Week Range (Rs)

1443.00 - 761.25

Market cap (Rs Crores)

4775.23

Price To Book Value (x)

3.44

P/E Ratio (x)

22.11

EV/EBIDTA (x)

20.65

One Year indexed Stock Performance

Multi Commodity Exchange Of India Ltd Sensex

Return (%)

12m

36m

Absolute

-29.79

-4.76

18.08

-23.52

Sensex

-29.16

-26.06

-24.53

-2.40

Shareholders

(in %)

31-Dec

Promoter

Public

100

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

The Multi Commodity Exchange of India Limited (MCX), India’s first listed exchange, is a state-of-the-art, commodity derivatives exchange that facilitates online trading of commodity derivatives transactions, thereby providing a platform for price discovery and risk management.

Strong performance driven by increase in volumes and improved participation

Robust volume growth to be driven by bullion/crude oil:
Gold contracts witnessed a record delivery of 5.2 MT (valued at Rs. 1,821 crore) in August 2019 delivery contracts, surpassing the previous record of 5.05 MT in Oct 2009. Turnover in Crude Oil futures contracts made a lifetime high of Rs. 26,622 crore on September 17, 2019. High volatility in these commodities will further add to volume growth.

MCX added five more locations to the list of additional delivery centres for gold and gold mini contracts in addition to the existing three main and additional delivery centres. This is aimed at enabling lakhs of jewellers, big and small, to conveniently take physical deliveries of gold through exchange mechanism from their nearest locations.

Market leader in commodity derivative market:
During FY19, MCX was able to enhance its market share to over 90% in the commodity derivatives market. This was despite the launch of commodity derivatives by both BSE and NSE in October 2018. During half year ended FY2020 the Exchange's market share in the commodity derivative space increased to 92.87% as against 91.4% in the corresponding period of FY2019.

Monopolistic position in multiple commodities
MCX’s market share in key segments is as follows:

Commodity Segment	MCX Market Share
Precious Metals & Stones	98.23%
Energy	99.98%
Base Metals	100.00%
Agri - Commodities	14.61%

Introduction of new participants to drive volume growth:
In March 2019, SEBI permitted Mutual Funds and Portfolio Management Services (PMS) to participate in the commodity derivatives market. The presence of financial institutions such as mutual funds is expected to offer retail domestic investors an additional avenue of financial investments. In October 2018, Eligible Foreign Entities (EFEs), who have exposure to Indian physical commodity markets, have been permitted to trade in Indian Commodity Exchanges. With SEBI allowing institutional participants in the commodity derivatives market, it is expected that the market will expand and become more participative.

Grant of renewal of recognition to Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) to act as a Clearing Corporation:
MCXCCL is a wholly owned subsidiary of MCX. SEBI has granted recognition to MCXCCL, to act as a Clearing Corporation for a period of three years commencing on July 31, 2019 and ending on July 30, 2022.

No impact of Whistle blower letter:
Management clarified and strongly dismissed all the concerns bought forward by whistle blower and it has registered a complaint with SEBI for the same. There is no impact of whistle blower on the business.

Launch of options trading and more commodities:
During FY19, MCX launched four new commodity options contracts on futures of Crude Oil, Zinc, Copper and Silver. The Exchange also launched futures contracts on Rubber during the year, which was discontinued in March 2019.

Industry

The Indian commodity derivatives exchanges are playing an important role in helping market participants manage risk exposure on account of price volatility, in addition to contributing towards modernizing and improving the efficiency of the country’s commodity sector.

In volume terms too, India’s commodity derivatives market expanded by about 20% in 2018-19 over 2017-18. The total volume of commodity futures traded by all national commodity exchanges exceeded 246.45 million lots.

During FY 2019, total value of commodity futures traded by all national commodity exchanges in India was Rs.71.97 lakh crore against Rs.60.09 lakh crore in FY 2018. The growth of 20% can be attributed to a number of factors, including the expansion of the market driven by a slew of regulatory developments.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars	FY17	FY18	FY19	FY20 E	FY21 E
Net Sales	259.44	259.84	300.03	375.04	431.29
Growth Y-o-Y %		0.20%	13.40%	20.00%	13.00%
Employee Cost	64.42	68.21	72.46	80.37	89.21
Other Operating Expensed	115.39	119.77	140.27	152.89	165.13
Total Expenditure	179.81	187.98	212.73	233.26	254.33
Operating Profit (Excl OI)	79.63	71.86	87.30	141.78	176.96
Other Income	116.90	92.02	105.22	126.26	151.52
Operating Profit	196.53	163.88	192.52	268.04	328.48
Growth Y-o-Y %		-19.90%	14.90%	28.20%	18.40%
Interest	0.20	0.04	0.01	0.01	0.10
Depreciation	18.57	16.66	15.45	17.35	19.25
Profit Before Taxation & Exceptional Items	177.76	147.18	177.06	250.68	309.12
Exceptional Income / Expenses			-23.80
Profit Before Tax	177.76	147.18	153.26	250.68	309.12
Growth Y-o-Y %		-20.80%	4.00%	38.90%	18.90%
Provision for Tax	51.17	38.82	7.45	50.14	77.28
Profit After Tax	126.59	108.36	145.81	200.55	231.84
Adjusted EPS	24.82	21.25	28.67	39.32	45.46

Source: Stockaxis Research, Company Data

Valuation

We expect revenue/PAT CAGR of 20%/26% for FY19-21. MCX reported strong numbers for 9MFY20, led by robust growth in ADTV (average daily turnover) and operating leverage benefits playing out. With significant increase in volatility in key commodities, we expect growth momentum to continue.

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