It is not often an exchange filing grabs your attention for the way it is written. But, when you stumble across something like that, it not only makes a great WhatsApp forward but also makes you smile. Sometimes it is a typo that induces a chuckle, another time the situation.
63 Moons Technologies, which provides software services to corporations across the world, on June 29 informed exchanges in a notification dipped in heavy sarcasm that MCX has approached it at “the eleventh-hour” to extend its services for “last time one more time” for six months, which it has agreed to.
“We sincerely wish that this ‘last time’ really happens someday,” said 63 Moons.
In a tone, which one usually reserves for a nagging ex-girlfriend or ex-boyfriend, 63 Moons essentially, in so many words, said to MCX that either you buy our full time services as we are offering or just stop pestering us every once in a while.
Explaining its annoyance to shareholders, 63 Moons said that it has been “offering MCX since August 2020 an option to purchase the software source code for self-use …(which) for the reasons best known to them they have not opted for it.”
The kerfuffle!
63 Moons has been a long term services provider to MCX – since 2003. However, MCX chose not to continue with its services and floated a Request for Proposal (RFP) in October 2020 for developing the Exchange’s Commodity Derivatives Platform (CDP) – about two years before the contract was supposed to expire.
63 Moons found it “futile” to compete in the RFP. In its annual report, it argues that the price it would be quoting in the RFP was already known to the company and thus there was no point participating in the process.
Tata Consultancy Services (TCS) eventually was selected as the vendor for development of the CDP and issued a letter of intent for the same in February 2021. TCS, in September 2021, informed that it would help MCX to “transform the exchange’s core systems”.
MCX and TCS have been working on developing and perfecting a brand new platform – T7 – since then, which has been borrowed from Deutsche Börse Group, which operates Frankfurt Stock Exchange. The platform was initially expected to go-live by July 2022. Since then delays and “complexity in platform development and integration” have marred the deployment of software.
As a result, it is not just sarcasm and analysts’ probing questions at earnings calls that MCX has to face, they have also seen significant impact on their profit and loss statement for a relatively long period. And the costs are stacking up.
This is the third time that MCX approached 63 moons to extend the software support service arrangement. The first was for three months ending December 2022 and the next for six months ending June 2023.
After insult, the injury
63 Moons has charged a bomb for each of its extensions. Till September 2022, when the original contract was in force, the software support and license fee that MCX paid 63 Moons was around Rs 16 crore per quarter. That shot up to Rs 67 crore plus for the first extension of three months ended December 2022. In the March quarter, MCX shelled out Rs 87 crore and is likely to pay as much for the current (June) quarter as well. For the upcoming six-month extension, MCX will be paying a whooping Rs 125 crore per quarter. To put that number in context. MCX net profit for the whole of FY23 was Rs 149 crore.
This means unless MCX is able to grow its net profit by at least 70 percent in FY24, the company will report a net loss.
Another problem for MCX’s accountants due to delay in software deployment is that taxes are overshooting their initial estimates. For the uninitiated, at the start of a fiscal year companies project their earnings and expenses for a year and thus make advance tax payments based on that. In the last quarter of the fiscal, taxes have to be paid on actual earnings and expenses for the fiscal.
Assuming a timely deployment, accountants at MCX had budgeted that since the new trading platform will go live, the depreciation charge would be high and thus they paid lesser taxes in the first three quarters of FY23. But, since there is no active software, there were no higher depreciation charges and hence their taxes overshot the estimate in the last quarter, reducing the profits.
Perhaps, MCX shareholders and traders will be compelled to borrow the words of 63 Moons, and say, “we wish them good luck with these new experiments and hope that they will reach the right destination one day.”
Godspeed!
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
