Buy MCX; target of Rs 1040: HDFC Securities

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HDFC Securities' research report on MCX

MCX delivered robust set of numbers in 4QFY18, revenue was up 12.4% QoQ to Rs 706mn (in-line with our est. of Rs 716mn), led by 17.8% rise in volume to Rs 15TN. Total ADTV was up 17.8% QoQ and 22.6% YoY to Rs 238.2 bn led by rise in commodity prices and volatility. Encouraging part is that volume traction is even stronger in April-18, ADTV is up 26% QoQ to Rs 299.3bn led by 13/27% rise in bullion and metals volume. Options pick-up is very slow vs. expectation (ADTV stood at Rs 0.46bn vs Rs 1.40 in 3Q). MCX will launch four to five additional options contract in 2HFY19 and has already started LES in April-18 to boost gold options volume. Regulatory tailwinds like institutional participation (Banks, MFs, PMS) and partnership with retail banks subsidiaries can boost trading volumes. Universal exchange concept (effective Oct-18) is a risk and can lead to rise in competitive intensity, pricing pressure and some market share loss to BSE & NSE (if they turn aggressive). However, management doesn’t see significant erosion in market share and expects the overall market size to increase with regulatory boost.

Outlook

We see value in MCX based on (1) Embedded non-linearity, (2) Strong recovery in ADTV, and (3) Net cash of Rs 14bn (~35% of Mcap). We estimate revenue/PAT CAGR of 23/30% over FY18-20E. Maintain BUY with a TP of Rs 1,040 implying a P/E of 30x FY20E EPS (earlier 35x).

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