Buy MCX; target of Rs 1300: Motilal Oswal

Motilal Oswal's research report on MCX

MCX's 2QFY18 revenue stood at INR673m (below our est. of INR706m). Yield for the quarter seems to have declined ~3%, driving the revenue miss. Operating expenses were INR466m, in line with our estimate of INR468m, and stable sequentially. Thus, EBITDA stood at INR207m (30.7% margin, -7.9pp YoY), below our estimate of INR238m (33.7% margin, -4.9pp YoY). PAT of INR292m (below est. of INR363m) was dragged further lower by other income of INR243m (17% below est.).

Outlook

MCX has retained its market leadership position, with a share of 80-90% over FY09-17, even in the most turbulent months of FY13-15, when the parent's existence was in deep waters on issues of fraud around NSEL. With the SEBI's reforms underway, we see volumes on the path to a significant recovery, from new products and participants. Operating margin on incremental volumes at ~80% would boost operating profits for MCX. We expect earnings CAGR of 32% over FY17-19. Our price target is INR1,300, which discounts forward earnings by 30x. Buy.