Buy Multi Commodity Exchange; target of Rs 1800: HDFC Securities

HDFC Securities' research report on Multi Commodity Exchange

MCX reported a better-than-expected revenue performance but margins dipped due to higher payments to the technology vendor. The technology transition remains the key challenge/focus area and the company has indicated that the shift will be done before the extended deadline of June-23. MCX has agreed to pay 63moons a hefty amount of INR 1.6bn over the next two quarters, which will impact its profitability in the near term. The options ADTV has witnessed strong growth of +24% QoQ in the quarter and is up ~5x YoY. We remain constructive on the options growth story, led by (1) increasing retail participation with ~0.3mn traders up 3x YoY, (2) the launch of shorter duration contracts, and (3) index options and FPI participation providing an additional push to volumes. We expect the options revenue to grow 314/37% and contribute 40/48% of revenue in FY23/24E. Futures ADTV was flat QoQ; in fact, the cannibalisation of futures volume is lower than expected, led by Algo trading.

Outlook

We cut the revenue estimate by 0.6/3.9% and the EPS estimate by 17/6% for FY24/25E. We have a BUY rating and assign 30x P/E to Sep-24E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 1,800.

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