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MOSL: MCX: Strong operational performance, lower other income impacts PAT

MCX: Strong operational performance, lower other income impacts PAT

(MCX IN, Mkt Cap USD0.9b, CMP INR1323, TP INR1600, 21% Upside, Buy) 

• Net profit grew 4% YoY and 13% QoQ to INR414m. PAT was slightly lower than our estimate as lower other income was offset by a better-than-estimated tax rate.
• Overall volumes stood at INR28.7t, better than our estimate of INR27.4t. This resulted in an 8% beat in revenue, which stood at INR1.1b.
• Staff cost rose 10% YoY and 25% QoQ to INR227m. Software support charges saw a higher growth of 26% YoY and 7% QoQ.
• Overall EBIT, at INR435m, was better than our forecasts by 10%.
• EBIT margin stood at 40% v/s 34.5%/47.4% in 1Q/4QFY22. The YoY improvement was led by incremental revenue from the Options segment.
• Other income declined sharply by 57% YoY and 36% QoQ to INR93m (below our forecast).

Healthy volume growth driven by energy volumes

• Volumes grew 10% QoQ and 50% YoY to INR28.7t in 1QFY23, led by strong Option volumes, which grew 32% QoQ to INR12.5t. However, volumes from Futures declined by 13% YoY and 3% QoQ to INR16.2t in 1QFY23.
• Crude oil volumes grew 272% YoY to INR12t in 1QFY23, whereas Gold/Silver/Commodity volumes fell 7%/20%/44%. Sequentially, growth was driven by growth in Natural Gas volumes.

Key takeaways from the management commentary

• MCX is awaiting approval from the regulators to launch Electricity derivatives and expects to receive it soon.
• The management is developing the technology for a Gold spot exchange. However, it believes that the GST-related issue needs to be resolved in order to gain customer interest in this product segment.
• The sequential 25% jump in employee cost is on the back of a one-time reversal of provision in 4QFY22. Going forward, the management expects the current employee cost run-rate to continue.

Upgrade our estimates to factor in strong volume growth, maintain Buy

• We remain positive on a gradual increase in ADT, led by surging Option volumes, amid rising volatility in commodity prices. Progress on other growth initiatives, such as the Gold spot exchange and Electricity futures, faces certain challenges. Transition to TCS from 63 moons will drive cost savings and lead to a relatively strong (38%) APAT CAGR over FY22-24.
• We like MCX for its near-monopoly in the Indian Commodity Exchange segment (92% market share). We have upgraded our FY23/FY24 EPS estimate by 9%/11% to factor in a better than expected traction in Option volumes. We value the stock at a multiple of 30x FY24E EPS. We maintain our Buy rating with a revised TP of INR1,600/share.