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Published on 22/07/2019 2:28:59 PM | Source: HDFC Securities Ltd

Pick Of The Week : Multi Commodity Exchange of India Ltd - HDFC Securities

Posted in Broking Firm Views - Short Term Report| #HDFC Securities #Multi Commodity Exchange of India Ltd #Trading Report

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Company profile:

Multi Commodity Exchange of India (MCX) is a leading commodities exchange based on value of commodity futures contracts traded in India. The company is a de-mutualised exchange and received permanent recognition from the Government of India on September 26, 2003, to facilitate nationwide online trading, clearing and settlement operations of commodities futures transactions. MCX offers trading in varied commodity futures contracts across segments including bullion, industrial metals, energy and agricultural commodities. The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulates quality parameters and trade regulations, in conformity with the regulatory framework. The Exchange has an extensive national reach, with 692 registered members and operating through more than 18 lakh trading terminals. MCX is India's leading commodity derivatives exchange with a market share of ~91% in terms of the value of commodity futures contracts traded in the quarter ended June 2019.

 

Investment rationale:

* Market Leader with ~92% market share

* Untapped Commodity Markets

* Positive Regulatory Developments

* Setting up of MCXCCL Concerns:

* Falling prices lead to decline in contract values

* Vulnerable to Macro Economic Trends

* Vulnerable to Regulatory Policy Changes

* Competition from Competitors  

 

View and valuation:

The Indian commodity derivative markets have been witnessing various regulatory and business enablement since SEBI has taken over the reins in 2015. The commodity options contracts, which have just been launched has the potential to contribute significantly to the turnover and revenue of the Exchange, especially with the rationalization of transaction taxes at exercise, commencement of Liquidity Enhancement Scheme in Gold options and the availability of option contract in a suite of products. Regulatory tailwinds like Institutional participation, Indices launched by MCX in association with Thomson Reuters, and tie-up with Retail bank subsidiaries will boost trading volumes and depth in the long run. With concerns related to increase in competition and pricing pressure is subsiding, the market is expanding with entry of new market participants and products. We estimate 18% revenues cagr led by strong rise in volumes over FY19-21E. EBITDA is estimated to see 37% cagr led by operating leverage tailwinds. Margin is expected to surge ~11% to 42% for FY21E. Strong revenues coupled with margin expansion would ensure 15% PAT cagr over FY19-21E. PAT cagr is slow compared to EBITDA as we have taken steady Other Income and higher tax rate for the next two years. Owing to these factors, we are positive on MCX and recommend a buy on the stock at the current market price of Rs.856 with and add on declines to Rs 802 for sequential target price of Rs 962 and Rs 1048, valued using SoTP at 34x FY21 Core PAT + Net Cash.

 

Recommendation

Buy Multi Commodity Exchange Ltd @ 802 – 856.4 TGT 962 - 1048 CMP 856.4

 

 

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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475

 

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