Strong recovery in volume
MCX market share increased to 96.7% (+530bps YoY), which demonstrates the core strength of the franchise. Both revenue and margin performance was weak in 1Q but stood better than expectation. Trading volume was down 37% QoQ in 1Q due to the impact of COVID-19, change in exchange timing (April-20) and crude fiasco, which recovered strongly to pre-COVID levels in July-20 (Rs 346bn, ~5% below 4Q level). Bullion (57% of volume) continues to drive volume (+52% above 4Q level) supported by volatility in gold/silver prices. Crude (~25% of volume) is impacted by the high margin requirement (~100%) and extreme volatility. Tailwinds like institutional participation, indices launch (Aug-20), and increasing retail penetration should boost volumes. We increase the EPS estimate for FY21/22E by +27.4/+13.6% to factor in volume recovery and better margin. The stock has rallied ~48% in the last three months and now trades at a PE of 33/28x FY21/22E EPS. We assign 30x to June-22E core PAT and add net cash (ex-SGF) to arrive at a target price of Rs 1,600. Maintain ADD.
* 1QFY21 highlights: MCX revenue was down 30.7/8.1% QoQ/YoY to Rs 0.73bn (vs. expectation of Rs 0.64bn). Traded volume was down 41.6/18.5% QoQ/YoY to Rs 14.11tn. Total ADTV was down 36.9/15.8% QoQ/YoY to Rs 231bn. The bulk of the decline in 1Q was due to Energy (-65.9% QoQ) and Metals (-21.5% QoQ). Bullion was down only 6.6% QoQ in 1Q but is up 87% YoY in July-20. EBITDA margin stood at 38.7%, down 235bps QoQ, higher than our estimate of 26.5%.
* ADTV recovery has been strong in the past three months; in July-20, it was at Rs 345.85 (+9.9% YoY), led by Bullion and Metals. The crude volume is still down due to high margin requirements (~100% vs. ~10% earlier). MCX is planning to launch spot exchanges for Bullion and Natural Gas.
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