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Factoring in lower oil prices but higher volumes
Multi Commodity Exchange of India (MCX) posted an impressive growth of 27% in total value traded in FY20 boosted by robust growth in bullion and energy segments. However, in FY21, there will be an impact of lower crude prices partially offset by higher volumes under increased volatility. Factoring in the ‘Oil Shock’ scenario in our model, we have lowered our FY21 and FY22 revenue/EBITDA/PAT estimates by 7/14/9.7% and 3/5/4%, respectively. We value MCX at 35x FY22E core earnings and add distributable cash and investments to arrive at our unchanged target price of Rs1,388.
* High volatility leading to higher volumes will offset effect of lower prices in FY21: In the past, oil prices witnessed elevated volatility levels of 25-30% in FY09, FY16, FY17 and FY19 when volume growth (in terms of number of barrel traded) jumped by 97/100/17% YoY, respectively. We, accordingly, factor in 40% decline in crude prices in FY21 (FY20 Rs3,849/bbl vs Rs2,269/bbl in FY21) but expect oil volume to grow 50% in FY21 as current volatility remains high.
* Factor in 6% lower traded value in FY21 in-line with lower prices and lockdown impact in April: Traded value of crude oil contributed 40% in FY20. Hence, sharp slump in oil prices will lead to 6% contraction in overall traded value in FY21, partially offset by 50% higher volumes. Trading volumes will also be impacted due to rise in margin requirement under high volatility and loss in trading volumes in April 2020 due to reduction in trading hours on account of COVID-19 lockdown.
* Q4 expected PAT stands at Rs752mn registering a growth of 23% YoY. ADTV for Q4FY20 is up 40% YoY leading to total revenue growth of 38% YoY. We expect EBITDA margin of 52% in Q4FY20.
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