Taking a pause; recovery awaited

MCX delivered a weak revenue (-15.7% QoQ) and margin performance but was in line with our expectations. Trading volume was down 17.5% QoQ due to a decline in bullion volume (-31.8% QoQ), the high-margin requirement for a crude contract, seasonality, and lower volatility. Bullion’s volume almost doubled in 9M (+97% YoY) but has paused in the quarter. Crude (~25% of volume) is picking up but a higher margin requirement (~50%) makes it less attractive for traders. Tailwinds like institutional participation, index derivative, and increasing retail penetration will boost volumes in the long run but the pick-up is slower than expected. We lower our EPS estimate for FY21/22E by -5.9/-6.0% to factor in the volume drop. The stock is already trading at a premium valuation of ~33x P/E FY22E core PAT; further re-rating will take place with a volume up-tick. We assign 30x P/E to Dec-22E core PAT and add net cash (ex-SGF) to arrive at a target price of Rs 1,770. Maintain ADD.

* 3QFY21 highlights: MCX revenue was down 15.7 QoQ but up 13.0% YoY to Rs 1.01bn, in line with expectation of Rs 1.01bn. Traded volume was down 17.5/+3.3% QoQ/YoY to Rs 20.71trn. Total ADTV was down 16.2/+3.3% QoQ/YoY to Rs 319bn. The bulk of the decline in 3Q was due to Bullion (- 31.8% QoQ) and Metals (-3.5% QoQ). EBITDA margin stood at 48.2%, down 658bps QoQ, slightly lower than our estimate of 48.8%.

* We estimate 15% ADTV CAGR over FY20-23E would result in a +17/+28% revenue/EBITDA CAGR over FY20-23E. The change in technology vendor will further reduce cost and pose an upside risk to FY23E margin estimate.

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