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MCX reported slight moderation in ADTO (Average Daily Turnover) attributable to upfront margin requirement impacting volume. Operational performance remained healthy led by steady revenue and controlled opex. Decent growth in other income and utilization of MAT credit resulted in strong earnings growth.

ADTO in commodity futures on the exchange increased by 4% to |32,181 crore in Q3FY21, however, a 15% moderation was witnessed sequentially attributable to decline in gold price and kicking in regulatory requirement of upfront margin. Option ADTO remained steady at | 860 crore in 9MFY21. Newly launched bullion index futures ADTO has been at | 270 crore, while metal index ADTO was reported at ~| 50 crore (data pertaining till 20 Jan 2021). Markets share in commodity futures space has remained strong at 96.48% in Q3FY21. Number of unique customers continued to remain steady at 51.5 lakh and authorised person count stood at 56193.

Steady ADTO and realisation kept revenue growth at 13% YoY to | 100.9 crore. However, sequentially, revenue declined 15% attributable to moderation in ADTO. Other income continued to remain resilient at | 24.8 crore, led by rise in bond prices. EBIDTA for the quarter came in at | 48.7 crore, up 24% YoY, though sequential declined 25.8%. Subsequently, EBITDA margin increased ~430 bps YoY to 48.2%. Healthy EBITDA coupled with utilization of MAT credit led earnings growth at 29.8% YoY to | 71.8 crore. PAT margin stood at 71.2% in Q3FY21 vs 62% in Q3FY20.

Steady ADTO and realisation kept revenue growth at 13% YoY to | 100.9 crore. However, sequentially, revenue declined 15% attributable to moderation in ADTO. Other income continued to remain resilient at | 24.8 crore, led by rise in bond prices. EBIDTA for the quarter came in at | 48.7 crore, up 24% YoY, though sequential declined 25.8%. Subsequently, EBITDA margin increased ~430 bps YoY to 48.2%. Healthy EBITDA coupled with utilization of MAT credit led earnings growth at 29.8% YoY to | 71.8 crore. PAT margin stood at 71.2% in Q3FY21 vs 62% in Q3FY20.

ADTO to show gradual rise post initial hiccup

Moderation in bullion prices coupled with regulatory requirement of upfront margin is seen to have impacted volumes. Scaling up of margin requirement is expected to keep ADTO volatile in near term, post which the same is expected to stabilize. Gradual improvement in crude price coupled with reduction in margin requirement from 130% (levied post crude prices got negative) to 50% is seen to boost volumes, though further reduction is required to bring in substantial flows. Pick up in options (currently ADTO at | 860 crore) and recently launched futures (ICOMDEX Bullion and ICOMDEX Base Metal indices) are expected to add up to volumes growth.

Valuation & Outlook

Continued volatility in commodities amid fast changing scenario is seen to drive volumes and thereby earnings, though regulatory regime could lead to near term hiccups. We remain positive on the stock owing to 1) continued market leadership, 2) gradual pick up of newly launched index-based products and 3) continued addition in participants. We expect ADTO to remain flat at | 87.4 lakh crore in FY21E and accelerate thereafter to | 110 lakh crore by FY23E. Consequently, revenue & earnings is expected to grow at ~10% CAGR in FY21-23E to | 506 crore & 310 crore. We maintain our target at | 2000, valuing the stock at ~37x FY23E core earnings and adding net cash after deducting SGF. Maintain BUY.

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