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One-off hits profitability, healthy traction in options…

About the stock: MCX is the leader in commodity derivatives exchanges in India with ~94% market share in terms of commodity futures turnover.

* It has ~100% market share in precious metals & base metals and energy

* Presence in various commodities offers healthy diversification

Q4FY22 Results: Significant increase in options turnover offsets decline in futures.

* Average daily futures turnover (ADTO) declined ~17% YoY to | 26369 crore, due to decline in bullion volume

* Option ADTO continued to gain traction to | 15065 crore; up 75% QoQ

* Operational revenue up 19% QoQ; other income was flat QoQ

* Earnings at | 36.5 crore; up 6% QoQ due to one off impact of | 20.3 crore

What should investors do?

MCX’ share price has grown by ~44% over the past three years (from ~| 827 in May 2019 to ~| 1212 levels in May 2022).

* Being a market leader in commodities exchange and a beneficiary of increase in option volume, we maintain our BUY rating on the stock

Target Price and Valuation: Factoring in timelines for launch of spot exchanges, we lower our multiple to value MCX at ~33x core FY24E EPS and net cash. Thus, we lower our target price from | 2000 to | 1600.

Key triggers for future price performance:

* Diversified product mix aids topline amid volatility in prices

* Decline in future turnover being replaced by string traction in options. Nonlinear growth in option volume to aid business & earnings growth

* New product launch - electricity contracts, higher commodity based delivery to act as growth catalyst

* Continued addition of participants to aid volume growth

Alternate Stock Idea:

Apart from MCX, in our coverage we also like 5Paisa.

* It is a leading discount broker and offers a play on new age fintech financial intermediary with robust client addition

* BUY with a target price of | 450

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