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Option volume traction continues; final software platform transition remains an overhang

Options ADTV has increased exponentially for MCX over the last few years (Q1FY24/Jul’23: INR 629/735bn) while futures ADTV has dipped below INR 200bn levels in Jul’23. Futures plus futures equivalent option volumes (on a like to like basis, MCX's unit revenue from one option notional ADTV is equal to 40% revenue earned from one future ADTV; this ratio keeps changing based on options premium turnover and the rates) stands at INR 478bn as of July23 versus INR 320bn in FY20, while our estimate for adjusted ADTV stands at INR 640bn for FY25E. As such, our EBITDA estimate for FY25 stands at INR 5.1bn. Downgrade the stock from Hold to REDUCE. Key positive upside can come from early migration to new Software platform and increased traction in volumes while any negative development on software transition pose downsides risk.

Downgrade to REDUCE from Hold; successful migration to new software platform could be a multiple rerating event

Our valuation is based on 20x multiple (unchanged) FY25E adjusted EPS of INR 69.9 (ex-software amortisation cost and income from investments, both net of taxes) while adding free cash and investments of INR 123/share (ex SGF ex margin money ex mandatory reserves). Key concerns for the company: (1) Uncertainty in final transition to new software platform though management expects migration to be completed ~ Oct’23 (the 63 moons contract stands till Dec’23 as of now) and (2) possible lower other operating income (INR 248mn in Q1FY24) post the implementation of blocked funds regulation even for secondary markets. We deduct software amortisation cost (annual run rate estimated at INR 500mn) for arriving at adjusted PAT considering additional non-cash amortisation is only during a limited time frame of 5-6 years and the investment outgo is already factored in capex (our estimate of INR 2.5bn). The actual software cost above EBITDA is expected to be significantly smaller under an annual maintenance contract.

Futures plus futures equivalent option volumes (40%) stands at INR 478 as of July23 versus INR 320bn in FY20

As on Q1FY24, crude option ADTV contributed 77% of the total Options ADTV, followed by natural gas and gold which contributed 12% and 7%, respecti

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