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Volumes at an all-time high; PAT above estimate

* MCX posted 73% YoY growth in operating revenue to INR2.9b (5% above our estimate) in 2QFY25. Operating revenue rose 67% YoY in 1HFY25.

* Revenue growth was driven by a surge in volumes, which jumped 114% YoY. Futures volumes grew 46% YoY to INR17.5t, while options volumes surged 129% YoY to INR126t during the quarter.

* EBIT stood at INR1.7b (vs. EBIT loss of INR353m in 2QFY24), which was 4% above our estimates.

* The company reported PAT of INR1.5b (vs. a loss of INR191m in 2QFY24), which grew 39% sequentially and was 7% higher than our estimate. For 1HFY25, MCX’s PAT was INR2.6b (vs. INR6m in 1HFY24).

* We raise our FY25/26 EPS estimates by 10%/11%, factoring in the surge in volumes witnessed in 1HFY25, offset by a rise in SGF contribution. We reiterate our BUY rating on the stock with a one-year TP of INR7,600 (premised on 44x Sep’26E EPS). Surge in options volumes boosts revenue growth

* Options ADT surged 125% YoY to INR1.9t, largely propelled by 194% YoY growth in bullion contracts and 117% YoY growth in energy contracts. Futures ADT rose 44% YoY to INR269b, fueled by 59%/61%/7% YoY growth in bullion/base metals/ energy contracts.

* Overall ADT jumped 110% YoY to INR22t in 2QFY25, resulting in 73% YoY growth in operating revenue to INR2.9b (5% above our estimate). During 1HFY25, MCX reported 67% YoY growth in operating revenue. We expect the same to jump 78% YoY in 2HFY25.

* Other income rose 33% YoY at INR252m and was 28% above our estimate. ? Staff costs increased 19% YoY to INR327m (1% lower than our estimate). Other expenses declined 56% YoY to INR735m (9% higher than our estimate). Other expenses were elevated due to higher-than-expected product license fees and contributions toward SGF.

* Higher-than-expected revenue led to a 7% beat on PAT, which stood at INR1.5b (vs. a loss of INR191m in 2QFY24). For 1HFY25, PAT was at INR2.6b (vs. INR6m in 1HFY24). We expect PAT to jump ~3x YoY during 2HFY25.

Key takeaways from the management commentary

* MCX is gradually contributing towards SGF on a need basis. Strengthening of SGF is being done for future scalability and new product launches.

* The surge in volumes has been driven by rising participation and an increase in turnover/clients. The decline in active participation did not have an impact as the number of clients rose.

* MCX has modified the existing Gold 1kg bi-monthly options to monthly expiry options, with effect from 11th Nov’24. The cotton seed wash oil contract was launched on 15 Oct’24 (5 tonne trading units) and has received a good response, according to the management.

Valuation and view

We expect the strong growth in options volumes to continue, resulting in a revenue/EBITDA/PAT CAGR of 37%/163%/126% over FY24-27.

MCX’s key growth drivers include:

1) new product launches – futures & options; 2) continued volatility in key commodity prices (gold, crude oil, and natural gas) amid global uncertainties; and 3) sustained growth momentum in retail participation in the options market. With the technology overhang behind MCX and the availability of funds for further enhancement, we expect the scalability to improve. We raise our FY25/26 EPS estimate by 10%/11% factoring in the strong surge in volumes witnessed in 1HFY25. This will be offset by a slight increase in the expected SGF contribution. We reiterate our BUY rating with a one-year TP of INR7,600 (premised on 44x Sep’26E EPS).

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