Neutral MCX Ltd For Target Rs.6,100 by Motilal Oswal Financial Services Ltd
Miss on earnings; new product launches key to re-rating
* MCX posted 57% YoY growth in operating revenue, reaching INR3b (5% miss) in 3QFY25. Operating revenue rose 63% YoY to INR8.2b in 9MFY25.
* EBIT stood at INR1.8b vs EBIT loss of INR310m in 3QFY24, a 6% miss on our estimates.
* The company reported PAT of INR1.6b (vs loss of INR54m in 3QFY24), flat QoQ, and was 7% lower than our estimates. For 9MFY25, PAT stood at INR4.2b.
* The quarter reported healthy volumes with an overall jump of 102% YoY (futures volumes grew 32% YoY and options volumes surged 116% YoY). The management has guided for this momentum to sustain, driven by: 1) new product launches, 2) increasing participation, 3) awareness programs, and 4) exploration of new commodity areas.
* We have cut our EPS estimates by 4%/14%/11% for FY25/26/27 due to a lack of visibility on product launches and lower-than-expected premium to notional turnover. The launch of serial contracts on crude oil will be vital for the re-rating of the stock. We maintain a Neutral rating on the stock with a one-year TP of INR6,100 (premised on 38x Sep’26E EPS).
Surge in options volumes boosts revenue growth
* The transaction fee for 3QFY25 stood at ~INR2.7b, up 58% YoY, comprising options and futures in the ratio of 72:28 (vs. 2QFY25 at INR2.5b in the ratio of 70:30).
* Options ADT surged 116% YoY to INR2.1t, largely supported by 394% YoY growth in bullion contracts and 89% YoY growth in energy contracts. Futures ADT rose 32% YoY to INR289b, fueled by 28%/26%/91% YoY growth in bullion/energy contracts/base metals.
* Other income stood at INR230m, growing 30% YoY, and was 13% lower than our estimates.
* Total expenses (incl. SGF contribution) were 49% down YoY and flat sequentially at INR1.1b owing to a decline in tech costs. Staff cost increased 15% YoY to INR332m (in-line). Other expenses declined 59% YoY to INR750m (8% lower than estimates).
* On the product front, MCX is planning to revive index contracts for both Metalex and Bulldex. It is also actively working on electricity derivatives and crude oil series contracts. The recently launched products have received positive responses and have meaningfully contributed to the growth in volumes.
* Management sees strong traction from the FPI segment (currently ~140). At present, they are only allowed to trade in the cash-settled crude oil and natural gas segments. Additionally, MCX has a few ALGO traders on the platform.
Key takeaways from the management commentary
* Mrs Praveena Rai joined MCX three months ago as the MD and CEO. Her top three focus areas are: 1) achieving operational excellence (through continuous engagement with members and clients) and focusing on tech; 2) ensuring regulatory compliance; and 3) driving new product launches.
* The tender period for the base metal futures contracts has been reduced from 5 days to 3 days, simplifying their management process.
* Regarding the interoperability of margin regulations between stocks and commodities, MCX currently finds it challenging. As for the colocation facility being introduced on the commodities side, no regulatory approvals have been received yet, but MCX continues to explore this domain.
Valuation and view
We expect MCX to register a revenue/EBITDA/PAT CAGR of 34%/157%/122% over FY24-27. MCX’s key growth drivers include: 1) new product launches – futures and 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. However, with a lack of visibility on product launches and lower-than-expected premium to notional turnover, we have cut our EPS estimates by 4%/14%/11% for FY25/26/27. The launch of serial contracts on crude oil will be vital for the re-rating of the stock. We maintain a Neutral rating on the stock with a one-year TP of INR6,100 (premised on 38x Sep’26E EPS).
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