Buy Multi Commodity Exchange; target of Rs 2000: ICICI Direct

ICICI Direct's research report on Multi Commodity Exchange

MCX reported an operationally healthy set of Q2FY21 numbers led by strong revenue growth and steady opex. However, lower other income and higher tax rate arrested PAT growth. Average daily turnover (ADTO) of commodity futures contracts jumped 10% YoY, 64.9% QoQ to Rs 38144 crore in Q2FY21. Total volume of contracts (in lots) as on September 2020 was at ~6.1 crore vs. ~4.2 crore in June 2020. MCX reported a sharp increase in its market share by ~418 bps YoY to 97.05%. The company had launched iComdex Bullion Index in August 2020, which registered an ADTO of Rs 260.8 crore as on September 2020. Topline reported growth of 19.5% YoY to Rs 119.7 crore, primarily on account of healthy ADTO growth. However, lower G-sec yields led to muted other income growth at Rs 17.8 crore, down 59.8% YoY. EBIDTA (excluding other income) for the quarter came in at Rs 65.6 crore, up 39% YoY, 148% QoQ. On the back of lower software & advertisement expenses, EBITDA margin increased ~760 bps YoY to 54.8%. Subdued other income growth coupled with higher tax rate led PAT to come in at Rs 58.6 crore vs. Rs 72 crore in Q2FY20 and Rs 56.4 crore in Q1FY21. PAT margin was at 48.9% in September 2020 vs. 71.9% in September 2019.

Outlook

Currently, MCX trades at ~31x FY22E EPS. Given leadership in the commodity space and strong efficiency, we remain positive on the stock. Hence, we revise our target price to Rs 2000, valuing the stock at ~42x FY22E core earnings and adding net cash after deducting SGF. We maintain BUY.

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