HDFC Securities
MCX (Add)
Target: ₹1,780
CMP: ₹1543.60
MCX has delivered a weak quarter due to volume decline for the second consecutive quarter, primarily because of a change in margin regulations.
Trading volume was down 4 per cent q-o-q due to bullion falling (-11 per cent q-o-q), but crude and metals volumes were stable. The trading volume will recover with (1) increase in Algo trading (currently at about 40 per cent), (2) pick-up in crude volume (Q4 volume about 50 per cent of peak level), (3) increase in volatility of global commodities, (4) institutional participation, (5) increasing popularity of Index futures contract (cash-settled) and (6) higher retail participation (UCC is up 77 per cent y-o-y).
The company has also started to charge for Index contracts effective April-21. The new trading platform will become live in Q2-FY23 and result in cost savings. The change in technology vendor in Oct-22 will lead to annual margin expansion of and about 500 bps and result in annual savings of nearly ₹25-30 crore.
We increase our EPS estimate for FY22/23E by +1.6/5.4 per cent. We assign 30x P/E to FY23 core PAT and add net cash (ex-SGF) to arrive at a target price of ₹1,780.