HDFC Securities Is Bullish on This Exchange & Data Platform Stock, Recommends Buy For 44% Upside

HDFC Securities, a brokerage firm yesterday published a report on the Multi Commodity Exchange of India Limited. The brokerage is bullish on the stocks of the company and suggests buy for a target price of Rs 1900/share. Considering the estimated target price by the brokerage firm and the Current Market Price of the stock, Multi Commodity Exchange stock has a huge potential to gain up to 44% in 12 months. Multi Commodity Exchange of India is a small cap exchange & data platform company having a market capitalization of Rs 6,721.59 crore.

Stock Outlook & Returns

Multi Commodity Exchange stock today opened at Rs 1320.10/share, currently trading at Rs 1313.70/share, fallen 0.48% from the previous close. Currently, the stock is trading above Rs 170.7 from its 52-week low.

In the past 1 week, the stock has fallen 6.05%, whereas, in the past 1 month, the stock has gained 2.07%, respectively. In the past 1 year, the stocks have fallen nearly 16.95%. However, in the past 3 years, the shares have gained 62.87% and in 5 years, 18.5%, respectively.

The stocks of the company hit the 52-week low at Rs 1143/share on 16th May 2022, and the 52-week high at Rs 2134/share on 14th October 2021, respectively. Its ROE is 7.38% and its PE ratio is 46.15%. The dividend yield is 1.33% and the face value is Rs 10.

Q1FY23 highlights

Multi Commodity Exchange revenue stood at Rs 1.09bn (+2.2/24.2% QoQ/YoY), in line with our expectation of Rs 1.10bn. The total traded value for futures was at Rs 16.08trn and ADTV stood at Rs 251bn (-3.6/-9.3% QoQ/YoY). Energy ADTV was up 16% QoQ, while bullion/metals ADTV declined by 4.3/37.8% QoQ. EBITDA margin stood at 45.3%, down 473bps QoQ, on account of higher employee expenses. Active UCC was up 8/53% QoQ/YoY, indicating higher retail participation. Options notional/premium ADTV stood at Rs 195.39/5.03bn and contributed ~Rs 0.27bn, which is ~25% of Q1 revenue. Crude/Natural gas/Gold contributed 75/20/5% to options volume. Bank-owned brokerages contribute only 5% to volume.

Outlook

The brokerage said, "We estimate a 8/145% futures/options ADTV CAGR over FY22-24E, resulting in +26/+45% revenue/EBITDA CAGRs over FY22-24E. The change in technology vendor should lead to a cost-benefit of Rs 0.20bn in FY24E, resulting in ~500 bps of margin expansion."

Buy for a target price of Rs 1,900

HDFC Securities in the report has said, "We maintain BUY on Multi Commodity Exchange following better-than-expected revenue from options. The options volume has witnessed strong growth (~30% QoQ in Q1FY23), led by crude and natural gas contracts. The options ADTV in July-22 is trending 40% higher than the Q1 level and has crossed futures ADTV. We remain constructive on the options growth story, supported by retail push (currently only 0.1mn retail participants in options out of ~10mn UCC), expected launch of index options, and an uptick in gold options volume."

The brokerage added, "We expect options to contribute ~30/37% of revenue in FY23/24E. Futures ADTV was down 3.6% QoQ; in fact, the cannibalisation of futures volume is lower than expected, supported by an increase in Algo trading. The shift to the new trading platform is delayed by 1-2 months but will happen by the end of the year. The margin was impacted by higher costs related to the technology shift (hiring of senior-level IT professionals). The margin benefit of the tech shift will reflect in FY24E. We increase our revenue/EPS estimates for FY24E by 2.4/2.5%, led by options uptick. We assign 35x P/E to Mar-24E core PAT and add net cash (ex-SGF) to arrive at a target price of Rs 1,900."

About- Multi Commodity Exchange of India Limited

The Multi Commodity Exchange of India Limited (MCX), India's first listed exchange, is a state-of-the-art, commodity derivatives exchange that facilitates online trading of commodity derivatives transactions, thereby providing a platform for price discovery and risk management. The Exchange, which started operations in November 2003, operates under the regulatory framework of the Securities and Exchange Board of India (SEBI). MCX offers trading in commodity derivative contracts across varied segments including bullion, industrial metals, energy and agricultural commodities, as also on indices constituted from these contracts. It is India's first Exchange to offer commodity options contracts, bullion index futures and base metals index futures contracts.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.