This Mid Cap Stock Zoomed 20% In 3 Months, ICICI Securities Downgrades From BUY To ADD

CMP, 52-week low & high, and Returns

The stock of MCX last traded at Rs 1,457.70 apiece on NSE, 6.21% down compared to its previous close. The stock recorded its 52 week high at Rs 1,697.10 apiece and its 52 week low at Rs 1,143 apiece, respectively.

The stock in a week has fallen, giving 7.32% negative returns and in the past 1 month 6.56%, respectively. However, in 3 months, it surged by 19.61%. Whereas, it has fallen 7.9% in a year. However, it has given 22.49% positive returns in 3 years and 60.46% positive returns in 5 years, respectively.

Expect Q3FY23 EBITDA to be lower by 10% QoQ from higher software expense (factoring 60% up QoQ) partially offset by higher revenue (6% up QoQ)

MCX Futures ADTV has remained flat QoQ at Rs238bn while options ADTV has risen 24% to Rs388bn in Q3FY23. We expect Rs588/481mn EBITDA/PAT in Q3FY23. 

Contract with 63 Moons is now extended till Jun'23.

ICICI Securities has said, "We factor higher options volumes and higher costs in our estimates. We now factor options ADTO of Rs332/450bn for FY23/FY24 (Rs432bn in Dec'22). We also factor futures ADTO of Rs242/265bn for FY23/FY24 (Rs216bn in Dec'22). We factor higher software cost for Q3/Q4FY23 and Q1FY24 (total Rs1bn for these three quarters vs Rs557mn in FY22). Accordingly, we have trimmed FY23/24 estimates by 2.3%/6% factoring the spillover of higher software expense for Q1FY24. We do not factor any recoverable penalty from new software vendor for the delay in software implementation." 

Latest composition of options volumes

MCX reported an options ADTV of Rs432bn, up 4% MoM, in Dec'22. Increase in options volumes was contributed by strong 10%/8% MoM growth in crude oil / natural gas ADTV. Gold and silver ADTV declined 46%/65%, respectively. On FY23-TD basis, crude oil / natural gas contribution continues to be high at 74% / 21% while gold / silver option volumes account for 4%/1% of overall volumes, respectively. 

Composition of futures volumes

MCX futures ADTV dipped 18% MoM to Rs216bn (from volume across categories). Biggest contributors to decline were gold (28% MoM), silver (12% MoM) and natural gas (18%) while crude dipped 4% MoM.

Downgrade from BUY to ADD

This is driven by (1) uncertainty in software cost and the timeline of eventual transfer to new vendor and (2) ~30% stock rally over the last quarter which already captured the rising options volumes to some extent.

Add for a target price of Rs 1,660 apiece

Multi Commodity Exchange of India (MCX) options has now extended the contract with existing software platform provider (63 moons) till June'23. This is disappointing considering that the new extension (6 months) is longer than the first extension (3 months) along with the related higher cost incidence now in FY23/24. "While we are positive on MCX due to (1) strong continued traction in options, (2) strong business position of being India's largest commodity exchange with monopolistic market share and (3) ultimate expectations of cost reduction from eventual software migration to new platform, some of these upsides have been captured in the ~30% rally in stock price over last quarter. Hence, we maintain our multiples but downgrade our rating from BUY to ADD with a revised target price of Rs1,669 (Rs1,795 earlier) based on 35x FY24 core EPS (unchanged) of Rs42.6 and cash per share of Rs179/ share. Continuation of problem in transfer of software platform pose downside risk," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of ICICI 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 consult with certified experts before making any investment decision.