Multi Commodity Exchange of India - Operating leverage aids strong EBITDA performance - ICICI Securities

Multi Commodity Exchange of India (MCX) reported robust operating performance in Q2FY21 with revenue growth at 12% YoY and EBITDA margin expansion of 450bps to 55% driven by the high operating leverage inherent in the business model. The increase in volatility resulted in strong traction in bullion ADTV in Q2FY21, which has started to moderate from October. Monetisation of growth levers remains critical for rerating of the stock. Growth levers include charging of new products (index futures), increase in participation from mutual funds, portfolio managers and AIFs, and gradual traction in option trading. Maintain HOLD, with a revised target price of Rs1,692 (earlier: Rs1,650).

- Q2 reaped benefits of operating leverage: In Q2FY21, MCX's total commodity futures turnover and revenues grew 12% YoY, but operating cost increased by only 2% YoY. Employee / technology costs grew 3.4% / 2.3% YoY while other expenses remained flat YoY. As such, operating leverage resulted in 22% YoY EBITDA growth with EBITDA margin at 55%. Lower other income (down 53% YoY) and higher taxes led to 18% YoY decline in PAT.

- Expect 2% earnings growth in FY21E: MCX has reported an ADTV (FY21-TD) of Rs310bn, which is still 4% down from FY20 levels. In Q2FY20, it reported an ADTV of Rs380bn led largely by strong bullion volumes. We expect ADTV to remain a tad lower at ~Rs373bn in H2FY21 as bullion volumes appear to have peaked. We expect an ADTV growth of 5% in FY21E, which will result in revenue and PAT growth of 7% and 2% respectively. We expect FY21E EBITDA margin at 49% (Q2FY21 / H1FY21 EBITDA margin was 55% / 48%). However, given the heightened volatility and expectations of lower margins on crude futures, we expect MCX's ADTV to grow 18% YoY in FY22E. This should result in revenue / PAT growth of 21% / 24% with EBITDA margin at 56% on account of operating leverage benefits.

- Maintain HOLD with a revised target price of Rs1,692 (earlier: Rs1,650): We value MCX at 35x FY22E core EPS of Rs42.4 and add distributable cash and investments (Rs208/share) to arrive at our target price of Rs1,692. Our core earnings include operating income and investment returns from restricted cash.

Shares of MULTI COMMODITY EXCHANGE OF INDIA LTD. was last trading in BSE at Rs.1681 as compared to the previous close of Rs. 1766.1. The total number of shares traded during the day was 278997 in over 2982 trades.

The stock hit an intraday high of Rs. 1760 and intraday low of 1665.05. The net turnover during the day was Rs. 489895362.

Source : Equity Bulls

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