Multi commodity exchange or MCX India’s first listed exchange, provides a marketplace for commodity derivatives trading, enabling price discovery and risk management.
In addition, Multi Commodity Exchange Clearing Corporation Limited (MCXCCL), a wholly owned subsidiary of MCX, provides an efficient platform for clearing and settlement of all the trades executed on MCX.
The shares of the leading commodity derivatives exchange surged roughly 8.5 percent to a 52-week high of Rs 2,104.15 a share on Thursday after the exchange set to launch the commodity platform on October 3, 2023.
The company holds over 96.67 percent of the market share in commodity Futures turnover and roughly 99.72 percent in commodity Options. It has a complete monopoly on the trading of precious metals, energy, and base metals.
On September 27, MCXCCL announced the implementation of a new web-based Commodity Derivatives Platform that would interface with members to provide risk management, collateral management, and settlement-related services to members and market participants.
As per reports, MCX’s contract with 63 Moons, the tech company that was looking after its trading operations, ended in September 2022. So MCX has declared to launch its new commodity derivative platform, which is serviced by Tata Consultancy Services (TCS) from October 3, 2023.
The company’s share has delivered returns of 41 percent in six months and 78 percent in a year.
Based on an optimistic outlook on MCX, HDFC Securities has given a buy recommendation for a target price of Rs 2,400, representing a 15% increase based on Thursday’s trading price.
The rationale behind providing such a recommendation is
● Brokerage anticipates an increase in profitability as the company transitions to the new platform, which total costs might fall by 51% in FY25E. And expect Software support to be at INR 0.6/0.65bn in FY25/26E resulting in considerable margin growth in FY25/26E (EBITDA margin of 65% in FY25E).
● Brokerage forecasts the exchange premium to notional ratio to fall to 1.6% in FY26 from 2.4% in FY24, and commodities options volume/premium volume to expand at a CAGR of 69/47% between FY23 and FY26E, with options accounting for 60% of total firm revenue in FY26E (up from 34% in FY23).
● Exchange price performance is highly correlated with volume increase. In the previous ten years, the price-to-volume correlation has stood at 55%, and the company’s net cash of INR 10 billion (11 percent of market value) has increased with significant improvement in return ratios.
The revenue of Multi Commodity Exchange of India Ltd has increased slightly year on year by 34 percent from Rs 108 crore in Q1FY23 to Rs 145 crore in Q1FY24. During the same time period, net profit declined by 52 percent, from Rs 42 crore to Rs 20 crore.
Written by Omkar Chitnis
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