Q3FY24 Review: MCX: Strong operating perf.; potential for volume surprise

13 Feb 2024 , 11:49 AM

MCX’s Q3FY24 adj. PAT was in line with estimates – up 5% YoY and 17% QoQ to Rs922mn led by strong growth in options segment. Options segment now constitutes 65% of revenues. New product launches, higher FPI participation and increasing retail penetration can lead to a stronger growth vs. analysts of IIFL Capital Services nominal base case assumption. Nonetheless analysts of IIFL Capital Services trim their FY25-26 EPS by 2-3% to account for higher opex on new platform. At 43x FY25 EPS, they think stock trades fairly and is likely to be range-bound; clarity on weekly options will drive further re-rating. 

Inline quarter; higher software expense offset by tax reversals: 

MCX’s Q3FY24 adj. PAT grew 5% YoY and 17% QoQ to Rs922mn driven by strong growth in the Option segment. However, reported profitability was weaker at Rs42mn loss in Q3; impacted by Rs1.25bn payment of software extension to 63 Moons (last tranche). Analysts of IIFL Capital Services note, post capitalisation (Rs2.37bn) of the new platform on 16th Oct – opex is up by Rs80-100mn towards AMC cost (ex of TCS AMC) – this is higher than estimates; while depreciation was up Rs70mn (over Q1) –lower than estimates. Options segment revenues grew ~2x YoY to Rs1bn; now 65% of transaction revenues – led by sharp growth in volumes – ADTO grew 144% YoY and 10% QoQ to Rs945bn. Moreover, premium-to-notional ratio improved by 20bps QoQ to 2.05% due to higher volatility; driving premium turnover to grow higher at 22% QoQ to Rs19.4bn. Futures volumes remains under pressure and fell 14% YoY to Rs205bn ADTO. 

Volumes up in Q4; new product launches to aid growth:

 Options ADTO is up 26% QoQ to Rs1.19trn in Q4TD. Underlying volatility in energy prices is driving volume growth. Further, MCX has received SEBI approval to launch options on mini contracts in energy basket and looks promising to increase retail participation. Further, work for index options and series contracts are in progress and expected to be launched in FY25. DMA facility for FPIs would also aid volume growth. 

Potential for earnings surprises: 

Analysts of IIFL Capital Services trim their FY25-26 EPS by 2-3% to account for higher opex related to new platform. Post sharp rally (~3x in 6 months), the stock trades fairly at 43x FY25 EPS. Analysts of IIFL Capital Services expect stock to remain range bound in near-term; however clarity on weekly options would drive further re-rating. They value MCX at 37x FY26 EPS. BUY.