Broker’s call: MCX (Sell)

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Target: ₹2,796

CMP: ₹3,353.35

In Q3-FY24, Multi Commodity Exchange of India (MCX) delivered revenue growth of 33.4 per cent on a YoY basis on the back of improving ADT of Options contracts, which increased by 143.6 per cent on a y-o-y basis. MCX has finally transitioned to a new platform from 16th Oct 2023.

However, operating margins were adversely affected during the quarter due to two factors. Firstly, MCX extended its software contract with 63 Moons until December 2023 at ₹125 crore per quarter. Additionally, there was a SGF contribution of ₹13.10 crore during the quarter, resulting in negative operating margins of (-)10.3 per cent. We expect MCX to start reporting positive operating margins from Q4-FY24 onwards.

MCX has effectively addressed a significant concern by successfully launching the CDP platform. MCX is now at a pivot point where it is gaining massive traction in options contracts, rapidly expanding product offering, regulatory tailwind, and margin expansion expected from CDP platform.

Based on our revised estimates, we revise our rating from Reduce to Sell with a target price of ₹2,796 (35x FY25E EPS). While the positives have largely been factored in, the stock is trading at higher valuation band.