Hold Multi Commodity Exchange of India; target of Rs 1328: ICICI Securities

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ICICI Securities research report on Multi Commodity Exchange of India

Multi Commodity Exchange’s (MCX) FY20 earnings call highlighted the company’s strategy going forward. The exchange aims to focus on agri commodities and index futures while continuing to strive for better participation from institutional channels. Client base remains strong (~30% growth in Active Unique Client Codes in FY20) and MCX is actively pursuing volume recovery in base metals. The current weakness in crude volumes is driven by higher margins. Company’s ability to avoid any cash loss during negative crude price situation, underlines robust risk management practices. MCX is working on active cost management to tackle the impact of Covid-19. Maintain HOLD with a target price of Rs1,328: We factor-in ADTV of Rs375bn in FY22E (Rs324bn/313bn in FY20/FY21E) leading to FY22E EBITDA/PAT of Rs2bn/2.5bn.

Outlook

We expect EBITDA margin to decline to 39% in FY21E and rebound to 46% in FY22E with operating leverage. We value MCX at 35x FY22E core earnings and add distributable cash and investments to arrive at our target price of Rs1,328. Our core earnings include operating income and investment returns from restricted cash.

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