Multi Commodity Exchange of India (MCX), the leading commodity derivatives exchange in India, released its Q2FY24 results on Wednesday. Operationally, the company continues to improve – year-on-year (y-o-y) the total revenue was up 26 per cent and operating revenue grew 30 per cent as it stood at ₹184 crore and ₹165.1 crore respectively.

However, the company posted a loss for the quarter. The net loss stood at ₹19 crore in Q2FY24 compared to a net profit of ₹63 crore for the corresponding period of last year. Similarly, the loss at the EBITDA level was recorded at ₹9.8 crore as against a positive ₹83.8 crore for the same quarter of the previous fiscal. The bottom line resulted in loss because of the higher technology costs of ₹125 crore. The company had to incur higher technology costs because of the delay in migration to the new Commodity Derivatives Platform (CDP), developed by Tata Consultancy Services (TCS).

But the important thing to note is that the company has successfully moved to the new CDP on October 16 and they will not have to bear additional costs from Q4FY24. So, from the final quarter of this financial year, the margins are expected to improve significantly.

The stock of MCX lost 5.6 per cent on Thursday. Year-to-date, the stock has appreciated nearly 60 per cent as the company has been doing well with respect to the business.

Options drive growth

The Average Daily Turnover (ADT) in options saw a substantial increase of 174 per cent to ₹85,873 crore (notional basis) in Q2FY24 as against ₹31,381 crore in the same quarter last year.

The ADT in futures dropped 22 per cent to ₹18,763 in Q2FY24 versus ₹23,917 crore in the corresponding period of the previous fiscal.

The above trend was seen sequentially too – options ADT increased by 39 per cent whereas futures ADT shrank 12 per cent.

In the options segment, energy commodities remain the biggest contributor with 90 per cent of the total volume. The turnover in energy commodity options expanded 2.6 times to ₹77,293 crore. Bullion too saw a strong growth in volume of over five times to ₹8,562 crore. 

In futures, bullion remained the leader and the only segment to post growth within futures. The turnover in bullion futures grew a little over six per cent to ₹11,162 crore. The second biggest contributor, energy futures, saw its ADT drop 41 per cent to ₹5,465 crore. Turnover in base metals nearly halved to ₹2,080 crore.

With a 37 per cent share, silver remained the largest within the futures segment. This is followed by gold (23 per cent), natural gas (17 per cent) and crude oil (12 per cent).

Overall, the continued increase in traders’ interest in option trading has powered total turnover for MCX. This trend is likely to continue in the coming quarters too.

What should investors do?

The improved top line has not translated to the bottom line because of the costs associated with payments to technology vendors. However, higher technological costs are almost behind now with a successful transition to the new CDP. The margin benefit from this will start reflecting from Q4FY24. 

Besides, the fundamentals of the company remain strong, and they are the leader in commodity derivatives in India. More products and penetration opportunities in commodity hedging and trading space imply a long runway of growth opportunities for the company.

At bl.portfolio we had recommended long term investors to accumulate the stock of MCX in June when the stock price was at ₹1,563. The stock has returned around 60 per cent since then. Even though the price has run up, considering the above factors, long-term investors who bought on our recommendation can continue to hold the stock. MCX is currently trading at 35 times FY25 EPS. FY25 will be the first full year when benefits of new CDP will get fully reflected in its bottom line.

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