MCX Share Price Hits Record High As Revised Target Price By UBS Projects 20% Upside

Multi Commodity Exchange of India Ltd.'s share price hit a record high on Tuesday after UBS raised the target price, projecting an upside of 20%. The company reported strong earnings for the September quarter.

The brokerage's revised target price also discounts the expectation of even stronger earnings in the December quarter.

The commodity exchange on Saturday said its profit jumped 38.5% sequentially in the second quarter ended September 2024. Consolidated net profit rose to Rs 154 crore in the July-September period from Rs 111 crore a quarter ago, according to an exchange filing.

The brokerage maintained a 'buy' rating on the stock and raised its target price significantly to Rs 8,000 apiece from Rs 5,000 apiece, implying an upside of 20.60% from the previous close.

The brokerage said that MCX's share price has surged nearly 200% in the past year, led by earnings upgrades. At the same time, it noted that the stock has been moderately rerated.

The brokerage's earnings estimates for the current and next fiscal have risen 60% and 75%, respectively.

"Our growth assumptions are driven by NSE and BSE's equity option volume, with ADV (average daily value) cumulatively exceeding Rs 500 lakh crore in fiscal 2025 compared with Rs 2 lakh crore for MCX," it said.

It also factored in that MCX's trading community is largely a subset of NSE/BSE participants, thus having significant scope for increased participation on MCX. "MCX is set to launch new products such as monthly gold options, weekly index options, and other launches to be expedited as the new CEO joins," it said.

Even after the stock's outperformance in the last 12 months, the brokerage does not believe MCX's operating leverage benefits from rising volume are completely priced in.

"We estimate revenue for October to date is up 20% sequentially (18-day base for July/August/September), aided by volume and an increased premium ratio to 2.03% versus 1.68% in the first quarter," it said.

In the near term, the launch of 1 kg gold monthly options (on Nov. 11) has great potential, with 1 kg futures the most active gold contract, according to UBS.

"Other products, such as weekly index options and electricity derivatives, are bake in a 35% fiscal 2025-2027 options ADV CAGR, while we expect it to grow 120% in at various development stages," the company said. "We expect premiums to slide down gradually with the launch of new products."

On the downside, it noted that negative regulatory measures, product approval delays and malfunctions of MCX's new platform are some of the risks to its thesis.

Shares of the company rose as much as 1.05% to hit a record high of Rs 6,698.40 apiece. It erased gains to trade 2.7% lower at Rs 6,453.35 apiece as of 12:44 p.m. This compares to a 0.6% fall in the NSE Nifty 50 Index.

The stock has risen 101.51% on a year-to-date basis and 176.97% in the last 12 months. Total traded volume so far in the day stood at 0.9 times its 30-day average. The relative strength index was at 67.59.

Out of the 11 analysts tracking the company, five maintain a 'buy' rating, four recommend a 'hold,' and two suggest a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an downside of 2.8%.