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HDFC Securities Institutional Equities
Multi Commodity Exchange of India Ltd. has successfully executed one of the most complex technology transitions, and the new CDP is running smoothly, with volumes scaling new highs.
We believe it’s a new beginning for MCX, with a focus on introducing new products, increasing participation and volume, and improving profitability.
The options volume has increased by four times YoY and is currently more than Rs 1,400 billion. Options growth is driven by a surge in active UCCs, mobile trading, and higher activity in crude/natural gas contracts.
The launch of new products like steel bars, index options, and shorter-duration options will further boost volumes. The launch of monthly contracts expiring every week (subject to regulatory approval) is expected to boost volume by ~50% as the expiry week constitutes ~40% of monthly volume.
The objective is to reduce the tick size, which will boost retail participation. The options premium-to-notional ratio will decline gradually as we shift to shorter-duration contracts.
We expect notional/premium volume to register a +77/58% compound annual growth rate over FY23-26E.
We increase our earnings per share estimate by 8/13% for FY25/26E and increase multiple to 33 times (versus 30 times earlier) to factor in options volume surge and stable platform.
We maintain our 'Buy' rating with a target price of Rs 3,650, based on 33 times FY26E core EPS plus net cash ex-SGF.
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