Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Bottom-Up

Multi Commodity Exchange India / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/13518" target="_blank" data-smartkarma-citation="entities:13518:1">Multi Commodity Exch India (MCX IN)</a> is the leading commodity futures exchange in India with ~90% market share. It enjoys ~100% market share in each of the top 7 products traded on its exchange.</li>
<li>Average Daily Turnover (ADT) is up 24% YoY over YTD-Nov-18 after 4 years of stagnation on the back of increase in volatility of key commodity prices.</li>
<li>We see 50-60% increase in ADT over FY18-21 on the back of Mutual Funds entering commodity futures trading creating enough liquidity for large industries like refineries shifting to MCX for hedging, bank distribution of commodity trading products and monetization of commodity options trading.</li>
<li>MCX’s volumes are unlikely to be impacted by new entrants like NSE and BSE since none of the new entrants can offer any meaningful improvement over MCX’s offering in terms of lower cost, higher speed or tax friendliness. This makes MCX a ripe acquisition candidate going by global experience.</li>
<li>We expect 16% Revenue Cagr, 20% EPS Cagr over FY18-21. Our target price for MCX at 28x Dec-20 EPS is Rs 950- implying 32% upside.</li>
</ul>



Multi Commodity Exch India (MCX IN) is the leading commodity futures exchange in India with ~90% market share. It enjoys ~100% market share in each of the top 7 products traded on its exchange.
Average Daily Turnover (ADT) is up 24% YoY over YTD-Nov-18 after 4 years of stagnation on the back of increase in volatility of key commodity prices.
We see 50-60% increase in ADT over FY18-21 on the back of Mutual Funds entering commodity futures trading creating enough liquidity for large industries like refineries shifting to MCX for hedging, bank distribution of commodity trading products and monetization of commodity options trading.
MCX’s volumes are unlikely to be impacted by new entrants like NSE and BSE since none of the new entrants can offer any meaningful improvement over MCX’s offering in terms of lower cost, higher speed or tax friendliness. This makes MCX a ripe acquisition candidate going by global experience.
We expect 16% Revenue Cagr, 20% EPS Cagr over FY18-21. Our target price for MCX at 28x Dec-20 EPS is Rs 950- implying 32% upside.


MCX: The Pieces of the Puzzle Have Fallen in Place, BUY for 32% Upside